Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ________________
Commission file number 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange on
(Title of each class) which registered)
Common Stock, $.001 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting common stock held
by non-affiliates of the registrant, computed by using the
closing price of registrant's common stock on the American
Stock Exchange as of the close of business on March 31, 1999
was $5,412,000.
The number of shares outstanding of each of the
registrant's classes of common stock as of March 31, 1999 was
Common Stock $.001 par value - 2,460,064
DOCUMENTS INCORPORATED BY REFERENCE: None
THE BEARD COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1998
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Significant Employees of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
THE BEARD COMPANY
FORM 10-K
FORWARD LOOKING STATEMENTS
This document contains "forward looking statements" as
defined by the Securities Litigation Reform Act of 1995. These
statements should be read in conjunction with the cautionary
statements included in this document, including those found
under "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PART I
Item 1. Business.
(a) General development of business.
General. Prior to October, 1993, The Beard Company ("Beard" or
the "Company"), then known as Beard Oil Company ("Beard Oil"),
was primarily an oil and gas exploration company. During the
late 1960's we made the decision to diversify. In 1968 we
started a hazardous waste management company, USPCI, Inc.
("USPCI"), which we partially spun off to shareholders in
January 1984. Following two public offerings and several
acquisitions USPCI became so successful that it subsequently
listed on the New York Stock Exchange in 1986 and was later
acquired by Union Pacific Corporation in 1987-1988 for $396
million ($111 million to Beard Oil stockholders for their
residual 28% interest).
In 1974 Beard Oil founded Beard Investment Company (now The
Beard Company) which was originally formed for the purpose of
building new businesses outside of the oil and gas industry
which Beard management believed to have either high growth
potential or better-than-average profit potential. This is now
our principal business. We have started or acquired a number
of new businesses and invested in new business opportunities
with the intent of growing profitable businesses and converting
our investments into shareholder value, perhaps through sale, a
spin-off or rights offering to shareholders, or public
offerings.
Our goal has been to nurture each investment to the point where
it could sustain its growth through internal cash flow while
cultivating its own outside funding sources to supplement
financing requirements as needed. Under this scenario we
formed in 1981 a joint venture for the extraction, production
and sale of crude iodine, which we have continued to operate
and manage to the present date. In 1987 we formed a dry ice
company which we successfully nurtured and ultimately sold in
1997. In 1990 we bought a distressed real estate development
which we successfully operated for six years before selling it
in 1997. In 1990 we also acquired an alternative fuels
research and development company which we sold in 1994 for a
profit while retaining the Mulled Coal technology which it
patented for commercial development. In 1997 we invested in an
environmental remediation company which we believe has
considerable profit potential but which is still essentially a
startup operation.
In 1998 we formed a subsidiary to enter the interstate travel
business and another to conduct operations in the People's
Republic of China where we are pursuing both coal reclamation
and environmental opportunities which we believe have
significant profit potential. The latter subsidiary will be
the exclusive licensee in China for our patented Mulled Coal
technology. In addition, we have recently formed a Mexican
subsidiary which commenced generating revenues in January 1999
working as (i) a contractor to Petroleos Mexicanos ("PEMEX")
and (ii) a subcontractor to contractors working for PEMEX
testing natural gas wells which they are drilling in
northeastern Mexico just south of the southernmost Texas
border.
Along the way we've had our share of unsuccessful investments,
including numerous oil secondary recovery projects, two
telecommunications projects, several investments in the
drilling contracting business, others in the environmental
business, plus our recent unsuccessful foray into the
interstate travel business.
As can be seen from the above, Beard should be viewed as a
company whose principal business is starting and/or acquiring
businesses, nurturing and growing them, weeding out the losers,
and riding with the winners until such time as the market is
willing to pay us more than the Company's management thinks
they're worth. Our focus is on building long-term value for our
shareholders.
In recognition of our philosophy and our modus operandi, the
Company believes that we should be viewed from the perspective
of our earnings or losses net of gains or losses from the sale
of assets rather than from the normal perspective of earnings
or losses from continuing operations. In this context we've
actually generated earnings in two of our last five years, with
net earnings of $717,000 in 1994 and $9,014,000 in 1997, even
though the 1997 earnings resulted from the sale of our
discontinued dry ice operations. Earnings for the last five
years, net of losses, have totaled $5,156,000, or an average of
$1,031,000 per year.
In 1998 the Company operated within the following operating
segments: (1) the Coal Reclamation-U.S. ("CR-U.S.") Segment,
consisting of the Company's management of six coal fines
reclamation and briquetting facilities located in three states
in the U.S. and services related to the Company's patented
Mulled Coal Technology (the "M/C Technology"); (2) the Coal
Reclamation-China ("CR-China") Segment, consisting of the
Company's efforts to develop coal reclamation operations in
China utilizing the M/C Technology; (3) the carbon dioxide
("CO2") Segment, comprised of the production of CO2 gas; (4)
the Well Testing ("WT") Segment, consisting of the Company's
50%-ownership in a company (accounted for as an equity
investment) involved in natural gas well testing operations in
northeastern Mexico; (5) the environmental remediation ("ER")
Segment, consisting of the remediation of creosote and
polycyclic aromatic hydrocarbon ("PAH") contamination; and (6)
the Brine Extraction/Iodine Manufacturing ("BE/IM") Segment,
representing the Company's 40%-ownership investment in a joint
venture for the extraction, production and sale of crude
iodine.
1998 Treasury Stock Repurchase Program. On September 23, 1998,
the Company announced plans to repurchase up to 200,000 shares
of its currently outstanding common stock. The initial
purchase of shares was made on September 30, 1998. As of March
31, 1999, the Company had repurchased a total of 116,675 shares
under the program for $500,000.
Discontinued Operations. Pursuant to a plan adopted by the
Board of Directors in August 1998 the Company split its
environmental/resource recovery segment into three segments.
The CR-U.S. activities are conducted by Beard Technologies,
Inc.; the CR-China activities are conducted by Beard Sino-
American Resources Co., Inc. and the ER activities are
conducted by ISITOP, Inc. As part of the plan, the Company
discontinued the other environmental services operations (the
"Other E/S Operations") which had been conducted principally by
Whitetail Services, Inc., Horizontal Drilling Technologies, Inc.
and Incorporated Tank Systems. Accordingly, the net operating
results of the Other E/S Operations have been presented as
discontinued operations in 1998 and for all periods presented
in the consolidated statements of operations.
In April 1999 the Company adopted a plan to dispose of its
voting and operational control of Interstate Travel Facilities,
Inc., whose activities had previously been conducted as the
"ITF" Segment. Accordingly, these operations are reflected as
discontinued operations for calendar year 1998. See "Recent
Developments---Discontinuance of Interstate Travel Facilities
Business".
Net Operating Loss Carryforwards. Beard has approximately $52
million of unused net operating losses ("NOL's") available for
carryforward. Beard considers such NOL's, which expire between
2004 and 2010, to be one of its most valuable assets and that
loss of the NOL's would have a severe negative impact on the
Company's future value. The Company's Certificate of
Incorporation contains provisions to prevent the triggering of
an "ownership change" as defined in Section 382 of the Code by
restricting transfers of shares without the Board of Directors'
consent to any person if that person was, or would thereby
become, a holder of 5% or more of the fair market value of
Beard's outstanding capital stock.
Unless the context otherwise requires, references to Beard and
the Company herein include Beard and its consolidated subsidiaries,
including Beard Oil.
Recent Developments
Termination of MCNIC Coal Fines Operating and Debt
Agreements; Joint Venture Proposal. In November 1998 the
Company announced that MCN Energy Group Inc., the parent of
MCNIC Pipeline & Processing Company ("MCNIC") had taken a
special charge of $133,782,000 pre-tax to write-down its coal
fines briquetting projects, and that the Company had agreed to
modify the operating agreements pursuant to which Beard
Technologies, Inc. ("BTI") was operating the plants located at
six coal slurry impoundment sites for six limited liability
companies (the "LLC's"), each of which is a subsidiary of
MCNIC. The LLC's subsequently terminated the operating
agreements effective as of January 31, 1999. On March 19,
1999, BTI assigned all of its membership interest in Beard
Mining, L.L.C. ("BMLLC") to MCNIC effective as of January 31,
1999. Since BMLLC is the owner of the beneficiation equipment
located at the sites, the agreement effectively assigned all of
Beard's ownership interest in such equipment to MCNIC in
exchange for a full release of the more than $23,000,000 of
remaining indebtedness related to such equipment and all
liabilities and obligations related thereto. See "Coal
Reclamation Activities - U.S.---The MCN Projects."
BTI is currently negotiating with MCNIC concerning a
proposal to form one or two limited liability companies to be
owned by BTI and MCNIC which would pursue the development of
one or two of the six MCN Projects. In addition, if MCNIC is
successful in selling the remaining projects to third parties,
BTI intends to negotiate to continue as the operator for such
projects.
Discontinuance of Interstate Travel Facilities Business. In
February 1998, the Company, through an 80% owned subsidiary,
Interstate Travel Facilities, Inc. ("ITF"), acquired four
travel facilities and an undeveloped parcel of land. The
purchase price of the travel facilities consisted of cash of
$812,000, the issuance of $544,000 of debt, valued at $407,000
(discounted using a 10% interest rate), the assumption of three
mortgage notes payable approximating $1,336,000, owed by the
former owners of the travel facilities, and 20% of the
Company's ownership in ITF, valued at $181,000. See note 3 to
the financial statements.
In May 1998, ITF acquired the assets of a truck wash for a cash
payment of $123,000 and a promissory note payable of $576,000.
In September of 1998, ITF entered into a sublease agreement for
the assets of two other truck washes. The sublease expired on
March 23, 1999, and ITF is currently leasing the facilities on
a month-to-month basis.
On April 13, 1999, Beard entered into an agreement with ITF
and its minority shareholders whereby (1) the original purchase
price of the two properties purchased from the minority
shareholders will be adjusted downward by canceling the
$544,000 (balance of $414,000 at December 31, 1998) promissory
note to the minority shareholders; (2) Beard will sell 22,321
shares of its ITF common stock for $1,000 and will grant a
noncancelable and irrevocable proxy to the minority
shareholders for its remaining 30% common ownership in ITF,
thereby surrendering its operating and voting control of ITF;
and, (3) ITF and Beard will restructure ITF's current
indebtedness to Beard whereby ITF will (a) obtain a release of
and assign to Beard $327,000 of certificates of deposit
currently securing certain ITF debt obligations, and (b) will
deliver two promissory notes to Beard totaling $2,053,000 (note
A with a principal balance of $1,514,000 ("Note A") and note B
with a principal balance of $539,000 ("Note B")). Note A will
be secured by (a) a first mortgage on two of ITF's convenience
store properties (the "C-stores"); and (b) a security interest
in related equipment; and (c) the ITF shares being sold to ITF
(the "Collateral"). All proceeds from the sale of the two C-
stores and Collateral will be applied first to Note A and then
to Note B. Note A will not bear interest until both the C-
stores are sold (the "Trigger Date") at which time the
remaining principal, if any, will bear interest at 8% per
annum. ITF has agreed to use its best efforts to sell the two
C-stores within one year. Note B is unsecured and bears
interest at 6% per annum until the Trigger Date at which time
the interest rate increases to 8% per annum. No payment, other
than from the proceeds from the sale of the C-stores and the
Collateral, is required on either note until the Trigger Date,
at which time equal monthly interest and principal payments
become due over a 36-to-60 month period, based upon the amount
of the unpaid principal balances of the notes at the Trigger
Date.
Included in the 1998 operating results is a $1,603,000
estimated loss from the discontinuation of the ITF Segment.
$1,256,000 of the loss represents the difference in the
estimated fair value of Notes A and B and Beard's investment
in and notes and accounts receivable from ITF at December 31,
1998. Additionally, a provision of $347,000 was recognized for
the estimated operating losses incurred by ITF from January 1,
1999 through March 31, 1999, the effective date of the
transaction.
CONTINUING OPERATIONS
Coal Reclamation Activities - General. The Company's coal
reclamation activities are conducted by two operating segments:
(1) the Coal Reclamation-U.S. ("CR-U.S.") Segment, consisting
of the Company's management of six coal fines reclamation and
briquetting facilities located in three states in the U.S. and
services related to the Company's patented M/C Technology; and
(2) the Coal Reclamation-China ("CR-China") Segment, consisting
of the Company's efforts to develop coal reclamation operations
in China utilizing the M/C Technology.
Carbon Dioxide Operations. The Company's carbon dioxide
activities comprise the ("CO2") Segment, consisting of the
production of CO2 gas which is conducted through Beard. The
Company owns non-operated working and overriding royalty
interests in two producing CO2 gas units in Colorado and New
Mexico.
Environmental Remediation. The Company's environmental
remediation activities comprise the ("ER") Segment, which is
conducted by ISITOP, Inc., ("ISITOP"). ISITOP specializes in
the remediation of creosote and polycyclic aromatic hydrocarbon
("PAH") contamination, and has been attempting to develop a
commercial market for the chemical process for which it is the
sole U.S. licensee.
Well Testing. The Company's well testing activities comprise
the ("WT") Segment, which is conducted by a 50%-owned company
(accounted for as an equity investment) involved in natural gas
well testing operations in northeastern Mexico.
Brine Extraction/Iodine Manufacturing. The Company's brine
extraction/iodine manufacturing activities comprise the
("BE/IM") Segment, which is conducted by a 40%-owned joint
venture, North American Brine Resources ("NABR"), formed in
1981 to engage in the extraction, production and sale of crude
iodine. The Beard Company serves as the manager of NABR which
is not a consolidated entity and accordingly is accounted for
as an equity investment.
(b) Financial information about industry segments.
Financial information about industry segments is contained in
the Statements of Operations and Note 15 of Notes to the
Company's Financial Statements. See Part II, Item 8---
Financial Statements and Supplementary Data.
(c) Narrative description of operating segments.
The Company currently has six operating segments: CR-U.S., CR-
China, CO2, WT, ER and BE/IM. All of such activities, with the
exception of Beard's CO2 gas production activities, are
conducted through subsidiaries. Beard, through its corporate
staff, performs management, financial, consultative,
administrative and other services for its subsidiaries.
COAL RECLAMATION ACTIVITIES - U.S.
General. The Company's 1998 U.S. coal reclamation
activities have consisted primarily of its management of six
coal fines reclamation and briquetting facilities located in
three states in the U.S. The Company has also continued to
pursue the commercial development of its patented M/C
Technology. Such efforts have been largely unsuccessful to
date; however, the Company believes that its marketing efforts
will be significantly more successful now that Section 29 has,
for all practical purposes, expired. (See "Impact of Section
29" below).
History/Formation of Beard Technologies, Inc. In early 1990,
the Company acquired more than 80% of Energy International
Corporation ("EI"), a research and development firm
specializing in coal-related technologies. During the four
years that Beard owned EI, EI developed a new technology known
as M/C Technology.
In May 1994 Beard sold EI to a subsidiary of The Williams
Companies, Inc., retaining certain assets and the patent rights
to the M/C Technology which Beard contributed to a wholly-owned
subsidiary, BTI. Thereafter, as discussed below, BTI has
attempted to pursue the commercial development of the M/C
Technology. See "Commercial Development Activities."
The M/C Technology. Underground coal mines have always
produced a certain amount of fine coal which is difficult to
clean and to market due to handling problems. Existing washing
processes used to deal with this problem are all wet processes,
and the end product must be dewatered to make it acceptable in
the market place, which is difficult and usually expensive.
The Mulled Coal process is an innovative and inexpensive
solution to fine coal handling problems. It is a process which
involves the addition of a low cost specifically formulated
reagent to wet fine coal in a simple mixing step to produce a
material ("Mulled Coal") that handles, stores and transports
like dry coal. But, unlike thermally dried fine coal, Mulled
Coal is not dusty, will not rewet, will not freeze, and causes
no environmental or safety hazards related to fugitive coal
dust.
Patent Protection. The U.S. patent for the M/C Technology was
issued in 1993. Since then patents have been issued for
Australia, China, Europe (enforceable in Germany, Great
Britain, Italy and Spain), Poland and South Africa. Patent
applications are still pending in several other nations.
Department of Energy Contract. Prior to 1994 the M/C
Technology had only been successfully demonstrated in the
laboratory. In March 1994 the United States Department of
Energy (the "DOE") awarded a contract to EI under which the DOE
funded most of the cost of demonstrating the feasibility of the
M/C Technology at a near commercial scale. EI served as the
prime contractor with BTI providing technical and on-site
management for the project (the "DOE Project"). The DOE
Project, which was located at a large coal preparation plant
near Birmingham, Alabama, that is owned and operated by a major
coal producer, was completed in March of 1996.
Results of the DOE Project were highly encouraging. The design
of process equipment and controls worked very well. Excellent
quality Mulled Coal was produced on a continuous basis, in a
commercial environment and at a production rate which was 50
times higher than production rates for previous pilot plant
tests. Actual operating costs at the near commercial scale
were far lower than costs which had been projected from
laboratory and pilot plant tests. And, most importantly, the
Mulled Coal caused no problems with storage, handling and
shipping.
Commercial Development Activities. During the past several
decades, millions of tons of fine wet coal have been discarded
to large coal slurry impoundments throughout the eastern coal
producing states, representing an enormous potential source of
low cost fuel.
Upon completion of the DOE Project, BTI considered the M/C
Technology to be fully ready for commercialization. During the
ensuing 24 months efforts were made to make producers in the
U.S. and other coal producing nations aware of the technology
and its advantages. BTI called on numerous coal producers,
preparation plant builders and coal preparation engineering
firms to acquaint them with the technology and to explore
licensing arrangements related to the M/C Technology. It also
called on several utilities that burn large quantities of coal.
Such efforts were largely unsuccessful. Although a number of
viable projects were developed, the parties involved were for
the most part focusing on Section 29 projects (see below) which
appeared to offer much greater profit potential. As a result,
development activity for conventional (non-subsidized) projects
temporarily came to a virtual standstill. Following the
termination of the MCN Projects (see below), BTI has resumed
the active pursuit of such projects.
Upon undertaking the MCN Projects (see below) in the second
quarter of 1998, BTI's management staff was totally immersed in
all of the details that were required in order to get the six
projects placed in service by the June 30 deadline.
Accordingly, for the remainder of the year, its efforts were
focused almost entirely on improving the rates of production
and the quality of coal produced from the respective plants and
commercial development of the M/C Technology remained at a low
level. Following the termination of the contracts related to
the MCN Projects, commercial marketing efforts have been
accelerated, and BTI is once again seeking to enter into
selected slurry impoundment recovery projects as an owner or
operator with experienced coal producers, preparation plant
operators or allied service companies.
Impact of Section 29. During the last half of 1997 and the
first half of 1998 there was a flurry of activity focused upon
the development of fine coal waste impoundment recovery
projects which qualified for Federal tax credits under Section
29 of the Internal Revenue Code. Such projects involve
recovering the raw slurry with a dredge, using a sophisticated
washing plant to remove clay and other fine impurities from the
coal, thermally drying the recovered clean coal product, and
finally producing a high BTU fine coal briquette which
qualifies for the tax subsidy. In order to qualify for the tax
credit, which may amount to as much as $20 to $25 per ton of
coal briquettes sold, the synthetic fuel must be produced (i)
from a facility placed in service before July 1, 1998; (ii)
pursuant to a binding contract entered into before January 1,
1997; and (iii) before January 1, 2008.
In certain cases where the Internal Revenue Service (the "IRS")
has granted a favorable tax ruling concerning a facility, it
has also ruled that a qualifying facility may be a mobile
facility that can be moved from one coal fines source to
another as fines are depleted at each successive site. The
rulings made by the IRS in connection with the six MCN Projects
contain such a provision.
Beard believes that 20 or more Section 29 pond recovery
projects were undertaken by various operators in an attempt to
qualify by the June 30, 1998 deadline, including the six sites
operated by BTI (see "The MCN Projects" below). Beard also
believes that the MCN Projects were further along in their
development and rates of production than many of the other
projects on the June 30, 1998 qualification date.
The MCN Projects. On June 30, 1998, the Company, through a
newly formed subsidiary, Beard Mining, L.L.C., acquired coal
fines extraction and beneficiation equipment ("the Equipment")
located at six coal slurry impoundment sites (the "MCN
Projects") for a purchase price of $24,000,000. The six sites
are located in Bishop, Humphrey and Arkwright, West Virginia,
Hamilton and Corbin, Kentucky, and Dickerson, Ohio. BMLLC
financed the purchase with a $24,000,000 loan from MCNIC
through a note maturing on July 1, 1999. The note was secured
solely by the Equipment and bore interest at a per annum rate
of 8%. BMLLC leased the Equipment to BTI, which operated and
maintained the Equipment and six briquetting plants for six
limited liability companies (the "LLC's"), each of which is a
subsidiary of MCNIC. The monthly lease payments equalled the
monthly payments due under the promissory note and were
reimbursed costs by the LLC's under BTI's operating agreements
with the LLC's.
Concurrently with BMLLC's acquisition of the Equipment, BTI
entered into operating agreements with the LLC's to provide
services for which it was compensated under a cost-plus
arrangement, effective for compensation purposes only as of
April 1, 1998, under which it received a minimum profit of
$100,000 per month so long as the contracts remained in effect.
In November 1998 the Company announced that MCN Energy Group,
Inc., the parent of MCNIC, had taken a special charge of
$133,782,000 pre-tax to write-down the MCN Projects, and that
the Company had agreed to modify the operating agreements with
the LLC's. The LLC's subsequently terminated the operating
agreements effective as of January 31, 1999. On March 19,
1999, BTI assigned all of its membership interest in BMLLC to
MCNIC effective as of January 31, 1999. Since BMLLC is the
owner of the beneficiation equipment located at the sites, the
agreement effectively assigned all of Beard's ownership
interest in such equipment to MCNIC in exchange for a full
release of the more than $23,000,000 of remaining indebtedness
related to such equipment and all liabilities and obligations
related thereto.
BTI is currently negotiating with MCNIC concerning a proposal
to form one or two limited liability companies to be owned by
BTI and MCNIC which would pursue the development of one or two
of the six MCN Projects. In addition, if MCNIC is successful
in selling the remaining projects to third parties, BTI intends
to negotiate to continue as the operator for such projects.
BTI is continuing to provide security and limited supervision
of the six sites while such effort is underway. Meanwhile, BTI
has been absorbing part of the cost thereof, so that it will be
positioned to resume operations at the six sites once a final
determination of the disposition of each has been made.
Principal Products and Services. The principal products and
services supplied by the Company's CR-U.S. Segment are (i)
proprietary coal reclamation technology, (ii) the capability to
undertake large reclamation projects and the cleanup of slurry
pond recovery sites, (iii) consulting reclamation technology
and (iv) technical services.
Material Amount of Assets Invested in the MCN Projects;
Improvement in Company's Debt Ratios Resulting from Termination
of MCNIC Contracts. As discussed above, the Company had a
material amount of its assets invested in the MCN Projects; as
a matter of fact, 62 % of total assets were invested in such
projects at December 31, 1998. Following the termination of
the operating agreements as of January 31, 1999, these assets
and the debt associated therewith were assigned back to MCNIC,
resulting in a healthy improvement in the Company's balance
sheet and debt ratios.
Dependence of the Segment on a Single Customer. The CR-U.S.
Segment accounted for the following percentages of the
Company's consolidated revenues from continuing operations for
each of the last three years.
Percent of
Consolidated
Revenues from
Fiscal Year Continuing
Ended Operations
----------- ----------
12/31/98 92.9%
12/31/97 00.2%
12/31/96 4.0%
It is important to note that revenues from the MCN Projects
accounted for all of the CR-U.S. Segment's revenues from continuing
operations in calendar year 1998. Accordingly, the termination
of the MCNIC operating agreements effective January 31, 1999 will
have a material detrimental effect upon the Company's profitability
at least during the first and second quarters of 1999. It is not
possible to determine the exact effect until it has been
determined whether any or all of the six projects have been
sold, and if so, who the operator of the project(s) will be
going forward, and what the new operating contract(s) with such
party(ies) may provide.
Facilities. BTI leases an office and laboratory facilities
from the Applied Research Center at the University of
Pittsburgh ("UPARC"). The UPARC facilities give BTI access to
a wide range of coal and mineral testing capabilities.
Market Demand and Competition. The coal reclamation
industry is highly competitive, and the C/R Segment must
compete against significantly larger companies, as well as a
number of small independent concerns. Competition is largely
on the basis of technological expertise and customer service.
Seasonality. The coal reclamation business is somewhat
seasonal due to the tendency for field activity to be reduced
in cold and/or bad weather.
Employees. As of December 31, 1998, the CR-U.S. Segment
employed 82 full time employees. Fifty-six of such employees
had been temporarily laid off at year end.
Financial Information. Financial information about the
CR-U.S. Segment is set forth in the Financial Statements. See
Part II, Item 8---Financial Statements and Supplementary Data.
COAL RECLAMATION ACTIVITIES - CHINA
Beard Sino-American Resources Co., Inc. In July of 1998 the
Company opened an office in Beijing, People's Republic of
China, and entered into a Memorandum of Understanding to
establish a joint venture to utilize the M/C Technology in two
coal preparation plants in China. Beard Sino-American
Resources Co., Inc. ("BSAR"), a wholly-owned subsidiary of
Beard, will serve as the joint venture partner for all of the
Company's activities in China.
Qitaihe Lushon Joint Venture. BSAR has practically concluded
negotiations with Qitaihe Lushon Coal Group Corporation to form
a cooperative joint venture. The venture will try to reduce
the moisture content of the fine coal filter cake presently
produced at the Qitaihe Lushon facility using the M/C
Technology. The Chinese company would provide the equipment
and existing technology and BSAR would provide the appropriate
corollary equipment and the M/C Technology. We expect the
agreement will be executed by June 30, 1999; if so, the plant
will be targeted for completion in October 1999.
Principal Products and Services. The principal products and
services supplied by the Company's CR-China Segment are (i)
proprietary coal reclamation technology, (ii) the capability to
undertake large reclamation projects and the cleanup of slurry
pond recovery sites, (iii) consulting reclamation technology
and (iv) technical services.
The CR-China Segment has generated no revenues to date and
accordingly accounted for none of the Company's consolidated
revenues from continuing operations during the last three
years.
Facilities. BSAR is occupying a small office located in The
China International Center for Economic & Technical Exchanges
in Beijing, China.
Market Demand and Competition. The coal reclamation
industry is highly competitive, and the C/R Segment must
compete against significantly larger companies, as well as a
number of small independent concerns. Competition is largely
on the basis of technological expertise and customer service.
Employees As of December 31, 1998, the CR-China Segment
employed one full time employee.
Financial Information. Financial information about the
CR-China Segment is set forth in the Financial Statements. See
Part II, Item 8---Financial Statements and Supplementary Data.
CARBON DIOXIDE OPERATIONS
General. The Company's carbon dioxide (CO2) gas operations are
conducted by the parent company which owns working and
overriding royalty interests in two CO2 gas producing units.
Carbon Dioxide (CO2) Properties
McElmo Dome. The McElmo Dome field in western Colorado is a
240,000-acre unit from which CO2 gas is produced. Beard owns a
0.545610% working interest (0.471926% net revenue interest) and
an overriding royalty interest equivalent to a 0.092190% net
revenue interest in the Unit, giving it a total 0.564116% net
revenue interest.
Deliveries of CO2 gas are transported through a 502-mile
pipeline to the Permian Basin oilfields in West Texas where
such gas is utilized primarily for tertiary oil recovery.
Shell CO2 Company Ltd. ("Shell Ltd.") is the operator. There
are 41 producing wells, ranging from 7,634 feet to 8,026 feet
in depth. McElmo Dome and Bravo Dome (see below) are believed
to be the two largest producing CO2 fields in the world. The
gas is approximately 97% CO2.
In 1998, Beard sold 2,187,000 Mcf attributable to its working
and overriding royalty interest at an average price of $.28 per
Mcf. In 1997 Beard sold 1,617,000 Mcf (thousand cubic feet)
attributable to its working and overriding royalty interest at
an average price of $.31 per Mcf. In 1996 Beard sold 1,695,000
Mcf attributable to its working and overriding royalty interest
at an average price of $.17 per Mcf. Beard was overproduced by
124,000 Mcf on the sale of its share of McElmo Dome gas at
year-end 1998.
In July of 1996 Shell Ltd. advised the working interest owners
that current demand for McElmo Dome CO2 had increased from less
than 600 million cubic feet per day in 1995 to over 700 million
cubic feet per day, and was expected to increase to one billion
cubic feet per day beginning in mid-1997. In order to meet
such demand, Shell Ltd. commenced a $47 million development
program in July of 1996 which was completed in 1998. Beard
expended a total of $256,000 for its share of the development
costs through 1998. 1998 CO2 revenues increased to $616,000 in
1998 from $503,000 in 1997 reflecting the successful
development and the resultant higher rate of production.
Bravo Dome. Beard also owns a 0.05863% working interest in the
1,000,000-acre Bravo Dome CO2 gas unit in northeastern New
Mexico. At December 31, 1998, Beard was underproduced by
210,000 Mcf on the sale of its share of Bravo Dome gas. The
Company sold no CO2 gas from Bravo Dome in 1998 or 1997 due to
an over produced status in 1997 and most of 1998, and had
$9,000 of sales in 1996.
Amoco Production Company operates a CO2 production plant in the
middle of the Bravo Dome field. The 265 producing wells are
approximately 2,500 feet deep. The gas is approximately 98%
CO2.
Net CO2 Production. The following table sets forth Beard's net
CO2 production for each of the last three fiscal years:
Net CO2
Fiscal Year Production
Ended (Mcf)
----------- ----------
12/31/98 2,187,000
12/31/97 1,617,000
12/31/96 1,723,000
Average Sales Price and Production Cost. The following table
sets forth Beard's average sales price per unit of CO2 produced
and the average lifting cost, lease operating expenses and
production taxes, per unit of production for the last three
fiscal years:
Average Sales Average Lifting
Fiscal Year Price Per Mcf Cost Per Mcf
Ended of CO2 of CO2
----------- -------------- ---------------
12/31/98 $0.28 $0.05
12/31/97 $0.31 $0.06
12/31/96 $0.18 $0.06
Dependence of the Segment on a Single Customer. The CO2
Segment accounted for the following percentages of the
Company's consolidated revenues from continuing operations for
each of the last three years. The Company's CO2 revenues are
received from two operators in the CO2 Segment who market the
CO2 gas to numerous end users on behalf of the interest owners
who elect to participate in such sales.
Percent of
Consolidated
Revenues from
Fiscal Year Continuing
Ended Operations
----------- --------------
12/31/98 6.7%
12/31/97 87.5%
12/31/96 79.8%
Productive Wells and Acreage. Beard's principal CO2 properties
are held through its ownership of working interests in oil and
gas leases which produce CO2 gas. As of December 31, 1998,
Beard held a working interest in a total of 306 gross (0.25
net) CO2 wells located in the continental United States. The
table below is a summary of such developed properties by state:
Number of Wells
---------------
State Gross Net
----- ----- ---
Colorado 41 0.224
New Mexico 265 0.029
--- -----
306 0.253
=== =====
Employees. As of December 31, 1998, the CO2 Segment had no employees.
Financial Information. Financial information about the
Company's CO2 gas operations is contained in the Company's
Financial Statements. See Part II, Item 8---Financial
Statements and Supplementary Data.
WELL TESTING
Formation of Mexican Subsidiary. In October 1998 the Company
formed ITS-Testco, L.L.C., an Oklahoma limited liability
company in which the Company has 50% ownership (the "LLC").
The LLC owns 100% of a Mexican subsidiary, TESTCO INC. de
MEXICO, S.A. de C.V. ("Testco de Mexico"), which was also
formed in October 1998 to conduct well testing operations in
northeastern Mexico. Testco de Mexico works as both a
contractor to PEMEX and as a subcontractor to contractors
working for PEMEX testing natural gas wells which PEMEX is
drilling just south of the southernmost Texas border. The LLC
owns most of the equipment which is being utilized by and
leased to Testco de Mexico.
Neither the LLC nor Testco de Mexico had any operations, other
than startup costs, in 1998. The LLC began leasing equipment
to Testco de Mexico in January 1999 when Testco de Mexico
commenced its actual well testing operations.
Principal Products and Services. The principal products and
services supplied by the Company's WT Segment are the services,
provided by the furnishing of (i) properly trained personnel,
(ii) specially designed equipment and (iii) technological
expertise, which it provides to customers who need such
services to test high pressure natural gas wells.
The WT Segment has generated no revenues to date and in 1998
the Company recorded $35,000 of loss from its share of the
LLC's operating loss.
Facilities. Testco de Mexico is occupying a small office, yard
and warehouse which it leases in Reynosa, Tamaulipas, Mexico.
Market Demand and Competition. The well testing industry
is highly competitive, and the WT Segment must compete against
significantly larger companies, as well as a number of small
independent concerns. Competition is largely on the basis of
technological expertise and customer service.
Employees. As of December 31, 1998, the WT Segment had two full
time employees.
Financial Information. Financial information about the
Company's well testing operations is contained in the Company's
Financial Statements. See Part II, Item 8---Financial
Statements and Supplementary Data.
ENVIRONMENTAL REMEDIATION
General. The Company and its management have considerable
expertise in the environmental area stemming from previous
experience as the founder, as officers and directors, and as
the principal shareholder of USPCI, Inc. (NYSE) from 1968 until
its takeover by Union Pacific Corporation in 1987-88.
ISITOP, Inc. In January of 1997, Beard changed the name of a
wholly-owned, inactive subsidiary to ISITOP, Inc. ("ISITOP").
ISITOP has obtained an exclusive license for the United States
from a company which has developed a chemical (54GOTM 101) and
has tested a process which utilizes such chemical for the
remediation of creosote and PAH contamination. U.S. Patent
#5,670,460 for method and composition for 54GOTM Products was
granted September 23, 1997. This patent covers all
applications utilizing 54GOTM Products, including ISITOP's
applications. A specific application for remediation was
applied for in May 1998 and is pending.
ISITOP is 80%-owned by Beard and 20%-owned by three members of
ISITOP's management team, two of whom are also the principals
of the company from which the license was obtained. Pursuant
to employment agreements and other related agreements these
three parties also have options to acquire an additional 30% of
ISITOP following payout of all sums owed by ISITOP to Beard.
Creosote is a very complex mixture of hydrocarbons and
hydrocarbon derivatives. It revolutionized the use of wood and
wood products in wet environments by preventing rapid
decomposition. Creosote compounds are still in use today,
primarily to treat telephone poles, railroad ties, bridge
timbers and similar construction materials and to a lesser
extent as medicinal agents.
Creosote mixtures contain many compounds that are known to
cause several forms of cancer in animals and have been linked
to several types of cancer in humans. The specific chemical
family of cancer producing agents found in creosote are a group
of molecules that are made up of several connected ring
structures known as polycyclic aromatic hydrocarbons ("PAH's").
These mixtures make up the preparations known as "creosote" and
are related by their poly ring structure.
Even though the use of creosote was "restricted" in the mid-
1960's, it and many of its sister mixtures are still in wide
use both in the U.S. and throughout the world. The U.S. alone
is believed to have over 700 wood preserving plants which are
estimated to use or produce more than 495,000 tons of creosote
and creosote byproducts per year.
Principal Products and Services. ISITOP's bioslurry reactor
system consists of three major steps. The first step is to
treat the contaminated material with a proprietary family of
surfactants, called 54GOTM 901, which separate the large ring
compounds and/or disperse significant amounts of the
hydrocarbon components. This separates the bond of molecules,
allowing for microbial penetration and rendering the mixture
ready for bioremediation. The next step of the ISITOP process
is to wash the mixture of contaminated material to further
enhance the molecular separation process. The final step is
adding a solution from an on-site catalyst generator that
enhances in place microbes, thus expediting the bioremediation
process.
ISITOP completed the first field test of its chemical process
in May of 1997. The site was a storage yard of an old narrow
gauge railroad near Durango, Colorado, where railroad ties had
been stored for many years (the "Durango Project"). The owners
of the site estimated that approximately 25 gallons of liquid
creosote had been spilled over an extended period of
approximately 30 years. A total of 72 cubic yards of
contaminated soil was treated at the site.
Measuring the contamination of sites is often related to BAP
(Benzo (A) Pyrene) equivalents. Each of the constituents of
concern (known cancer causing Analytes) are factored and
assigned a BAP value. The value at the beginning of the
Durango Project was 251.02 BAP equivalent. Many states have
established a value of 8 mg/kg as a prime remediation goal.
The Durango Project was completed within 150 days with a BAP
equivalent of 2.053 and reduced PAH levels by 99.7%.
ISITOP is currently holding discussions with the developers of
two major remediation technologies to evaluate how ISITOP's
chemical process can enhance their process. Studies by Dr. Joe
Bowden of CDS Environmental, and a staff consultant to ISITOP,
indicate that ISITOP's process can expedite processes such as
steam and soil heating, dramatically reducing the time and
expense of such processes. These processes would enable in-
situ remediation while reducing the costs of remediation.
ISITOP is currently in the process of negotiating with a major
oil company to complete another field demonstration project
using the bioslurry process to remediate oil field hydrocarbon
materials. It is anticipated that, if awarded, the project
will be completed by mid-summer 1999.
ISITOP has also developed a process for cleaning tanks at
creosote treating facilities, and has several proposals
outstanding utilizing such process. Utilization of the process
would enable the end user to recover the materials within the
storage tanks without manned entry, allowing them to sell the
recovered materials. These same procedures are also being
utilized to clean rail cars used to transport liquid creosote
from the manufacturing plants to wood preserving facilities.
A new marketing approach is now being implemented to clean both
rail cars and storage tanks and thus introduce ISITOP to the
wood preserving industry. If the industry buys this approach,
ISITOP believes that it will both enhance profitability and
provide solutions to several operating problems for the
industry.
Despite the dearth of commercial projects to date, ISITOP
believes that it is positioning itself and its technologies to
become a significant player in the remediation market.
The ER Segment accounted for the following percentages of the
Company's consolidated revenues for each of the last three
years.
Percent of
Consolidated
Revenues from
Fiscal Year Continuing
Ended Operations
----------- --------------
12/31/98 0%
12/31/97 2%
12/31/96 0%
Facilities. ISITOP is furnished office space in Farmington, New
Mexico as part of its arrangement with the company from which
it obtained its license.
Market Demand and Competition. The environmental remediation
industry is highly competitive, and in such activities ISITOP
must compete against major service companies, as well as a
number of small independent concerns. Competition is largely
on the basis of customer service. Beard's approach has been to
seek out niches of opportunity where it perceives that
customers are not being adequately served, and then to provide
services using well-trained personnel at reasonable rates. The
regulatory environment is rapidly changing, at times creating
new markets which the larger companies in the industry do not
recognize or have no desire to pursue, and thus creating
opportunities for smaller, aggressive entities such as Beard
and ISITOP.
ISITOP provided its services to one customer in 1998, but such
revenues totaled only $8,000. Accordingly, the loss of such
customer would not have a material adverse effect on the
Company and its subsidiaries as a whole.
Availability of Raw Materials. Materials used in the ER
Segment, as well as products purchased for resale, are
available from a number of competitive manufacturers.
Seasonality. The environmental remediation business is
seasonal, as there is a tendency for field operations to be
reduced in bad weather.
Employees. As of December 31, 1998, the ER Segment employed
three full time employees.
Financial Information. Financial information about the ER
Segment is set forth in the Company's Financial Statements.
See Part II, Item 8---Financial Statements and Supplementary
Data.
BRINE EXTRACTION/IODINE MANUFACTURING
General. Beard is involved in the extraction, production and
sale of crude iodine through its 40% ownership of North
American Brine Resources ("NABR"), a joint venture formed in
1981 with two Japanese partners. Beard is the managing
partner. In Kingfisher County, Oklahoma, the Company collects
waste brine from wells operated by third parties (the
"Berkenbile Plant"). The Company furnishes the brine to NABR
for iodine extraction at the Berkenbile Plant and receives a
payment for the subsequent disposal of the brine.
In Woodward County, Oklahoma, NABR operates a second iodine
extraction plant (the "Woodward Plant") which has roughly six
times the production capacity of the Berkenbile Plant. Brine
is produced from wells owned by NABR and iodine is extracted
using the blowing-out process. The waste brine is then
reinjected into NABR-owned wells. The Woodward Plant is
located in the Woodward Trench, a narrow geologic formation
found 6,000 to 10,000 feet below the surface, which contains a
high concentration of iodine-bearing brine water.
Iodine is used in animal feed supplements, catalysts, inks and
colorants, pharmaceuticals, photographic equipment, sanitary
and industrial disinfectants, stabilizers and radiopaque media.
From 1990 to 1994 the worldwide price received for iodine
decreased more than 50% from its previous peak of approximately
$18 per kilogram as a result of increased production capacity
in the United States and Chile. The price bottomed out in mid-
1994 at $7 per kilogram but has recovered to the point that it
averaged more than $20 per kilogram in 1998. The price is
expected to be in the $18 to $19 per kilogram range for the
forseeable future.
Because of the severely depressed industry pricing conditions,
NABR determined to shut down the operations of the Woodward
Plant for an indefinite period of time until the oversupply
situation was rectified. Accordingly, the Woodward Plant shut
down in June of 1993. By the third quarter of 1996 the
oversupply situation appeared to have corrected itself and the
decision was made to reactivate the Woodward Plant, which came
back on stream in October of 1996. In January of 1997 NABR
shipped the first 8,000 kilograms produced at the plant since
its reactivation. The total cost of reactivating the plant,
including the cost of drilling a new production well plus the
additional working capital required, was approximately $1.1
million. Such funds were loaned to NABR by the Japanese
partners, and had been fully repaid with interest by the end of
1998.
Because the Company owns only 40% of NABR, it is not a
consolidated entity and accordingly (i) the Company's
investment in NABR is accounted for by the use of the equity
method, and (ii) the BE/IM Segment accounted for none of the
Company's consolidated revenues during the last three years.
Impairment Provision. At year-end 1998 NABR's management
committee concluded that, due to a decrease in the projected
future cash flows from the iodine reserves at the Woodward
Plant and the resultant shortening in the useful life of the
underlying plant assets, that an impairment in the amount of
$1,461,000 against the carrying value of NABR's property, plant
and equipment was necessary. Due to prior impairments taken in
1992 and 1994 by the Company of the carrying value of its
investment in NABR, the Company's carrying value prior to the
1998 impairment was $256,000 less than its 40% ownership in the
underlying equity in NABR at December 31, 1998, and accordingly
the Company recorded $360,000 of impairment against its
investment in 1998. See Note 1 of Notes to the Company's
Financial Statements.
Market Demand and Competition. The iodine manufacturing
industry is highly competitive, and in such activities NABR
must compete against several other companies, some of which are
larger and better financed companies.
NABR sold its product to nine customers in 1998. The loss of
any one of such customers would not have a material adverse
effect on Beard as a whole.
Availability of Raw Materials. Materials used in the BE/IM
Segment, as well as products purchased for resale, are
available from a number of competitive manufacturers.
Financial Information. Financial information about the BE/IM
Segment is set forth in the Company's Financial Statements.
See Part II, Item 8---Financial Statements and Supplementary
Data.
OTHER CORPORATE ACTIVITIES
Other Assets. Beard also has a number of other assets and
investments which it is in the process of liquidating as
opportunities materialize. Such assets consist primarily of
drilling rigs and equipment, land and improvements, real estate
limited partnerships in which the Company is a limited partner
and other miscellaneous other investments. As excess funds
become available from such liquidations they will be utilized
for working capital, reinvested in Beard's ongoing business
activities or redeployed into newly targeted opportunities.
Beard's recorded value for these other assets is less than or
equal to their estimated fair value.
Office and Other Leases. Beard leases office space in Oklahoma
City, Oklahoma, aggregating 5,817 square feet under a lease
expiring September 30, 2000, at a current annual rental of
$59,000. In addition, Beard's subsidiaries lease space at a
number of locations as required to serve their respective
needs.
Employees. As of December 31, 1998, Beard employed 98 full
time and four part time employees in all of its operations,
including nine full time employees and four part time employees
on the corporate staff. Fifty-six of the full time employees
had been temporarily laid off at year end by BTI.
(d) Financial information about foreign and domestic
operations and export sales.
See Item 1(c) for a description of foreign and domestic
operations and export sales.
Item 2. Properties.
See Item 1(c) for a description of properties.
Item 3. Legal Proceedings.
Neither Beard nor any of its subsidiaries are engaged in any
litigation or governmental proceedings which Beard believes
will have a material adverse effect upon the results of
operations or financial condition of any of such companies.
However, the Company is a plaintiff in a class action lawsuit
where the Company's share of the claims, exclusive of interest
and costs, exceeded 10% of consolidated current assets at year-
end 1998. See "McElmo Dome Litigation" below.
McElmo Dome Litigation. On August 14, 1997, the Company joined
with other small working interest owners and royalty owners in
filing in U.S. District Court for the District of Colorado a
class action suit against Shell Oil Company ("Shell"), Shell
Western E & P, Inc. ("SWEPI"), Mobil Producing Texas and New
Mexico, Inc. ("Mobil") and Cortez Pipeline Company, a
partnership ("Cortez").
Plaintiffs in the litigation are CO2 small share working
interest owners, CO2 royalty owners, CO2 overriding royalty
interest owners and taxing authorities all of whom have
contract or statutory interests in the value of the CO2
produced from the McElmo Dome Field (the "Field"---see "Carbon
Dioxide Operations at pages 10-12). Plaintiffs' complaint
alleges damages against the defendants caused by defendants'
wrongful determination of the value of CO2 produced from the
Field and the corresponding wrongful underpayment to
plaintiffs. The complaint further alleges that Shell and Mobil
are (1) the dominant producers of CO2 from the Field; (2)
partners owning defendant Cortez; (3) users of CO2 produced
from the Field in west Texas for the production of crude oil;
and that SWEPI is for all practical purposes the alter ego of
Shell and thus liable to the same extent as Shell.
Plaintiffs further allege that defendants have a conflict of
interest because they are simultaneously producers and users of
CO2 from the Field, and that they have controlled and depressed
the price of CO2 from the Field by (i) reducing the delivered
price of CO2 while (ii) simultaneously inflating the cost of
transportation from the Field to West Texas. Plaintiffs have
alleged a total of 10 claims against the defendants, including
violations of the provisions of the antitrust laws, and that
during the period between 1984-1995 the plaintiffs have caused
damages to the defendants of not less than $590.8 million after
8% interest per annum but before trebling and damages as
permitted by law.
During 1997 and 1998 the Company incurred legal expenses
totaling $116,000 in connection with the suit. Because many of
the plaintiffs in the class have elected not to fund all or
part of their share of the costs involved (the
"Nonparticipants"), the Company has incurred more than its
share of such costs for which it is entitled to recover a bonus
amount of three or four to one before the Nonparticipants will
back in for their share of any recovery. During 1998 the
Company's share of the recovery pool had increased from 7.57%
to 17.54% as a result of nonfunding elections by the
Nonparticipants during the year. Plaintiffs' lawyers are
handling the case on a contingency basis and will receive 50%
of any settlement or judgment after deducting all expenses.
Although the Federal government was asked to join as the lead
plaintiff in the law suit, they have to date elected not to do
so. Unless government representatives change their election,
this means that our plaintiff group will have the right to
share in any qui tam claims (that the defendants made false
reports to the U.S. Government in connection with settling
royalty) of the Federal government should the U.S. attorney
later decide to intervene in the case. It is believed that
such claims may total more than $216 million before adjustment
for applicable statute of limitations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the
fiscal year covered by this report to a vote of security
holders, through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
(a) Market information.
The Company's common stock trades on the American Stock
Exchange ("ASE") under the ticker symbol BOC. The following
table sets forth the high and low sales price for the Company's
common stock, as reflected in the ASE monthly detail reports,
for each full quarterly period within the two most recent
fiscal years.
1998 High Low
---- ---- ---
Fourth quarter $ 5-1/4 $ 3-1/4
Third quarter 5-15/16 4-1/2
Second quarter 5-1/4 4-5/8
First quarter 5-3/8 4-5/8
1997 High Low
---- ---- ---
Fourth quarter $ 5-1/2 $ 4-1/8
Third quarter 5-9/16 4-1/2
Second quarter 6-1/4 3-5/8
First quarter 4-3/8 3
(b) Holders.
As of March 31, 1999, the Company had 439 record holders of
common stock.
(c) Dividends.
To date, the Company has not paid any cash dividends. The
payment of cash dividends in the future will be subject to the
financial condition, capital requirements and earnings of the
Company. The Company intends to employ its earnings, if any,
primarily in its coal reclamation activities and does not
expect to pay cash dividends for the foreseeable future. The
redemption provisions of the Beard preferred stock limit the
Company's ability to pay cash dividends. (See "Business-General
development of business").
Item 6. Selected Financial Data.
The following financial data are an integral part of, and
should be read in conjunction with, the financial statements
and notes thereto. Information concerning significant trends
in the financial condition and results of operations is
contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 21 through 31 of
this report.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
Statement of operations data:
Operating revenues from
continuing operations $ 9,246 $ 575 $ 377 $ 419 $ 1,040
Interest income 400 183 12 13 12
Interest expense (964) (134) (62) (4) (3)
Earnings (loss) from
continuing operations (573) (1,288) (981) (647) 467
Earnings (loss) from
discontinued operations (3,284)(a) 10,302(b) 666(c) 244 250
Net earnings (loss) (3,857) 9,014 (315) (403) 717
Net earnings (loss)
attributable to common
shareholders (3,857) 5,225 (315) (454) 659
Net earnings (loss) from
continuing operations per
share:
(basic EPS) (0.23) (0.46) (0.35) (0.24) 0.15
(diluted EPS) (0.23) (0.46) (0.35) (0.24) 0.13
Net earnings (loss) per share:
(basic EPS) (1.52) 1.86 (0.11) (0.17) 0.25
(diluted EPS) (1.52) 1.86 (0.11) (0.17) 0.21
Balance sheet data:
Working capital 4,994 9,924 1,745 1,989 2,427
Total assets 37,337 20,952 16,473 14,615 13,856
Long-term debt (excluding
current maturities) 25,780 519 2,911 1,454 982
Redeemable preferred stock 889 889 1,200 1,200 1,200
Total common shareholders'
equity 8,387 12,433 8,656 8,788 9,066
____________
(a) In August 1998 Beard adopted a plan to discontinue the Other E/S
Operations. In April 1999 Beard adopted a plan to discontinue its
interstate travel facilities ("ITF") segment. The results of operations
and estimated losses to discontinue the Other E/S Operations and the ITF
segment were reported as discontinued operations in 1998 and for all prior
years. (See note 3 of notes to financial statements).
(b) Beard sold the business and substantially all of the assets of
Carbonic Reserves, an 85%-owned subsidiary, in 1997 with the results of
such operations, including the 1997 gain on sale, reported as discontinued
operations in 1997 and for all prior years. (See note 3 of notes to
financial statements).
(c) In January 1997 Beard adopted a plan to dispose of the
assets of its real estate construction and development segment. The
results of the segment, including an estimated loss on disposition,
were reported as discontinued operations in 1996 and for all prior years.
(See note 3 of notes to financial statements).
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion addresses the significant factors
affecting the results of operations, financial condition,
liquidity and capital resources of the Company. Such
discussion should be read in conjunction with the Company's
financial statements including the related notes and the
Company's selected financial information.
Overview
General. In 1998 the Company operated within the
following operating segments: (1) the Coal Reclamation-U.S
("CR-U.S.") Segment, consisting of the Company's management of
six coal fines reclamation and briquetting facilities located
in three states in the U.S. and marketing the Company's
patented Mulled Coal Technology (the "M/C Technology"); (2) the
Coal Reclamation-China ("CR-China") Segment, consisting of the
Company's efforts to develop coal reclamation operations in
China utilizing the M/C Technology; (3) the carbon dioxide
("CO2") Segment, comprised of the production of CO2 gas; (4)
the Well Testing ("WT") Segment, consisting of the Company's
50%-ownership in a company involved in natural gas well testing
operations in northeastern Mexico; (5) the environmental
remediation ("ER") Segment, consisting of the remediation of
creosote and polycyclic aromatic hydrocarbon ("PAH")
contamination; and (6) the Brine Extraction/Iodine
Manufacturing ("BE/IM") Segment, representing the Company's
40%-ownership investment in a joint venture for the extraction,
production and sale of crude iodine.
The Company's continuing operations reflect losses of $573,000,
$1,288,000 and $981,000 in 1998, 1997 and 1996, respectively.
In January of 1997 the Company discontinued its real estate
construction and development activities because of a sharp
slowdown in sales activity. In October of 1997 the Company
sold the business and substantially all of the assets involved
in the manufacture and sale of dry ice (solid CO2), taking
advantage of an extremely favorable offer which it had received
for the business. In August of 1998 Beard's Board of Directors
approved a plan to restructure the Company's environmental/
resource recovery ("E/RR") Segment. As a result, the coal
reclamation activities conducted by Beard Technologies, Inc.
and Beard Sino-American Resources Co., Inc. now comprise the
CR-U.S. and CR-China Segments of the Company, respectively.
The environmental remediation activities conducted by ISITOP,
Inc. now comprise the ER Segment. As part of the restructure,
the other environmental services operations (the "Other E/S
Operations") conducted principally by Whitetail Services, Inc.,
Horizontal Drilling Technologies, Inc. and Incorporated Tank
Systems were discontinued.
On April 13, 1999, Beard entered into an agreement with ITF
and its minority shareholders whereby (1) the original purchase
price of the two properties purchased from the minority
shareholders will be adjusted downward by canceling the
$544,000 (balance of $414,000 at December 31, 1998) promissory
note to the minority shareholders; (2) Beard will sell 22,321
shares of its ITF common stock for $1,000 and will grant a
noncancelable and irrevocable proxy to the minority
shareholders for its remaining 30% common ownership in ITF,
thereby surrendering its operating and voting control of ITF;
and, (3) ITF and Beard will restructure ITF's current
indebtedness to Beard whereby ITF will (a) obtain a release of
and assign to Beard $327,000 of certificates of deposit
currently securing certain ITF debt obligations, and (b) will
deliver two promissory notes to Beard totaling $2,053,000 (note
A with a principal balance of $1,514,000 ("Note A") and note B
with a principal balance of $539,000 ("Note B")). Note A will
be secured by (a) a first mortgage on two of ITF's convenience
store properties (the "C-stores"); and (b) a security interest
in related equipment; and (c) the ITF shares being sold to ITF
(the "Collateral"). All proceeds from the sale of the two C-
stores and Collateral will be applied first to Note A and then
to Note B. Note A will not bear interest until both the C-
stores are sold (the "Trigger Date") at which time the
remaining principal, if any, will bear interest at 8% per
annum. ITF has agreed to use its best efforts to sell the two
C-stores within one year. Note B is unsecured and bears
interest at 6% per annum until the Trigger Date at which time
the interest rate increases to 8% per annum. No payment, other
than from the proceeds from the sale of the C-stores and the
Collateral, is required on either note until the Trigger Date,
at which time equal monthly interest and principal payments
become due over a 36-to-60 month period, based upon the amount
of the unpaid principal balances of the notes at the Trigger
Date.
Included in the 1998 operating results is a $1,603,000
estimated loss from the discontinuation of the ITF Segment.
$1,256,000 of the loss represents the difference in the
estimated fair value of Notes A and B and Beard's investment in
and notes and accounts receivable from ITF at December 31,
1998. Additionally, a provision of $347,000 was recognized for
the estimated operating losses incurred by ITF from January 1,
1999 through March 31, 1999, the effective date of the
transaction.
The Company is now focusing its primary attention on the two CR
Segments which it believes have the greatest potential for
growth and profitability. The results from continuing
operations exclude earnings (losses) of $(3,284,000),
$10,302,000, and $666,000, respectively, in 1998, 1997 and 1996
from discontinued operations.
The Company also has other operations, including various assets
and investments that the Company has been liquidating as
opportunities have materialized.
The results of operations for 1998 reflected improved operating
margins of the CR-U.S. Segment which is now the Company's
largest segment. The Segment had a significant increase in
revenues as a result of a contract to operate six coal projects
in the eastern United States, which was partially offset by
increased expenses due to increased staffing and increased
expenditures for chemicals and supplies to operate the six
facilities. The CR-China Segment generated no revenues, but
incurred $277,000 of selling, general and administrative
expenses related to its startup activities. The CO2 Segment
showed a $198,000 improvement in operating margins in 1998
compared to 1997 reflecting increased CO2 production. The ER
Segment reflected a $115,000 increase in operating losses as a
result of increased staffing and SG&A expenses as it stepped up
its marketing efforts. 1998 results were also negatively
impacted by the Company's share of a $1,461,000 impairment
provision against the carrying value of the long-lived assets
in the joint venture which comprises the BE/IM Segment.
Corporate activities at the parent company level reflected (i)
increased staffing; (ii) higher health care and fringe benefit
costs; and (iii) higher legal costs associated with the McElmo
Dome litigation.
The results of operations for 1997 showed an increase in the
operating loss of the CR-U.S. Segment reflecting an increase in
its level of marketing activity. The CO2 Segment showed an
$84,000 improvement in operating margins in 1997 compared to
1996 principally as the result of higher prices for CO2. The
ER Segment showed an increase in its operating loss of $109,000
reflecting the startup of its operations in 1997. The primary
reason for the increase in the operating losses of other
corporate operations was an impairment loss of $171,000 in the
value of certain real estate assets.
1996 results of operations also reflected operating losses in
the CR-U.S. Segment as the Company investigated ways to market
the new technology. The operating margins of the CO2 Segment
posted an $85,000 increase in operating margins for 1996
compared to 1995, reflecting the 53% increase in the level of
CO2 production for the year. The $40,000 increase in the
operating losses of other corporate operations reflected the
higher level of general and administrative expenses as the
Company continued to pursue additional business opportunities.
Liquidity and capital resources
Capital investments. The Company's capital investment
programs have required more cash than has been generated from
operations during the past three years. Cash flows provided by
(used in) operations during 1998, 1997, and 1996 were
$(854,000), $312,000, and $924,000, respectively, while capital
additions from continuing operations were $24,175,000,
$154,000, and $87,000 respectively, as indicated in the table
below:
1998 1997 1996
---- ---- ----
Coal reclamation $ 24,072,000 $ - $ 4,000
Carbon dioxide 41,000 147,000 68,000
Environmental remediation 6,000 3,000 -
Other 56,000 4,000 15,000
------------------------------------------
Total $ 24,175,000 $ 154,000 $ 87,000
==========================================
Capital additions in the discontinued solid CO2 segment were
$934,000 and $1,910,000 for 1997 and 1996, respectively.
Seller-provided financing and other debt obligations provided
$86,000 of the funds for such capital investments in 1997.
Capital additions in the discontinued Other E/S Operations were
$143,000, $515,000 and $1,134,000 for 1998, 1997 and 1996,
respectively. Seller-provided financing and other debt
obligations provided $20,000 and $889,000 of the funds for
such capital investments in 1997 and 1996, respectively.
Capital additions in the discontinued ITF segment were
$3,891,000 in 1998. Seller-provided financing and other debt
obligations provided $2,319,000 of the funds for such capital
investments.
The Company's 1999 capital expenditure budget has tentatively
been set at $3,265,000. Presently anticipated capital
expenditures include (i) $1,900,000 for the CR-U.S. Segment,
(ii) $725,000 for the CR-China Segment, (iii) $100,000 for the
ER Segment; (iv) $40,000 for Beard corporate; and $500,000 for
the new WT Segment. $2,625,000 of the estimated total is
speculative since it is targeted for expenditure on three
reclamation facilities on which negotiations are currently in
progress.
Liquidity. The sale of the Carbonic Reserves in October of
1997 provided the Company with significant liquid resources.
Future cash flows and availability of credit are subject to a
number of variables, including demand for the Company's
services as owner or operator of coal reclamation facilities,
private and governmental demand for environmental remediation
services, continuing demand for CO2 gas and for the services
provided by the Company's new well testing operations, and the
price which the BE/IM Segment receives for the iodine which it
sells. The Company anticipates that its current resources and
availability of credit due to its financial position will
enable it to meet its planned operating costs and capital
spending requirements.
Working capital for 1998 decreased $4,930,000 from 1997.
Nonetheless, at December 31, 1998, the Company was in a strong
working capital position with working capital of $4,994,000,
including $5,190,000 of cash and cash equivalents, and a
current ratio of 3.19 to 1.
The decrease in the Company's working capital during 1998
stemmed primarily from five activities. The Company: (1)
infused $2,966,000 of cash into the discontinued ITF Segment;
(2) used $277,000 to fund the startup of the CR-China Segment
(3) advanced $353,000 to fund the startup of the new Mexican
well testing operations; and (4) used $265,000 of cash to
purchase treasury stock in the fourth quarter of 1998; and (5)
continued funding operating losses in 1998.
Selected liquidity highlights for the Company for the past
three years are summarized below:
1998 1997 1996
---- ---- ----
Cash and cash equivalents $ 5,190,000 $ 13,955,000 $ 375,000
Accounts receivable, net 1,386,000 2,654,000 2,405,000
Inventory 383,000 227,000 2,003,000
Trade accounts payable 677,000 533,000 1,395,000
Short-term debt - - 639,000
Current maturities of long-term debt 119,000 136,000 910,000
Long-term debt(1) 25,780,000 519,000 2,911,000
Working capital 4,994,000 9,924,000 1,745,000
Current ratio 3.19 to 1 2.42 to 1 1.49 to 1
Net cash provided by (used in)
operations before changes in current
assets and liabilities (696,000) (487,000) 688,000
Net cash provided by (used in)
operations (854,000) 96,000 924,000
________________
(1) On March 19, 1999, the Company terminated certain debt
agreements that resulted in the removal of $23,200,000 of debt from
the Company's balance sheet.
In 1998, the Company generated a negative cash flow of
$8,765,000. The repurchase and redemption of 62,318 shares of
its preferred stock accounted for $4,005,000 of such amount.
Acquisitions of property, plant and equipment primarily related
to the Company's ITF Segment accounted for $1,792,000 of the
cash outflow, while the acquisition of travel facilities
accounted for $763,000, net interest expense accounted for
$639,000, and other corporate activities resulted in cash
outflows of $578,000 as the Company pursued additional business
opportunities. (See "Results of operations---Other activities"
below).
The Company's investing activities used cash of $2,881,000 in
1998. This was due primarily to the acquisition of $1,476,000
in assets by the discontinued ITF Segment during the year.
The Company's financing activities utilized cash flows of
$5,030,000 in 1998. $4,005,000 of such amount were utilized to
repurchase preferred stock, $837,000 (net of proceeds of
$328,000) were used as payments on lines of credit and term
notes, and $189,000 (net of $76,000 from proceeds of a stock
option exercise) were used to purchase treasury stock.
At year-end 1998 the Company had $436,000 of credit available
under the parent company's $650,000 bank line of credit. The
Company believes that available cash and available borrowings
under its existing line of credit will be adequate to meet the
Company's liquidity needs, including anticipated requirements
for working capital, capital expenditures and debt repayment.
The Company intends to pursue additional lines of credit during
the remainder of 1999.
Effect of Recent Developments on Liquidity. The termination of
the MCNIC coal fines debt agreements effective as of January
31, 1999, resulted in the removal of $23,200,000 of debt and
a corresponding amount of property, plant and equipment from
the Company's balance sheet. Because MCNIC has now taken over
and relieved the Company of this debt (which was due to mature
on July 1, 1999), it has been reflected as a long-term
obligation on the December 31, 1998 balance sheet. This had
the effect of significantly improving the Company's balance
sheet and working capital position since such debt had appeared
as a current liability on the Company's balance sheet at
September 30, 1998. (See "Recent Developments---Termination of
MCNIC Coal Fines Operating and Debt Agreements" and "Coal
Reclamation Activities - U.S.---The MCN Projects" in Part I,
Item 1).
On the negative side, it is important to note that revenues
from the MCN Projects accounted for 93% of the Company's
revenues from continuing operations in calendar year 1998.
Accordingly, the termination of the MCNIC operating agreements
effective January 31, 1999 will have a material detrimental
effect upon the Company's profitability at least during the
first and second quarters of 1999. It is not possible to
determine the exact effect until it has been determined whether
any or all of the six projects are sold, and if so, who the
operator of the project(s) will be going forward, and what the
new operating contract(s) with such party(ies) may provide.
The CR Segments are working on a number of new projects, in
addition to the MCN Projects, all of which have the potential
for good prospective return on investment. Although the
Company has the ability to finance one or two of such projects
from available funds and its existing credit line, its ability
to take on incremental projects will be limited by its success
in arranging suitable financing or equipment leasing facilities
for such projects.
The discontinuance of the ITF Segment will result in the
removal of all but $47,000 of the remaining debt from the
Company's balance sheet on March 31, 1999, as $2,645,000 of the
debt is associated with ITF's assets, and the Company is not a
guarantor of such indebtedness. The Company's March 31, 1999
balance sheet will reflect only $47,000 of debt, and it will
have $575,000 of credit available under its existing bank line
of credit (See "Recent Developments---Discontinuance of
Interstate Travel Facilities Business" in Part I, Item 1).
Effect of Reorganization on Liquidity. Through the period
ending December 31, 2002, the Company's liquidity will be
reduced to the extent it is required to redeem any of the Beard
preferred stock pursuant to the mandatory redemption provisions
(see note 4 to the financial statements).
Results of operations
General. The period from 1996 to 1998 has been a time of
transition for the Company. Following the Restructure in 1993
(see note 4 to the financial statements), the Company shifted
its attention to the management of its non-oil and gas
investments. During this period the Company divested itself of
its real estate construction and development activities in
January 1997, sold its dry ice manufacturing and distribution
business in October 1997, and restructured its E/RR Segment
into three segments in 1998, shifting the principal focus to
coal reclamation and discontinuing most of its environmental
services activities. The Company also made a brief and
unsuccessful foray into the interstate travel business in 1998,
which it discontinued in April 1999. As a result, the
corporate staff is now focusing most of its attention on the
management of the two CR Segments which we believe hold the
greatest opportunity for future growth and profits. The CO2
Segment's operating results have reflected healthy improvement
due to successful development drilling at McElmo Dome and
increases in market demand and production of CO2. In addition,
the Company continues to liquidate assets no longer in line
with the Company's strategic objectives. Operating profit
(loss) for the last three years for the Company's remaining
principal operating segments which the Company controls is set
forth below:
1998 1997 1996
---- ---- ----
Operating profit (loss):
Coal reclamation $ 1,401,000 $ (282,000) $ (140,000)
Carbon dioxide 466,000 268,000 184,000
Environmental remediation (224,000) (109,000) -
--------------------------------------------------
Subtotal 1,643,000 (123,000) 44,000
Other - principally
corporate (1,456,000) (1,188,000) (1,032,000)
--------------------------------------------------
Total $ 187,000 $ (1,311,000) $ (988,000)
==================================================
Following is a discussion of results of operations for the three-year
period ended December 31, 1998.
Coal reclamation - U.S. This segment was previously a part of
the E/RR Segment. As a result of the recent change of
direction, the Company has focused its primary attention on
coal reclamation. In January 1999, Beard Technologies, Inc.
("BTI") completed a 10-month contract as the operator of coal
waste recovery projects (the "MCN Projects") located at six
sites in three states in the eastern U.S. Now that such
contracts have been terminated (see "Coal Reclamation
Activities-U.S.---The MCN Projects" in Part I, Item 1), BTI is
again pursuing coal recovery projects where it will serve as
either owner or operator and which may or may not utilize BTI's
patented M/C Technology.
The MCN Projects generated 100% of the revenues and operating
profit of the CR-U.S. Segment in 1998. Operating revenues in
this segment were $8,585,000, $1,000 and $15,000 in 1998, 1997
and 1996, respectively, with the sharp increase in 1998
reflecting the impact of the MCN Projects. In 1997 and 1996
BTI had focused its efforts on marketing its M/C Technology,
and its only revenues were derived from consulting services.
Operating costs increased to $5,110,000 in 1998 from $120,000
in 1997 and $103,000 in 1996, and SG&A expenses increased to
$985,000 in 1998 from $154,000 in 1997 and $46,000 in 1996, as
the segment incurred increased staffing and increased
expenditures for chemicals and supplies to operate the plants
at the several sites. The segment produced an operating profit
of $1,401,000 in 1998, a dramatic reversal from the operating
losses of $282,000 and $140,000 produced in 1997 and 1996 when
there were virtually no revenues to support the marketing
effort that was underway.
Coal reclamation - China. In 1998 the Company activated Beard
Sino-American Resources Co., Inc. ("BSAR") to pursue coal
reclamation opportunities in China. BSAR has the exclusive
license to utilize BTI's patented M/C Technology in China and
has the latitude to sublicense the technology to other parties.
BSAR had no revenues in 1998, and recorded $277,000 of SG&A
expenses in connection with its efforts to market the
technology.
Carbon dioxide. The sole component of revenues for this
segment is the sale of CO2 gas from the working and overriding
royalty interests of the Company's two carbon dioxide producing
units in Colorado and New Mexico. Operating revenues in this
segment were $616,000, $503,000 and $301,000 in 1998, 1997 and
1996, respectively, with the increases reflecting the success
of the developmental drilling program in the McElmo Dome field
in Colorado from late 1996 through early 1998, coupled with
higher pricing as a result of increased demand for CO2 from
1996 to 1997.
Results of operations for the CO2 Segment reflected an
operating profit of $466,000 for 1998, $268,000 for 1997 and
$184,000 for 1996. CO2 net sales volumes were 2,187,000 Mcf,
1,617,000 Mcf and 1,723,000 Mcf in 1998, 1997 and 1996,
respectively. The increase in operating profits in 1998
compared to 1997 was primarily the result of a 570,000 Mcf
increase in sales volumes for 1998 compared to 1997 resulting
from the successful development program which was begun in 1996
by the operator of the McElmo Dome field in Colorado. Sales
volumes actually increased in 1997 compared to 1996 but
adjustments by the operator to volumes reported for prior
periods resulted in a net reduction of 106,000 Mcf to the
Company's interest. The increase in operating profits in 1997
compared to 1996 was primarily the result of an increase from
$0.18 per Mcf in 1996 to $0.31 in 1997 in the average prices
received for the CO2.
Environmental remediation. Another subsidiary, added in 1997,
utilizes a chemical for which it is the sole U.S. licensee of a
process for the remediation of creosote and PAH contamination.
This is essentially a startup operation, and generated only
$8,000 of revenues in 1998 and $13,000 in 1997. The segment
produced an operating loss of $224,000 in 1998 versus $109,000
in 1997, reflecting a sharp increase in SG&A expenses due to a
step up in the level of marketing effort during the current
year.
Other corporate activities. Other corporate activities include
general and corporate operations, as well as assets unrelated
to the Company's operating segments or held for investment.
These activities generated operating losses of $1,456,000 in
1998, $1,188,000 in 1997 and $1,032,000 in 1996. A higher
level of general and administrative expenses impacted the
bottom line in 1996 as the Company continued its pursuit of
additional business opportunities. This trend continued in
1997 and 1998 as general and administrative expenses increased
from the prior year's level as management continued to explore
other business opportunities. In 1997, the parent company also
incurred an impairment loss of $171,000 relating to
underutilized land remaining from the 1993 Restructure (see
note 4 to the financial statements).
Although the Company owns 80% of the common stock of Cibola
Corporation ("Cibola"), it does not have operating or financial
control of this gas marketing subsidiary. Cibola, formed in
April of 1996, contributed $274,000, $185,000 and $99,000 of
pre-tax net income to the Company for fiscal years 1998, 1997
and 1996, respectively, pursuant to a tax sharing agreement.
Selling, general and administrative expenses. Selling, general
and administrative expenses ("SG&A") increased to $2.7 million
in 1998 from $1.3 million in 1997 and $1.1 million in 1996.
SG&A expense incurred by the CR-U.S. Segment during 1998, which
represents 36% of SG&A costs, increased by $831,000 over 1997
and by $108,000 in 1997 over the amounts for 1996. The large
increase in 1998 was due to increased staffing and operations
to meet the demands of the contracts relating to the coal
projects in the Appalachian region of the United States. SG&A
expense incurred by the CR-China Segment during 1998 increased
to $277,000 from none in 1997. Other corporate SG&A increased
from $1,028,000 in 1996 to $1,167,000 in 1997 and to
$1,430,000 in 1998 as the Company incurred expenses to pursue
new investment opportunities in Mexico and other investment
opportunities that failed to materialize.
Depreciation, depletion and amortization. The Company's
depreciation, depletion and amortization expenses increased
1,452% in 1998 over 1997's expense and 24% in 1997 over 1996's
expense. These increases were a consequence of the higher
depreciable base which resulted from the expansions and capital
expenditures made within the CR and CO2 Segments. The
developmental drilling in the CO2 Segment accounted for most of
the 1997 increase, and the MCN Projects accounted for the 1998
increase.
Other income or expenses, including impairment. In 1998, 1997
and 1996 the Company recognized $100,000, $328,000 and
$180,000 for impairments to the carrying values of investments
and other assets.
Interest income. The increase in interest income from $12,000
in 1996 to $183,000 in 1997 to $400,000 in 1998 is a result of
the investment in commercial paper purchased with the cash from
the sale, in October 1997, of the assets of the discontinued
solid CO2 segment. See note 3 to the accompanying financial
statements.
Interest expense. Interest expense has increased from
$62,000 in 1996 to $134,000 in 1997 and to $964,000 in 1998.
Such increases reflect the higher level of debt incurred by
corporate operations to meet working capital needs in 1997 and
by the CR-U.S. Segment to fund the acquisition of equipment for
the MCN Projects in 1998.
Gain on sale of assets. In 1998, the gain on the sale of
assets of $8,000 reflected proceeds from the sale of certain
assets that are in the process of being liquidated, principally
drilling rigs and related equipment. These activities
generated gains of $55,000 in 1997 and $178,000 in 1996.
Brine extraction/iodine manufacturing. The Company has an
equity investment (40%) in North American Brine Resources
("NABR"), a joint venture for the extraction, production and
sale of crude iodine. In the second half of 1996 NABR
determined to reactivate its Woodward Plant (with iodine priced
in the $17-18/kilogram range), which had been shut down since
mid-1993 due to severely depressed iodine prices (bottomed at
$7/kilogram in mid-1994). Beard's share of NABR's 1996
operating loss was approximately $43,000. The Company
benefited in 1997 from the decision to reactivate the Woodward
Plant as its share of NABR's operating income was $105,000.
The Company's share of NABR's 1998 operating income amounted to
$64,000 before recording a loss of $360,000 representing its
share of the $1,461,000 impairment loss recorded by NABR on its
long-lived assets (see note 1 to the financial statements).
Income taxes. The Company has approximately $57.9 million of
net operating loss carryforwards, investment tax credits, and
depletion carryforwards to reduce future income taxes. Based
on the Company's historical results of operations, it is not
likely that the Company will be able to realize the benefit of
its net operating loss carryforwards and investment tax credit
carryforwards before they begin to expire in 2004 and 1999,
respectively. At December 31, 1998 and 1997, the Company has
not reflected as a deferred tax asset any future benefit it may
realize as a result of its tax credits and loss carryforwards.
Future regular taxable income of the Company will be
effectively sheltered from tax as a result of the Company's
substantial tax credits and loss carryforwards. Continuing
operations reflect state income and federal alternative minimum
taxes of $100,000 and $40,000 for 1998 and 1997, respectively.
It is anticipated that the Company will continue to incur minor
alternative minimum tax in the future, despite the Company's
carryforwards and credits.
Discontinued operations. On April 13, 1999, Beard entered
into an agreement with ITF and its minority shareholders
whereby (1) the original purchase price of the two properties
purchased from the minority shareholders will be adjusted
downward by canceling the $544,000 (balance of $414,000 at
December 31, 1998) promissory note to the minority
shareholders; (2) Beard will sell 22,321 shares of its ITF
common stock for $1,000 and will grant a noncancelable and
irrevocable proxy to the minority shareholders for its
remaining 30% common ownership in ITF, thereby surrendering its
operating and voting control of ITF; and, (3) ITF and Beard
will restructure ITF's current indebtedness to Beard whereby
ITF will (a) obtain a release of and assign to Beard $327,000
of certificates of deposit currently securing certain ITF debt
obligations, and (b) will deliver two promissory notes to Beard
totaling $2,053,000 (note A with a principal balance of
$1,514,000 ("Note A") and note B with a principal balance of
$539,000 ("Note B")). Note A will be secured by (a) a first
mortgage on two of ITF's convenience store properties (the "C-
stores"); and (b) a security interest in related equipment; and
(c) the ITF shares being sold to ITF (the "Collateral"). All
proceeds from the sale of the two C-stores and Collateral will
be applied first to Note A and then to Note B. Note A will not
bear interest until both the C-stores are sold (the "Trigger
Date") at which time the remaining principal, if any, will bear
interest at 8% per annum. ITF has agreed to use its best
efforts to sell the two C-stores within one year. Note B is
unsecured and bears interest at 6% per annum until the Trigger
Date at which time the interest rate increases to 8% per annum.
No payment, other than from the proceeds from the sale of the
C-stores and the Collateral, is required on either note until
the Trigger Date, at which time equal monthly interest and
principal payments become due over a 36-to-60 month period,
based upon the amount of the unpaid principal balances of the
notes at the Trigger Date.
Included in the 1998 operating results is a $1,603,000
estimated loss from the discontinuation of the ITF Segment.
$1,256,000 of the loss represents the difference in the
estimated fair value of Notes A and B and Beard's investment in
and notes and accounts receivable from ITF at December 31,
1998. Additionally, a provision of $347,000 was recognized for
the estimated operating losses incurred by ITF from January 1,
1999 through March 31, 1999, the effective date of the
transaction.
In August of 1998 the Company's Board of Directors adopted a
plan to restructure the E/RR Segment and to discontinue the
Other E/S Operations. Losses from the discontinued Other E/S
Operations were $1,276,000, $951,000 and $684,000 in 1998, 1997
and 1996, respectively. Included in the accompanying
statements of operations for the year ended December 31, 1998,
is a $684,000 estimated loss expected from the discontinuation
of the Other E/S Operations. $594,000 of the net loss
represents the difference in the estimated amounts to be
received from disposing of the Other E/S Operations assets and
the assets' recorded values as of June 30, 1998. $534,000 of
this loss was recorded in June 1998 and $60,000 of the loss was
recorded in December 1998 upon the Company's review of the
estimated realizable values of the remaining assets. $455,000
of the loss represents anticipated operating losses until
disposal has been completed. Offsetting the expected losses is
a $365,000 gain from early extinguishment of an obligation to
the former owner of HDT. The gain represents the amount of the
discounted obligation as of June 30, 1998. At December 31,
1998, the significant assets related to the Other E/S
Operations consist primarily of equipment and accounts
receivable with a recorded value of $905,000. The significant
liabilities related to the Other E/S Operations consist of
trade accounts payable totaling $110,000.
In October of 1997 the Company sold the business and
substantially all of the assets (excluding cash and cash
equivalents, notes receivable from the Company or related
parties and deferred tax assets) of Carbonic Reserves, an 85%-
owned subsidiary engaged in the manufacture of solid CO2
("solid CO2 segment") for cash of $19,375,000 and the
assumption of certain liabilities valued at $2,813,000. The
assumed liabilities included trade accounts payable and current
and long-term debt obligations (excluding tax liabilities,
employee related liabilities and indebtedness to the Company or
related parties). The gain on the sale was $11,014,000 after
deducting income taxes of $522,000. During the third quarter
of 1998, the Company determined that it overestimated its state
income tax liability thereby reducing the gain recognized in
October 1997 from the Asset Sale by $168,000. As of December
31, 1998, the solid CO2 segment had no significant assets. The
significant liabilities of the solid CO2 segment consisted of
accrued employee severance compensation of $155,000. Revenues
applicable to the discontinued operations of Carbonic Reserves
were $11,071,000 and $13,307,000 in 1997 and 1996,
respectively. The segment had no revenues for 1998. Earnings
from the discontinued solid CO2 segment were $121,000,
$428,000, and $1,535,000 in 1998, 1997 and 1996, respectively.
As previously noted, the Company discontinued its real estate
construction and development activities in January of 1997 in
order to focus its attention on other segments which are
considered to have greater potential for growth and
profitability. During 1996 the Company sold three homes in a
development adjacent to the Oak Tree Golf Club in Edmond,
Oklahoma. As of December 31, 1998, the Company had sold all of
the real estate construction and development assets (the
"Assets") with the exception of one speculative home which is
under contract for sale with a closing set in April 1999.
Revenues applicable to these operations were $1,083,000 in
1996. Earnings from the discontinued real estate construction
and development segment were $5,000 in 1996.
The Company estimated and accrued $180,000 at December 31,
1996, representing the difference in the estimated amounts to
be received from disposing of the Assets and the Assets'
recorded value at December 31, 1996. During 1997, the Company
sold $1,534,000 of the real estate construction and development
assets, which approximated the amounts the Company estimated it
would receive from selling such assets. Operating results of
the discontinued operations through the date of sale of the
remaining asset are not expected to be significant.
Forward looking statements. The previous discussions include
statements that are not purely historical and are "forward-
looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, including
statements regarding the Company's expectations, hopes,
beliefs, intentions and strategies regarding the future. The
Company's actual results could differ materially from its
expectations discussed herein, and particular attention is
called to the discussion under "Liquidity and Capital Resources
- ---Effect of Recent Developments on Liquidity" contained in
this Item 7.
Impact of Recently Issued Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
SFAS No.133 establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives
as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair
value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting
designation. SFAS No. 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. It is expected
that the Company will adopt the provisions of SFAS No. 133 as
of January 1, 2000 and such adoption is not expected to have a
material impact on the Company's financial position or future
results of operations.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-up Activities." SOP 98-5
establishes reporting standards for start-up and organization
costs. It broadly defines start-up activities and requires an
entity to expense costs of start-up activities and organization
costs as they are incurred. SOP 98-5 is effective for
financial statements issued for fiscal years beginning after
December 15, 1998. The Company will adopt the provisions of
SOP 98-5 as of January 1, 1999. The Company does not expect
the adoption of the provisions of SOP 98-5 to have a material
impact on the Company's financial position or future results of
operations.
Impact of Year 2000 Issue
State of Readiness and Costs. In August of 1998 the
Company implemented a program to address its Year 2000
readiness (the "Program"). The Program addresses the issue of
computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000. Computer
programs that do not properly recognize the difference could
fail or create erroneous results. At this point the Company's
assessment of its Year 2000 issues is not complete. Based upon
its analysis to date, management is well down the road to
concluding that the Company's inhouse computer systems will be
Year 2000 compliant by December 31, 1999 and that our major
exposure is related to future costs that may arise as a result
of business disruptions caused by vendors, suppliers, banks,
insurance providers and customers, or the possible loss of
electric power or phone and fax service (the "External
Parties"). Based upon its analysis to date, management's
current estimate is that the total cost of the Program should
not exceed $35,000.
The Program consists of: (i) inventorying Year 2000
items; (ii) assigning priorities to identified items; (iii)
assessing the Year 2000 compliance of items determined to be
material to the Company; (iv) repairing or replacing material
items that are determined not to be Year 2000 compliant; (v)
testing material items; and (vi) designing and implementing
contingency and business continuation plans for the Company and
each of its operating entities.
At March 31, 1999, the inventory and priority assessment
phases of the Program were underway, but had not yet been
completed at either the parent or subsidiary company level. At
the parent company level, the Company has only a PC network and
uses only third-party-developed programs. The Company
concluded that, at this level, its only problem area in terms
of hardware resided in its file server and in two computer
stations, all of which were replaced due to their age at a
total cost of $10,000. The Company is examining its software
currently and anticipates replacing the software not in
compliance at a cost not to exceed $7,000. The Company
believes that, at this level, its hardware and systems software
are expected to be compliant. Prior to May 31, 1999, we hope
to obtain from our software vendors assurances that all of the
systems software supplied by them is Year 2000 compliant, or
else have a clear picture of the upgrade path necessary to
bring that software into compliance. We presently anticipate
concluding systems software updates and compliance testing
during our third quarter.
At the subsidiary level, we do know that all of these
entities, insofar as their basic accounting and financial
systems are concerned, use only basic PC's and utilize only
purchased systems software, and no hardware or major software
problems are anticipated with regard to such items. Neither
our two principal operating subsidiaries nor our two principal
investee companies have any equipment we are aware of with
embedded processors or memory chips that would create a problem.
We are now in the process of obtaining Year 2000 assessment
questionnaires from all of the External Parties whose services
we rely upon, both at the parent and subsidiary company levels.
The Company believes that at the present time its Program
is approximately 75% complete. The Company believes that by
May 31, 1999, it will have identified any major deficiencies or
exposures not previously identified, and that by September 30,
1999, it will have finalized the contingency and business
continuation plans for the Company and all of its subsidiary
entities.
Risks. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such
failures could adversely affect the Company's results of
operations, liquidity and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers, vendors and customers, the
Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact
on the Company's results of operations, liquidity and financial
condition. The Program is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and,
in particular, about the Year 2000 compliance and readiness of
its material External Parties. The Company believes that, upon
completion of the Program, the possibility of interruptions of
material consequence to normal operations will have been
significantly reduced.
Readers are cautioned that forward-looking statements
contained in the "Impact of Year 2000 Issue" should be read in
conjunction with the Company's disclosures under the heading:
"FORWARD LOOKING STATEMENTS" found at the lead-in to Part I at
page 3 of this Form 10-K.
Contingencies. As indicated above, the Company has begun,
but not yet implemented, a comprehensive analysis of the
operational problems and costs (including loss of revenues)
that would be reasonably likely to result from the failure by
the Company and the External Parties to complete efforts to
achieve Year 2000 compliance on a timely basis. A contingency
plan has not been developed for dealing with the most
reasonably likely worst case scenario, and such scenario has
not yet been clearly identified. The Company plans to complete
such analysis and contingency planning by September 30, 1999.
Item 7A. Quantiative and Qualitative Disclosures About Market Risk
At December 31, 1998, the Company had long-term debt of $25,899,000 of
of which $23,717,000 was fixed-rate debt. The remaining debt of $2,182,000
bears interest at a rate which is adjusted annually to equal the national
prime rate.
The termination of the MCNIC coal fines debt agreements effective January
31, 1999, will result in the elimination of $23,200,000 of the above fixed-
rate debt. The discontinuance of the ITF Segment will result in the
elimination of $2,652,000 of the Company's debt including all the Company's
variable-rate debt. The remaining Company debt of $47,000 has fixed interest
rates and the interest expense and operating results would not be affected
by an increase in market interest rates.
The Company has no other market risk sensitive instruments.
Item 8. Financial Statements and Supplementary Data
The Beard Company and Subsidiaries
Index to Financial Statements
Forming a Part of Form 10-K Annual Report
to the Securities and Exchange Commission
Page Number
Independent Auditors' Report
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Operations, Years ended December 31, 1998, 1997 and 1996
Statements of Shareholders' Equity, Years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, Years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements, December 31, 1998, 1997 and 1996
Independent Auditors' Report
The Board of Directors and Stockholders
The Beard Company:
We have audited the financial statements of The Beard Company
and subsidiaries as listed in the accompanying index. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of The Beard Company and subsidiaries at December 31,
1998 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Oklahoma City, Oklahoma
April 13, 1999
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
December 31, December 31,
Assets 1998 1997
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 5,190,000 $ 13,955,000
Accounts receivable, less
allowance for doubtful
receivables of $69,000 in
1998 and $75,000 in 1997 1,386,000 1,654,000
Other receivables (note 3) - 1,000,000
Inventory 383,000 227,000
Prepaid expenses and other assets 259,000 95,000
Current portion of notes receivable
(note 5) 57,000 -
------------ ------------
Total current assets 7,275,000 16,931,000
Notes receivable (note 5) 354,000 -
Investments and other assets 1,887,000 1,580,000
Property, plant and equipment,
at cost (note 6) 32,921,000 6,247,000
Less accumulated depreciation,
depletion and amortization 5,139,000 4,300,000
------------ ------------
Net property, plant and equipment 27,782,000 1,947,000
Intangible assets, at cost (note 7) 167,000 637,000
Less accumulated amortization 128,000 143,000
------------ ------------
Net intangible assets 39,000 494,000
------------ ------------
$ 37,337,000 $ 20,952,000
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 677,000 $ 533,000
Accrued expenses (note 3) 1,385,000 892,000
Income taxes payable (note 11) 100,000 541,000
Redeemable preferred stock purchase and
redemption obligation (note 4) - 4,005,000
Other obligations (note 3) - 900,000
Current maturities of long-term debt (note 8) 119,000 136,000
------------ ------------
Total current liabilities 2,281,000 7,007,000
------------ ------------
Long-term debt less current maturities
(note 8) 25,780,000 519,000
Minority interest in consolidated
subsidiaries - 104,000
Redeemable preferred stock of $100 stated
value; 5,000,000 shares authorized;
27,838 shares issued outstanding
in 1998 and 1997 889,000 889,000
Common shareholders' equity:
Common stock of $.001 par value
per share; 10,000,000 shares
authorized; 2,832,129 shares
issued and outstanding in 1998
and 1997 3,000 3,000
Capital in excess of par value 37,747,000 37,911,000
Accumulated deficit (27,819,000) (23,962,000)
Treasury stock, 310,890 and 303,890
shares, at cost in 1998 and 1997,
respectively (note 1) (1,544,000) (1,519,000)
------------ ------------
Total common shareholders' equity 8,387,000 12,433,000
------------ ------------
Commitments and contingencies
(notes 4, 10, and 14) $ 37,337,000 $ 20,952,000
============ ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Revenues:
Coal reclamation $ 8,585,000 $ 1,000 $ 15,000
Carbon dioxide 616,000 503,000 301,000
Environmental remediation 8,000 13,000 -
Other 37,000 58,000 61,000
------------ ----------- ------------
9,246,000 575,000 377,000
Expenses:
Coal reclamation (exclusive of
depreciation, depletion and
amortization shown separately below) 5,110,000 120,000 103,000
Carbon dioxide (exclusive of depreciation,
depletion and amortization shown
separately below) 119,000 103,000 97,000
Environmental remediation (exclusive of
depreciation, depletion and
amortization shown separately below) 185,000 96,000 -
Selling, general and administrative 2,731,000 1,297,000 1,073,000
Depreciation, depletion and amortization 869,000 56,000 45,000
Impairment of long-lived assets (notes 1
and 16) - 171,000 -
Other 45,000 43,000 47,000
------------ ----------- ------------
9,059,000 1,886,000 1,365,000
Operating profit (loss):
Coal reclamation 1,401,000 (282,000) (140,000)
Carbon dioxide 466,000 268,000 184,000
Environmental remediation (224,000) (109,000) -
Other, principally corporate (1,456,000) (1,188,000) (1,032,000)
------------ ----------- ------------
187,000 (1,311,000) (988,000)
Other income (expense):
Interest income 400,000 183,000 12,000
Interest expense (964,000) (134,000) (62,000)
Equity in net earnings (loss) of
unconsolidated affiliates (71,000) 274,000 56,000
Gain on sale of assets 8,000 55,000 178,000
Impairment of investments and other
assets (notes 1 and 16) (100,000) (328,000) (180,000)
Other 67,000 13,000 3,000
------------ ----------- ------------
Loss from continuing operations
before income taxes (473,000) (1,248,000) (981,000)
Income taxes from continuing operations
(note 11) (100,000) (40,000) -
------------ ----------- ------------
Loss from continuing operations (573,000) (1,288,000) (981,000)
Discontinued operations (note 3):
Earnings (loss) from discontinued
operations (less applicable income
taxes of $33,000 in 1997) (1,165,000) (712,000) 846,000
Loss from discontinuing real estate
construction and development activities - - (180,000)
Loss from discontinuing other
environmental services activities (684,000) - -
Loss from discontinuing interstate
travel facilities activities (1,603,000) - -
Gain on sale of dry ice manufacturing
and distribution business (less
applicable income taxes of $522,000
in 1997) 168,000 11,014,000 -
------------ ----------- ------------
Earnings (loss) from discontinued
operations (3,284,000) 10,302,000 666,000
------------ ----------- ------------
Net earnings (loss) $ (3,857,000) $ 9,014,000 $ (315,000)
============ =========== ============
Net earnings (loss) attributable to
common shareholders (note 4) $ (3,857,000) $ 5,225,000 $ (315,000)
============ =========== ============
Net earnings (loss) per
average common share outstanding:
Basic and diluted:
Loss from continuing operations $ (0.23) $ (0.46) $ (0.35)
Earnings (loss) from discontinued
operations (1.29) 2.32 0.24
------------ ----------- ------------
Net earnings (loss) $ (1.52) $ 1.86 $ (0.11)
============ =========== ============
Weighted average common shares
outstanding - basic and diluted 2,542,000 2,808,000 2,756,000
============ =========== ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
Total
Capital in Common
Common Excess of Accumulated Treasury Shareholders'
Stock Par Value Deficit Stock Equity
------ ---------- ------------ ------------ -------------
Balance, December 31, 1995 $ 3,000 $41,446,000 $(32,661,000) $ - $ 8,788,000
Net loss, year ended
December 31, 1996 - - (315,000) - (315,000)
Issuance of 68,244
shares of common stock - 183,000 - - 183,000
------- ----------- ------------ ------------ -----------
Balance, December 31, 1996 3,000 41,629,000 (32,976,000) - 8,656,000
Net earnings, year ended
December 31, 1997 - - 9,014,000 - 9,014,000
Issuance of 33,055 shares
of common stock - 71,000 - - 71,000
Purchase of 303,890 shares
of common stock (note 1) - - - (1,519,000) (1,519,000)
Accretion of preferred
stock (note 4) - (3,789,000) - - (3,789,000)
------- ----------- ------------ ------------ -----------
Balance, December 31, 1997 3,000 37,911,000 (23,962,000) (1,519,000) 12,433,000
Net loss, year ended
December 31, 1998 - - (3,857,000) - (3,857,000)
Sale of 37,500 shares
of treasury stock - (112,000) - 188,000 76,000
Issuance of 11,000 shares
of treasury stock for
stock option exercises - (52,000) - 52,000 -
Purchase of 55,500 shares
of common stock (note 1) - - - (265,000) (265,000)
------- ----------- ------------ ------------ -----------
Balance, December 31, 1998 $ 3,000 $37,747,000 $(27,819,000) $(1,544,000) $ 8,387,000
======= =========== ============ ============ ===========
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Operating activities:
Cash received from customers $ 15,615,000 $ 17,189,000 $ 17,763,000
Cash paid to suppliers and
employees (15,472,000) (16,520,000) (17,045,000)
Cash received from settlement of
take-or-pay contract - - 539,000
Interest received 512,000 83,000 15,000
Interest paid (1,151,000) (386,000) (348,000)
Taxes paid (358,000) (54,000) -
------------ ------------ ------------
Net cash provided by (used in)
operating activities (854,000) 312,000 924,000
------------ ------------ ------------
Investing activities:
Acquisition of property, plant and
equipment (1,792,000) (1,517,000) (1,765,000)
Proceeds from sale of business 1,000,000 18,425,000 -
Proceeds from sale of assets 275,000 352,000 434,000
Purchase of minority interest (900,000) - -
Acquisition of travel facilities,
net of cash acquired of $49,000 (886,000) - -
Purchase of certificates of deposit (327,000) - -
Other investments (251,000) 106,000 128,000
------------ ------------ ------------
Net cash provided by (used in)
investing activities (2,881,000) 17,366,000 (1,203,000)
------------ ------------ ------------
Financing activities:
Proceeds from line of credit and
term notes 328,000 1,764,000 3,728,000
Payments on line of credit and
term notes (1,165,000) (4,302,000) (3,331,000)
Purchase of treasury stock (265,000) (1,519,000) -
Preferred stock repurchase (4,005,000) - -
Proceeds from issuance of
common stock 76,000 71,000 45,000
Other 1,000 (112,000) (8,000)
------------ ------------ ------------
Net cash provided by (used in)
financing activities (5,030,000) (4,098,000) 434,000
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (8,765,000) 13,580,000 155,000
Cash and cash equivalents at beginning
of year 13,955,000 375,000 220,000
------------ ------------ ------------
Cash and cash equivalents at end of
year $ 5,190,000 $ 13,955,000 $ 375,000
============ ============ ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
Reconciliation of Net Earnings (Loss) to Net Cash Provided By (Used In)
Operating Activities:
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Net earnings (loss) $ (3,857,000) $ 9,014,000 $ (315,000)
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Loss from discontinued operations 2,119,000 - 180,000
Depreciation, depletion and
amortization 1,366,000 1,297,000 1,313,000
Gain on sale of assets (16,000) (11,549,000) (171,000)
Provision for uncollectible accounts
and notes 73,000 113,000 28,000
Impairment of investments and other
assets 100,000 328,000 180,000
Impairment of long-lived assets - 285,000 -
Net cash used by discontinued
operations offsetting accrued
impairment loss (300,000) - -
Gain on take-or-pay contract
settlement - - (400,000)
Equity in net (income) loss of
unconsolidated affiliates 71,000 (274,000) (56,000)
Minority interest in operations
of consolidated subsidiaries (285,000) (49,000) (13,000)
Interest and other costs
(capitalized) recognizedon real
estate project - 357,000 (94,000)
Other 33,000 (9,000) 36,000
(Increase) decrease in accounts
receivable, other receivables,
prepaid expenses and other
current assets 79,000 (1,022,000) (114,000)
(Increase) decrease in inventories (8,000) 1,069,000 134,000
Increase (decrease) in trade
accounts payable, accrued expenses
and other liabilities (229,000) 752,000 216,000
------------ ------------ ------------
Net cash provided by (used in)
operating activities $ (854,000) $ 312,000 $ 924,000
============ ============ ============
Supplemental Schedule of Noncash Investing and Financing Activities:
Purchase of property, plant and
equipment and intangible
assets through issuance of
debt obligations $ 24,127,000 $ 86,000 $ 588,000
============ ============ ============
Purchase of travel facilities
through the sale of a subsidiary's
common stock $ 181,000 $ - $ -
============ ============ ============
Purchase of travel facilities
through the issuance of a debt
obligation and assumption of
debt obligations $ 2,319,000 $ - $ -
============ ============ ============
Purchase of business for a
contingent payment obligation $ - $ - $ 301,000
============ ============ ============
Contribution of equipment for
equity investment $ 20,000 $ - $ -
============ ============ ============
Purchase of business for note
payable subsequently converted
to common stock $ - $ - $ 138,000
============ ============ ============
Accounts payable, accrued expenses
and other debt obligations
assumed by the purchaser from the
sale of the dry ice manufacturing
and distribution business $ - $ 2,813,000 $ -
============ ============ ============
Holdback receivable from the sale
of the dry ice manufacturing
and distribution business $ - $ 1,000,000 $ -
============ ============ ============
Stock purchase obligation resulting
from the sale of the dry ice
manufacturing and distribution
business $ - $ 900,000 $ -
============ ============ ============
Sale of property, plant and equipment
for notes receivable $ 359,000 $ - $ -
============ ============ ============
See accompanying notes to financial statements.
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
The Beard Company's ("Beard" or the "Company") accounting
policies reflect industry practices and conform to generally
accepted accounting principles. The more significant of such
policies are briefly described below.
Nature of Business
The Company's current significant operations are within the
following segments: (1) the Coal Reclamation-U.S. ("CR-U.S.")
Segment, consisting of the coal reclamation activities and
services related to the Company's patented Mulled Coal
Technology (the "M/C Technology"); (2) the Coal Reclamation-
China ("CR-China") Segment, consisting of the Company's efforts
to develop coal reclamation operations in China utilizing the
M/C Technology; (3) the carbon dioxide ("CO2") Segment,
consisting of the production of CO2 gas; (4) the Well Testing
("WT") Segment, consisting of the Company's 50% ownership in a
company involved in natural gas well testing operations in
northeastern Mexico; (5) the environmental remediation ("ER")
Segment, consisting of the remediation of creosote and
polycyclic aromatic hydrocarbon ("PAH") contamination; and (6)
the Brine Extraction/Iodine Manufacturing ("BE/IM") Segment,
consisting of the Company's 40%-ownership investment in a joint
venture for the extraction, production and sale of crude
iodine.
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include the accounts of
the Company and its wholly and majority owned subsidiaries in
which the Company has a controlling financial interest. All
significant intercompany transactions have been eliminated in
the accompanying financial statements.
The Company operated in the interstate travel facilities
business (the "ITF" Segment) following its acquisition of four
travel facilities in February 1998. As discussed in note 3, in
April 1999, the Company's Board of Directors adopted a formal
plan to discontinue its ITF Segment. Also, as discussed in
note 3, in August 1998 the Company's Board of Directors adopted
a formal plan to discontinue its other environmental services
operations (the "Other E/S Operations"), conducted principally
by Whitetail Services, Inc. ("Whitetail"), Horizontal Drilling
Technologies, Inc. ("HDT") and Incorporated Tank Systems.
In prior years, the Company also operated in (i) the real
estate construction and development segment which was
discontinued through sale in January 1997; and (ii) the dry ice
(solid CO2) manufacturing and distribution business, included
in the CO2 Segment which was discontinued through sale in
October 1997.
The coal reclamation activities conducted by Beard
Technologies, Inc. and Beard Sino-American Resources Co., Inc.
now comprise the CR-U.S. Segment and CR-China Segment,
respectively. The environmental remediation activities
conducted by ISITOP, Inc. now comprise the ER Segment.
Use of estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash equivalents approximated $3,954,000 and $13,181,000 at
December 31, 1998 and 1997, respectively, and consist of
investments in short-term commercial paper whose remaining
terms at the date of purchase are less than 90 days. For
purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
Inventory
As of December 31, 1998, inventory consisted primarily of
gasoline and grocery items located at the Company's interstate
travel facilities, at cost of $156,000; and one speculative
home, at cost of $227,000, remaining from the real estate
construction and development business. At December 31, 1997,
inventory consisted of the remaining speculative home.
Inventory is valued at lower of cost or net realizable value
(see note 2).
Costs associated with the acquisition, development and
construction of the real estate project were capitalized in
accordance with Statement of Financial Accounting Standards
("SFAS") No. 67, "Accounting for Costs and Initial Rental
Operations of Real Estate Projects." Accordingly, during 1996,
$30,000 of general and administrative costs that related
directly to the project were capitalized as inventory costs,
and at December 31, 1998 and 1997, inventories included
approximately $24,000 of such costs. The Company also
capitalized interest costs during the construction phase of the
project and in 1996 capitalized interest costs of $94,000. As
previously discussed, the Company discontinued its real estate
construction and development segment in January 1997 and
therefore did not incur any costs related to the real estate
construction and development project during 1998 or 1997.
Investments
Investments are accounted for principally by the use of the
equity method, and consist primarily of a 40% interest in North
American Brine Resources ("NABR"), a joint venture which
extracts iodine from saltwater brine, a 50% interest in a
company involved in natural gas well testing operations in
northeastern Mexico, and 10% to 32% interests in certain real
estate limited partnerships for which the Company does not
serve as general partner. The summarized financial position
and operating results of NABR (the Company's most significant
equity investment) for each of the three years ended December
31 are as follows:
1998 1997 1996
---- ---- ----
Current assets $ 1,156,000 $ 938,000 $ 778,000
Noncurrent assets 1,197,000 3,350,000 3,746,000
Current liabilities (196,000) (751,000) (580,000)
Noncurrent liabilities - - (540,000)
----------- ----------- -----------
Venture equity $ 2,157,000 $ 3,537,000 $ 3,404,000
=========== =========== ===========
Net sales 2,355,000 2,638,000 263,000
Gross margin 426,000 606,000 102,000
Net income (loss) $(1,380,000) $ 133,000 $ (468,000)
=========== =========== ===========
Company's recorded share of
net income (loss) $ (296,000) $ 105,000 $ (43,000)
=========== =========== ===========
The Company's carrying value of its investment in NABR on
December 31, 1998, was approximately $863,000, equal to its 40%
ownership in the underlying equity of NABR. For the year ended
December 31, 1998, NABR recorded an impairment loss related to
the recoverability of its long-lived assets of $1,461,000 due
to a decrease in the projected cash flows from the iodine
reserves at the Woodward Plant and the resultant shorter life
of the underlying plant assets. The Company's share of NABR's
1998 operating income amounted to $64,000 before recording a
loss of $360,000, representing its share of the impairment loss
recorded by NABR on its long-lived assets. In 1992 and 1994,
the Company recorded $529,000 and $408,000, respectively, of
economic impairment of its investment in NABR due to the
closure of NABR's larger iodine plant and low iodine prices.
NABR did not record economic impairment of its assets at the
venture level. Starting in 1993, Beard began amortizing the
difference between the carrying amount of its investment in
NABR and its share of NABR's recorded equity based on the
expected useful life of the iodine plant and certain
maintenance costs incurred by NABR during the closure period.
As a result of higher iodine prices, the closed iodine plant
was reopened in late 1996. Beard amortized $256,000, $51,000
and $144,000 of the difference between the carrying amount of
its investment in NABR and its share of NABR's recorded equity
in 1998, 1997 and 1996, respectively.
In October 1998, the Company contributed $353,000 for a 50%
ownership in ITS-Testco, L. L. C. ("ITS-Testco"). ITS-Testco,
through its wholly-owned Mexican subsidiary, Testco Inc. de
Mexico, S. A. de C. V., is involved in natural gas well testing
operations in northeastern Mexico. Management does not feel it
has financial control of ITS-Testco's operations and therefore
accounts for ITS-Testco as an equity investment. Beard
recorded a loss of $35,000 related to its share of ITS-Testco's
1998 operations. ITS-Testco had no significant operations in
Mexico in 1998.
As of December 31, 1998, the Company has $327,000 of
certificates of deposit, with interest rates ranging from 4.70%
to 5.33%, maturing on May 22, 1999 to October 28, 1999. The
certificates of deposit are securing certain of the Company's
debt obligations (see note 8).
The Company owns 80% of the outstanding common stock of Cibola
Corporation, a natural gas marketing company, but does not
consolidate the assets, liabilities, revenues or expenses of
Cibola because Cibola's assets are controlled by the minority
common stockholders and preferred stockholders of Cibola. The
Company's equity in the earnings of Cibola were $274,000, $185,000
and $99,000 of pretax income from its ownership interest of Cibola
in 1998, 1997 and 1996, respectively.
The Company's equity in other investees' operations and net
assets is not material to the Company's results of operations
or financial position. The Company recorded provisions
totaling $152,000 and $180,000 in 1997 and 1996, respectively,
for economic impairment of an unsecured note with a face value
of $362,000 held by the Company in a research and development
entity. The Company also recorded provisions of $100,000 and
$176,000 in 1998 and 1997, respectively, for economic
impairment of other investments.
Property, Plant and Equipment
Property, plant and equipment are depreciated by use of the
straight-line method using estimated asset lives of 3 to 40
years. Depreciation, depletion and amortization of properties
producing CO2 are computed by the units-of-production method
using estimates of unrecovered proved developed CO2 reserves.
The Company charges maintenance and repairs directly to expense
as incurred while betterments and renewals are generally
capitalized. When property is retired or otherwise disposed
of, the cost and applicable accumulated depreciation, depletion
and amortization are removed from the respective accounts and
the resulting gain or loss is reflected in operations.
Intangible Assets
Identifiable intangible assets, comprised primarily of patents
and licensing fees, are amortized on a straight-line basis over
their respective estimated useful lives, ranging from five to
17 years. The excess of acquisition cost over the fair value
of net assets acquired (goodwill) is amortized on a straight-
line basis over the expected periods to be benefited,
generally, 10 to 15 years. Intangible assets are evaluated
periodically, and if conditions warrant, an impairment
valuation allowance is provided. The Company assesses
recoverability of its intangible assets under the provisions of
SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of."
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Assets to be Disposed Of." This
Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell.
The operating trends of a subsidiary included in the Company's
Other E/S Operations indicated that the undiscounted future net
cash flows from the subsidiary would be less than the carrying
value of its long-lived assets. Accordingly, in the fourth
quarter of 1997, the Company recognized an impairment loss of
$114,000 which is reported in discontinued operations in the
accompanying statements of operations. The Company also
recorded an impairment loss of $171,000 in the fourth quarter
of 1997 related to underutilized land owned by the Company. As
a result of the 1993 Restructure (see note 4), the Company
retained certain land which was once utilized as oil and gas
drilling and servicing supply yards. The supply yards have
been inactive since the Company's 1993 Restructure.
The impairment losses are a result of differences between
carrying value and the estimated fair value (based on appraised
and quoted replacement values) of the long-lived assets.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash
equivalents, accounts and notes receivable, other current
assets, trade accounts payables, accrued expenses, redeemable
preferred stock purchase and redemption obligation and other
current obligations approximate fair value because of the short
maturity of those instruments. At December 31, 1998 and 1997,
the fair value of the long-term debt and non-current notes
receivable were not significantly different than their carrying
value. Redeemable preferred stock is carried at estimated fair
value.
Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
Treasury Stock
In September 1998, the Company announced a plan to repurchase
up to 200,000 shares of its outstanding common stock. In 1998,
the Company repurchased approximately 55,500 shares for
$265,000. Subsequent to December 31, 1998, the Company has
repurchased approximately 61,000 shares for a total
consideration of $235,000. In November 1997, the Company
repurchased approximately 304,000 shares of its common stock
for approximately $1,519,000. The Company holds repurchased
stock as treasury stock.
Stock Option Plan
On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits
entities to recognize over the vesting period the fair value on
the date of grant of all stock-based awards. Alternatively,
SFAS No. 123 also allows entities to continue to apply
provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," whereby
compensation expense is recorded on the date of grant only if
the current market price of the underlying stock exceeds the
exercise price. Companies that continue to apply the
provisions of APB No. 25 are required by SFAS No. 123 to
disclose pro forma net earnings and net earnings per share for
employee stock option grants made in 1995 and subsequent years
as if the fair-value-based method defined in SFAS No. 123 had
been applied. The Company has elected to continue to apply the
provisions of APB No. 25, and has provided the pro forma
disclosures required by SFAS No. 123.
Mandatorily Redeemable Preferred Stock
The Company's preferred stock is accounted for at estimated
fair value. The excess of the estimated redeemable value over
the fair value at the date of issuance is accreted over the
redemption term. The carrying value of the preferred stock is
increased annually, if necessary, for the estimated accretion
with a corresponding reduction of capital in excess of par
value of common stock. The accretion of carrying value
decreases net income or increases net loss for purposes of
calculating net income (loss) attributable to common
shareholders.
Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." SFAS No. 128 revised the previous
calculation methods and presentations of earnings (loss) per
share. The statement required that all prior period earnings
(loss) per share data be restated. The Company adopted SFAS
No. 128 in the fourth quarter of 1997 as required by the
statement. The effect of adopting SFAS No. 128 was not
material to the Company's prior periods' earnings (loss) per
share data.
Under the provision of SFAS No. 128, basic earnings (loss) per
share data is computed by dividing income (loss) attributable
to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if the
Company's outstanding stock options were exercised (calculated
using the treasury method) and if the Company's preferred stock
were converted to common stock.
Diluted earnings (loss) per share in the statements of
operations exclude potential common shares issuable upon
conversion of redeemable preferred stock or exercise of stock
options as a result of losses from continuing operations for
all years presented. Net earnings for 1997 were reduced by
one-third of "consolidated net income" which accreted directly
to the mandatorily redeemable preferred shareholders. For
purposes of earnings per share, such accretion reduced earnings
from discontinued operations which resulted from the gain on
sale of the business and substantially all of the assets of
Carbonic Reserves.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income," on January 1, 1998. SFAS No. 130 establishes
standards for reporting and display of "comprehensive income"
and its components in a set of financial statements. It
requires that all items that are required to be recognized
under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The
Company had no items of comprehensive income as defined by SFAS
No. 130 not included in the accompanying statements of
operations; therefore, statements of comprehensive income have
not been presented in the accompanying financial statements.
Reclassifications
Certain 1997 and 1996 balances have been reclassified to
conform to the 1998 presentation.
(2) Acquisitions
ITF Segment
On February 9, 1998, the Company, through a newly formed
subsidiary, Interstate Travel Facilities, Inc. ("ITF"),
purchased two travel facilities located along Interstate
Highway I-40 in eastern Oklahoma for a cash consideration of
$490,000. Both travel facilities are geared toward the needs
of interstate highway travelers and each included a service
station, convenience store and a restaurant. The fair value of
identifiable tangible and intangible net assets acquired
approximated $628,000 on the acquisition date. The excess of
the fair value of the travel facilities' assets acquired over
the purchase price was reallocated among the long-lived assets
acquired.
On February 27, 1998, ITF acquired two additional travel
facilities and an undeveloped parcel of land located along
Interstate Highway I-35 in central Oklahoma. These travel
facilities are also geared toward the needs of interstate
highway travelers. The first travel facility includes a
service station, convenience store and a restaurant. The second
travel facility includes a service station and a convenience
store. The purchase price consisted of cash of $322,000; a
fifteen-year, unsecured, 5.93% $544,000 promissory note, valued
at $407,000 (discounted using a 10% interest rate); the
assumption by ITF of three mortgage notes payable approximating
$1,336,000 (see note 8), owed by the former owner of the
facilities; and 20% of the Company's ownership in ITF, valued
at $181,000. Approximately $1,051,000 of costs in excess of
fair value of the net assets acquired was recorded as goodwill
and was being amortized over 15 years.
On May 20, 1998, ITF acquired the assets of a truck wash
located along Interstate Highway I-44 in Tulsa, Oklahoma for
$699,000. The facility consists of two inside truck washing
bays. The Company financed $576,000 of the asset acquisition
with a promissory note (see note 8). The fair value of the
identifiable tangible assets approximated $870,000 on the
acquisition date. The excess of the fair value of the assets
acquired over the purchase price was reallocated among the
long-lived assets acquired.
As discussed in note 3, on April 9, 1999, the Company's Board
of Directors approved a plan to discontinue its ITF Segment.
CR-US Segment
On June 30, 1998, the Company, through a newly formed
subsidiary, Beard Mining, L.L.C. ("BMLLC"), acquired coal fines
extraction and beneficiation equipment ("the Equipment")
located at six coal slurry impoundment sites for $24,000,000.
BMLLC financed the purchase with a $24,000,000 loan from MCNIC
Pipeline & Processing Company ("MCNIC") which was secured
solely by the equipment (see note 8). BMLLC leased the
Equipment to Beard Technologies, Inc. ("BTI") a wholly-owned
subsidiary of Beard, which operated and maintained the
Equipment and six briquetting plants for six limited liability
companies (the "LLC's"), each of which is a subsidiary of
MCNIC. The monthly lease payments equaled the monthly payments
due under the promissory note and were reimbursed costs by the
LLC's under BTI's operating agreements with the LLC's. MCNIC
had released the Company and BTI in connection with any claim
resulting from the inaccuracy of any representation or warranty
made by BMLLC in any loan document, or BMLLC's breach or
failure to perform or satisfy any covenant, agreement,
obligation or condition in any loan document, except with
respect to claims arising from fraud or willful misconduct by
BTI or the Company and MCNIC's right to obtain BTI's ownership
interest in BMLLC pursuant to a Pledge and Security Agreement
from BTI to MCNIC. But for those exceptions, MCNIC had no
recourse against the Company or BTI in connection with any
default by BMLLC under any loan document.
Concurrent with BMLLC's acquisition of the Equipment, BTI
entered into operating agreements with the LLC's to provide
services for which it was being compensated in 1998 under a
cost-plus arrangement pursuant to which it received a minimum
profit of $100,000 per month (the "Operating Agreements"). The
operating agreements provided that, solely for determining
BTI's compensation thereunder, the agreements were deemed to
have been effective April 1, 1998.
On December 16, 1998, the LLC's terminated the Operating
Agreements effective January 31, 1999. BTI has retained a
reduced work force at the plants for security reasons, for
which BTI is reimbursed half of its operating cost.
On March 19, 1999, BTI and MCNIC entered into an agreement
whereby BTI assigned its 100% interest in BMLLC to MCNIC in
exchange for a release from MCNIC of any obligations BTI has or
would have had as an interest owner in BMLLC (the "Exchange
Agreement"). As a result of the Exchange Agreement, the
Company was relieved of its obligations under the promissory
note and the related loan documents in exchange for its
ownership in the Equipment. The Company does not anticipate it
will incur a significant gain or loss from the Exchange
Agreement as the remaining net book value of the Equipment
approximated the remaining principal balance of the promissory
note as of December 31, 1998.
Other E/S Operations
In May 1996, the Company acquired 80% of the outstanding common
stock of Horizontal Drilling Technologies, Inc. for $482,000.
The purchase price consisted of a non-interest bearing
contingent payment obligation valued at $301,000 (see notes 2
and 8), a non-interest bearing $150,000 note, valued at
$137,000 (discounted using a 10% interest rate), convertible at
the option of the holder into common stock of the Company, and
20% of the Company's ownership, valued at $44,000, in an
existing subsidiary involved in the Company's Other E/S
Operations. The non-interest bearing note was converted into
50,000 shares of the Company's common stock in July 1996 using
the Company's closing stock price of $3.00 on the date of the
conversion. Approximately $339,000 of cost in excess of fair
value of the net assets acquired was recorded as goodwill and
was being amortized on a straight-line basis over 30 years. As
discussed in note 3, in August 1998, the Company's Board of
Directors approved a plan to discontinue the Company's Other
E/S Operations, which included HDT.
The above acquisitions have been accounted for by the purchase
method and accordingly, the results of operations of HDT, the
travel facilities and other acquired assets have been included
in the Company's financial statements from their respective
acquisition dates.
Had the Company acquired HDT as of January 1, 1996, revenues,
net loss and net loss per share on a pro-forma basis would not
have been materially different than 1996 amounts reported in
the accompanying statements of operations. The Company
considers the acquisition of the travel facilities and the
Equipment as asset acquisitions; therefore, no pro forma
financial information has been reported in the accompanying
financial statements.
(3) Discontinued Operations
ITF Segment
On April 9, 1999, the Beard's Board of Directors adopted a
formal plan to discontinue its ITF Segment. Accordingly, the
results of operations have been reported as discontinued for
1998, the first year of operations for the segment. Revenues
and losses applicable to the segment were $4,437,000 and
$741,000, respectively, for the period.
On April 13, 1999, Beard entered into an agreement with ITF
and its minority shareholders whereby (1) the original purchase
price of the two properties purchased from the minority
shareholders will be adjusted downward by canceling the
$544,000 (balance of $414,000 at December 31, 1998) promissory
note to the minority shareholders; (2) Beard will sell 22,321
shares of its ITF common stock for $1,000 and will grant a
noncancelable and irrevocable proxy to the minority
shareholders for its remaining 30% common ownership in ITF,
thereby surrendering its operating and voting control of ITF;
and, (3) ITF and Beard will restructure ITF's current
indebtedness to Beard whereby ITF will (a) obtain a release of
and assign to Beard $327,000 of certificates of deposit
currently securing certain ITF debt obligations, and (b) will
deliver two promissory notes to Beard totaling $2,053,000 (note
A with a principal balance of $1,514,000 ("Note A") and note B
with a principal balance of $539,000 ("Note B")). Note A will
be secured by (a) a first mortgage on two of ITF's convenience
store properties (the "C-stores"); and (b) a security interest
in related equipment; and (c) the ITF shares being sold to ITF
(the "Collateral"). All proceeds from the sale of the two C-
stores and Collateral will be applied first to Note A and then
to Note B. Note A will not bear interest until both the C-
stores are sold (the "Trigger Date") at which time the
remaining principal, if any, will bear interest at 8% per
annum. ITF has agreed to use its best efforts to sell the two
C-stores within one year. Note B is unsecured and bears
interest at 6% per annum until the Trigger Date at which time
the interest rate increases to 8% per annum. No payment, other
than from the proceeds from the sale of the C-stores and the
Collateral, is required on either note until the Trigger Date,
at which time equal monthly interest and principal payments
become due over a 36-to-60 month period, based upon the amount
of the unpaid principal balances of the notes at the Trigger
Date.
Included in the accompanying statement of operations for 1998
is a $1,603,000 estimated loss from the discontinuation of the
ITF Segment. $1,256,000 of the loss represents the difference
in the estimated fair value of Notes A and B and Beard's
investment in and notes and accounts receivable from ITF at
December 31, 1998. Beard recorded the loss as a reduction in
goodwill resulting from the purchase of the ITF facilities,
with the remaining $205,000 recorded as a reduction in ITF's
property, plant and equipment. Additionally, a provision of
$347,000 was recognized for the estimated operating losses
incurred by ITF from January 1, 1999 through March 31, 1999,
the effective date of the transaction.
As of December 31, 1998, the significant assets related to the
ITF Segment consist of inventory, the travel facilities and a
truck wash with a recorded value of $4,137,000. The
significant liabilities of the segment consist of trade
accounts payable and bank debt associated with the travel
facilities and truck wash totaling $2,929,000.
Other E/S Operations
In August 1998, the Company's Board of Directors adopted a
formal plan to restructure the E/RR Segment (see note 2) and to
discontinue the Other E/S Operations. Accordingly, the results
of the Other E/S Operations have been reported as discontinued
for all periods presented in the accompanying statements of
operations. Revenues applicable to the discontinued segment
were $1,536,000, $5,233,000 and $3,000,000 for 1998, 1997 and
1996, respectively. Losses from the discontinued operations
were $424,000, $1,140,000 and $694,000 in 1998, 1997 and 1996,
respectively. Losses from discontinued operations approximated
$300,000 from the date operations were discontinued to December
31, 1998, and reduced the accrued liability established in the
second quarter for such losses by a corresponding amount.
As of December 31, 1998, the significant assets related to the
Other E/S Operations consist primarily of equipment and
accounts receivable with a recorded value of $905,000. The
significant liabilities related to the Other E/S Operations
consist of trade accounts payables totaling $110,000.
Included in the accompanying statements of operations for the
year ended December 31, 1998, is a $684,000 estimated loss
expected from the discontinuation of the Other E/S Operations.
$594,000 of the loss represents the difference in the estimated
amounts to be received from disposing of the Other E/S
Operations' assets and the assets' recorded values as of June
30, 1998. $534,000 of this loss was recorded in June 1998 and
$60,000 of the loss was recorded in December 1998 upon the
Company's review of the estimated realizable values of the
remaining assets. $455,000 of the loss represents anticipated
operating losses until disposal of such assets has been
completed. Offsetting the expected losses is a $365,000 gain
from early extinguishment of an obligation to the former owner
of HDT. The obligation was originally incurred by the Company
as a result of its acquisition of 80% of HDT's outstanding
common stock and was payable only from 80% of the cash flows
(prescribed under the obligation agreement) of HDT and
Whitetail. The gain represents the discounted obligation
balance as of June 30, 1998.
The Company has sold a portion of the Other E/S Operations
equipment for a total price of $581,000, since its date of
discontinuance. $359,000 of the equipment sales were for
various notes receivable with terms ranging from three to seven
years. The Company is actively seeking opportunities to sell
the remaining Other E/S Operations equipment and anticipates
the assets will be disposed of by December 31, 1999.
Solid CO2 Segment
In October 1997, the Company sold the business and
substantially all of the assets of Carbonic Reserves, an 85%-
owned subsidiary involved in the manufacturing and distribution
of solid CO2 ("solid CO2 segment") for cash of $19,375,000 and
the assumption of certain liabilities valued at $2,813,000 (the
"Asset Sale").
The gain on the Asset Sale was $11,014,000 (after applicable
income taxes of $522,000). Results of operations of the solid
CO2 segment have been reported as discontinued operations for
the years ended December 31, 1997 and 1996 in the accompanying
statements of operations. Revenues applicable to the
discontinued solid CO2 segment operations were $11,071,000 and
$13,307,000 in 1997 and 1996, respectively. Earnings from the
discontinued solid CO2 segment were $428,000 and $1,535,000 in
1997 and 1996, respectively. During the third quarter of 1998,
the Company determined it overestimated its state income tax
liability thereby reducing the gain recognized in October 1997
from the Asset Sale by $168,000. The Company reduced its
estimated state income tax liability and recognized an
additional $168,000 gain on the Asset Sale in the third quarter
of 1998. The gain is presented in discontinued operations in
the accompanying statements of operations.
Pursuant to the closing of the Asset Sale, the Company received
$18,375,000 in cash. The remaining $1,000,000 cash proceeds
were held back (the "Holdback") to offset certain post closing
adjustments for a maximum of 150 days from the closing date and
was included in other receivables on the balance sheet as of
December 31, 1997. The Company received the entire Holdback
amount from the purchaser on March 12, 1998.
Concurrent with the Asset Sale, the Company agreed to purchase
the Carbonic Reserves minority shareholder's common stock for
$900,000, which was paid by the Company in January 1998. The
stock purchase obligation was included in other current
obligations on the balance sheet as of December 31, 1997, and
reduced the related gain.
As of December 31, 1998, the solid CO2 segment had no
significant assets. The significant liabilities of the solid
CO2 segment consisted of accrued employee severance
compensation of $155,000.
Real Estate Segment
In 1996, the Company recorded a loss of $180,000, from
discontinuing its real estate construction and development
activities which represented the difference in the estimated
amounts to be received from disposing of the real estate
construction and development assets and the assets' recorded
values as of December 31, 1996. Revenues and earnings
applicable to the real estate activities were $1,083,000 and
$5,000 in 1996, respectively. During 1997, the Company sold
$1,534,000 of the real estate construction and development
assets, which approximated amounts the Company estimated that
it would receive from selling those assets.
As of December 31, 1998, the remaining asset of the real estate
construction and development segment consisted of one
speculative home at cost of approximately $227,000. In March
1999, the Company signed an agreement to sell the home for
$235,000. The sale is expected to close on April 19, 1999.
(4) 1993 Restructure; Redeemable Preferred Stock
As a result of a restructure (the "Restructure") effected in
October of 1993 with four institutional lenders (the
"Institutions"): (a) substantially all of the oil and gas
assets of Beard's subsidiary, Beard Oil Company ("Beard Oil")
were sold to a company owned by the Institutions; (b)
$101,498,000 of long-term debt and other obligations were
effectively eliminated; and (c) the Institutions received 25%
of Beard's then outstanding common stock and $9,125,000 stated
value (91,250 shares, or 100%) of Beard's then outstanding
preferred stock.
The Company's preferred stock is mandatorily redeemable through
December 31, 2002 from one-third of Beard's "consolidated net
income" as defined in the Restructure agreements. Accordingly,
one-third of future "consolidated net income" will accrete
directly to the preferred stockholder and reduce earnings per
common share. Each share of Beard preferred stock which has
not previously been redeemed may be converted into 5.129425
shares of Beard common stock after December 31, 2002.
Fractional shares will not be issued, and cash will be paid in
redemption thereof.
In January 1997, three of the four Institutions sold their
common and preferred shares to five individuals. These
individuals (the "Sellers") thereafter sold such shares to the
Company (the "Repurchase"). Repurchase of the common (303,890
shares) was effected by the Company in November 1997 and
repurchase of the preferred (47,729 shares) was effected in
January 1998. $1,641,000 of the purchase price was used to
repurchase 16,411 preferred shares from Sellers at stated value
($100 per share). This portion of the purchase price was in
lieu of the Sellers' share of a redemption from one-third of
1997 net income (as defined) (the "Redemption"). The 1997
Redemption amount was agreed upon by all of the preferred
shareholders at an established value of $3,100,000. The
Sellers' remaining 31,318 preferred shares were purchased for
$1,000,000 or $31.93 per share. The Company paid the Sellers
$95,000 for the Repurchase of the preferred shares in November
1997 and redeemed 14,589 of the remaining preferred shares for
$1,459,000 in March 1998.
The Company recorded the effect of the Repurchase and
Redemption in the December 31, 1997, balance sheet by reducing
the mandatorily redeemable preferred stock balance and
presenting the obligations as a current obligation. At
December 31, 1998 and 1997, the redeemable preferred stock was
recorded at its estimated fair value of $889,000 or $31.93 per
share and had an aggregate redemption value of $2,784,000.
During 1997, the Company recorded $3,789,000 in accretion of
the preferred stock as a result of the increase in value of the
preferred stock as evidenced by the Repurchase and Redemption.
As a result of the Repurchase, together with (i) the subsequent
redemption of 14,589 preferred shares, (ii) the repurchase of
116,675 common shares by the Company under its 1998 Treasury
Stock Repurchase Program (see note 1), and (iii) the exercise
of options to purchase 54,950 shares of common stock, the
Company has reduced its outstanding common shares from
2,832,129 to 2,460,064 (as of March 31, 1999 and net of
treasury shares) and its outstanding preferred shares from
90,156 to 27,838. The sole remaining Institution holds 11.99%
of the voting power of Beard through its ownership of common
stock and an additional 5.48% through its holdings of preferred
stock, for a total of 17.47% of the total outstanding voting
stock of the Company. Prior to the Repurchase, the preferred
holders had elected a director who continues to serve on
Beard's six-member Board of Directors.
(5) Notes Receivable
At December 31, 1998, notes receivable include five notes
resulting from the sale of Other E/S Operations equipment. The
notes bear interest at rates ranging from 5.85% to 28%, (notes
with rates below 10% were discounted using a 10% interest
rate), mature from May, 2000 to February, 2005, and are secured
by the sold equipment. $57,000 of the balance is reflected as
current notes receivable and $308,000 is reflected as long-term
at December 31, 1998. In addition, long-term notes receivable
include a note bearing interest at 10% with a principal amount
of $100,000, due on demand, that has been impaired by $54,000.
(6) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
December 31,
------------
1998 1997
---- ----
Land $ 776,000 $ 122,000
Proved and unproved carbon dioxide
properties and projects in progress 2,998,000 2,958,000
Buildings 1,096,000 -
Buildings and land improvements 1,029,000 28,000
Machinery and equipment 2,816,000 2,951,000
Other 206,000 188,000
Coal fines extraction and
beneficiation equipment(a) 24,000,000 -
------------ ------------
$ 32,921,000 $ 6,247,000
============ ============
(a) Accumulated depreciation and net book value of this
equipment as of December 31, 1998 were $800,000 and $23,200,000,
respectively. See note 2 for further discussion of this equipment.
(7) Intangible Assets
Intangible assets are summarized as follows:
December 31,
------------
1998 1997
---- ----
Goodwill $ - $ 462,000
License fees 50,000 50,000
Patents 57,000 80,000
Other 60,000 45,000
--------- ---------
$ 167,000 $ 637,000
========= =========
(8) Long-term Debt
Long-term debt is summarized as follows:
December 31,
------------
1998 1997
---- ----
Coal Reclamation-U. S. Segment(a) $ 23,247,000 $ -
Interstate Travel Facilities Segment(b) 2,652,000 -
Other E/S Operations(c) - 305,000
Corporate(d) - 350,000
------------ -----------
25,899,000 655,000
Less current maturities 119,000 136,000
------------ -----------
Long-term debt $ 25,780,000 $ 519,000
============ ===========
_______________
(a) $23,200,000 represents a promissory note payable to MCNIC
resulting from the June 30, 1998, acquisition of the Equipment
discussed in note 2. The note bears interest at 8% per annum,
is secured by the Equipment, and requires principal and
interest payments of $290,000 a month through July 1, 1999, at
which time the remaining principal balance becomes due. As
discussed in note 2, BTI and MCNIC entered into an Exchange
Agreement on March 19, 1999, whereby the Company was relieved
of its obligation under the note and the related loan documents
in exchange for its ownership in the Equipment securing the
note. The note is presented as a long-term obligation in the
December 31, 1998, balance sheet.
The remaining $47,000 represents various notes payable which
bear interest at rates ranging from 14% to 18%. The notes
require monthly interest and principal payments, mature from
April 2000 through September 2001, and are secured by equipment
with an approximate net book value of $49,000 at December 31,
1998.
(b) The Company has four notes payable with a bank totaling
$2,182,000 at December 31, 1998. The notes require monthly
interest and principal payments totaling $22,000, bear interest
at the Wall Street Journal prime interest rate, adjusted
annually, mature in December 2010 through June 2013, and are
secured by (i) first real estate mortgages of the commercial
property with an approximate book value of $2,315,000 at
December 31, 1998, and (ii) $327,000 of the Company's
certificates of deposit.
At December 31, 1998, the Company has a $544,000 promissory
note payable, valued at $414,000 (discounted using a 10%
interest rate) to the former owner of certain interstate travel
facilities acquired by Beard in February 1998. The note is
unsecured, requires annual interest payments at a rate of 5.93%
through March 2003 at which time interest and principal become
due in ten equal annual installments through March 2014. In
1998, the Company recorded $7,000 of interest expense accretion
on the note payable.
The Company has $56,000 of various notes payable
outstanding at December 31, 1998. The notes bear interest at
rates ranging from 6% to 9%, require monthly interest and
principal payments, mature from November 2000 through November
2003, and are secured by equipment with an approximate net book
value of $56,000 at December 31, 1998.
The various borrowings of the Interstate Travel Facilities Segment
are not guaranteed by the Company and ceased to be obligations of the
Company after the Company surrendered its operating and voting control
of ITF to the minority shareholders of ITF. See note 3.
(c) Borrowings from the Company's discontinued Other E/S
Operations included $305,000 at December 31, 1997, of various
notes payable which earned interest at 6% to 17%, with a weighted
average interest rate of 9.5%. The notes were paid off on
various dates in 1998.
(d) Represents a discounted $350,000 contingent payment
obligation payable to the former sole shareholder of HDT, resulting
from the Company's acquisition of 80% of HDT's outstanding common
stock. The contingent payment obligation was payable only from
80% of the cash flows (prescribed under the contingent payment
obligation agreement) of HDT and Whitetail. The maximum amount
payable under the contingent payment obligation was $483,000.
The Company discounted the maximum contingent payment
obligation over its estimated repayment term of ten years using
a 10% interest rate. In 1997, the Company recorded $49,000 on
interest expense accretion on the contingent obligation. As a
result of the Company's decision to discontinue its Other E/S
Operations, the former owner of HDT relieved the Company of the
obligation. The Company recorded a gain from extinguishing the
obligation, thereby reducing the loss recorded from
discontinuing the Other E/S Operations.
The annual maturities of long-term debt for the five years
subsequent to December 31, 1998 are $119,000 for 1999, $130,000
for 2000, $135,000 for 2001, $129,000 for 2002, and $135,000 in
2003. The maturities exclude the note payable to MCNIC which,
as discussed above, was extinguished in March 1999, with the
transfer of the Equipment to MCNIC.
At December 31, 1998, the Company had $436,000 of credit
available under a $650,000 bank line of credit. The line of
credit matures on January 31, 2000 and bears interest on
outstanding amounts at the national prime lending rate which
was 7.75% at December 31, 1998. At December 31, 1998, the
Company had utilized $164,000 of this line for a letter of
credit issued as collateral on bonds posted by an insurance
carrier for a subsidiary of the Company, and $50,000 for two
letters of credit issued as collateral on bonds posted with
state regulatory agencies for a subsidiary of the Company (see
note 14 below). On January 29, 1999, the $164,000 letter of
credit was reduced to $25,000.
(9) Settlement of Take-or-Pay Contract
During 1996, the Company negotiated a settlement of a take-or-
pay contract under which a customer was obligated to purchase
certain volumes of liquid CO2. As a result of the settlement,
the Company received cash of $539,000 and a CO2 vapor recovery
system with an estimated fair value of $400,000 and the Company
released the party of its contractual obligation to purchase
the contracted liquid CO2 volumes. The Company realized a gain
of $939,000 in 1996 relating to this settlement which is
included in the results from discontinued operations.
(10) Operating Leases
Noncancelable operating leases relate principally to office
space, vehicles and operating equipment. Future minimum
payments under such leases as of December 31, 1998 are
summarized as follows:
1999 $143,000
2000 94,000
2001 10,000
--------
$247,000
========
Rent expense under operating leases aggregated $185,000 in
1998, $889,000 in 1997 and $594,000 in 1996.
(11) Income Taxes
Total income tax expense (benefit) was allocated as follows:
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Continuing operations $ 100,000 $ 40,000 $ -
Discontinued operations (168,000) 555,000 -
---------- ---------- ----------
$ (68,000) $ 595,000 $ -
========== ========== ==========
Current income tax expense from continuing operations consisted of:
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
U. S. federal $ 41,000 $ 40,000 $ -
Various states 59,000 - -
---------- ---------- -----------
$ 100,000 $ 40,000 $ -
========== ========== ===========
Total income tax expense allocated to continuing operations
differed from the amounts computed by applying the
U. S. federal income tax rate to loss from continuing
operations before income taxes as a result of the following:
Year ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Computed U. S.
federal statutory benefit $ (161,000) $ (424,000) $ (334,000)
Federal alternative minimum taxes 41,000 40,000 -
Increase in the valuation allowance
for deferred tax assets 161,000 424,000 334,000
State income taxes 59,000 - -
------------ ------------ -----------
$ 100,000 $ 40,000 $ -
============ ============ ===========
The components of deferred tax assets and liabilities are as follows:
December 31,
------------
1998 1997
---- ----
Deferred tax assets - tax effect of:
Net operating loss carryforwards $ 19,760,000 $ 20,444,000
Statutory depletion and investment
tax credit carryforwards 2,280,000 2,280,000
Other, principally investments and
property, plant and equipment 239,000 809,000
------------- -------------
Total gross deferred tax assets 22,279,000 23,533,000
Less valuation allowance (22,244,000) (23,370,000)
Deferred tax liabilities (35,000) (163,000)
------------- -------------
Net deferred tax asset/liability $ - $ -
============= =============
In assessing the recoverability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in making this assessment.
At December 31, 1998, the Company had federal regular tax
operating loss carryforwards of approximately $52 million that
expire from 2004 to 2010, investment tax credit carryforwards
of approximately $401,000 that expire from 1999 to 2000, and
tax depletion carryforwards of approximately $5.5 million.
These carryforwards may be limited if the Company undergoes a
significant ownership change.
(12) Stock Option Plans
The Company reserved 175,000 shares of its common stock for
issuance to key management, professional employees and
directors under The Beard Company 1993 Stock Option Plan (the
"1993 Plan") adopted in August 1993. In April 1998 the Board
of Directors voted to increase the number of shares authorized
under the 1993 Plan to 275,000, and the shareholders approved
the increase in June 1998. The 1993 Plan is administered by
the Compensation and Stock Option Committee (the "Committee")
of the Board of Directors. The option price is determined by
the Committee but cannot be less than the fair market value of
the common stock of the Company at the date of grant for
incentive stock options and 75% of fair market value of the
common stock for non-qualified options. All options except
those granted to the Company's Chairman have ten-year terms and
become exercisable one year after the date of grant at the rate
of 25% each year until fully exercisable. The options held by
the Company Chairman have a five-year term. Directors who are
not key management employees of the Company or subsidiaries of
the Company shall only be eligible to be granted non-qualified
stock options. At December 31, 1998, there were 117,500
additional shares available for grant under the Plan.
The per share weighted-average fair value of stock options
granted during 1997 and 1996 was $2.67 and $1.66, respectively,
on the dates of grant using the Black-Scholes option pricing
model with the following assumptions: no expected dividend
yield; risk-free interest rate of 6.5% and 6.73% for 1997 and
1996, respectively; expected life of ten years; and expected
volatility of 39% for options granted in 1997 and 1996. No
options were granted in 1998.
The Company applies APB Opinion No. 25 in accounting for its
stock options and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No.
123, the net loss would have increased $9,000 and $5,000 in
1998 and 1996, respectively, and net income in 1997 would have
decreased $8,000. Net earnings (loss) per share would not have
been affected for any years presented in the accompanying
financial statements.
Stock option activity during the periods indicated is as
follows:
Number of Weighted-Average
Shares Exercise Price
--------- -----------------
Balance at December 31, 1995 145,000 $2.01
Granted 12,500 2.63
Exercised (5,000) 2.00
Forfeited (5,000) 2.00
Expired - -
------- -------
Balance at December 31, 1996 147,500 $2.06
Granted 5,000 4.38
Exercised (27,500) 2.00
Forfeited - -
Expired - -
------- -------
Balance at December 31, 1997 125,000 $2.17
Granted - -
Exercised (54,950) 2.00
Forfeited - -
Expired - -
------- -------
Balance at December 31, 1998 70,050 $2.29
======= =======
At December 31, 1998, the range of exercise prices and
weighted-average remaining contractual life of outstanding
options was $2.00 - $4.38 and six years, respectively.
At December 31, 1998 and 1997, the number of options
exercisable was 60,050 and 91,250 respectively, and the
weighted-average exercise price of those options was $2.12 and
$2.03, respectively.
(13) Employee Benefit Plan
Employees of the Company participate in a defined contribution
plan with features under Section 401(k) of the Internal Revenue
Code. The purpose of the Plan is to provide retirement,
disability and death benefits for all full-time employees of
the Company who meet certain service requirements. The Plan
allows voluntary "savings" contributions up to a maximum of
15%, and the Company or its subsidiaries matches 100% of each
employee's contribution up to 5% of such employee's
compensation. Benefits payable under the plan are limited to
the amount of plan assets allocable to the account of each plan
participant. The Company retains the right to modify, amend or
terminate the plan at any time. During 1998, 1997 and 1996,
the Company and its eligible subsidiaries made matching
contributions of $54,000, $150,000, and $134,000, respectively,
to the plan.
(14) Commitments and Contingencies
In the normal course of business various actions and claims
have been brought or asserted against the Company. Management
does not consider them to be material to the Company's
financial position, liquidity or future results of operations.
As of December 31, 1997, an affiliate of the Company's Chairman
of the Board of Directors had issued a guarantee for a $164,000
stand-by letter of credit, backed by a note of the Company,
issued as collateral on bonds posted by an insurance carrier
for a subsidiary in the Other E/S Operations. The Company
indemnified the affiliate against any loss from providing such
guaranty, and agreed to pay 10% interest to the affiliate while
the guaranty remained in place. On February 24, 1998, the
affiliate was relieved of the guaranty. The letter of credit
expired on March 24, 1998 and was renewed through March 24,
1999. In addition, the Company was contingently liable for
other outstanding letters of credit totaling approximately
$82,000 at December 31, 1997. $14,000 of the letters of credit
expired on April 18, 1998, $18,000 expired on October 5, 1998,
and $50,000 expired on March 24, 1999.
The Company has an indemnity obligation to its institutional
preferred stockholder and one of its assignees for certain
losses (i) arising out of the ownership and/or operation of
Beard Oil's former oil and gas assets, including environmental
liabilities; (ii) arising under any employee benefit or
severance plan; or (iii) relating to any misrepresentation or
inaccuracy in any representation made by the Company or Beard
Oil in connection with the Restructure (collectively, the
"Obligations"). Neither Beard nor Beard Oil is presently aware
of any material liabilities existing as a result of such
Obligations.
(15) Business Segment Information
The Company primarily manages its business by products and
services; however, the Company's Coal Reclamation Segment is
further managed by geographic location. The Company evaluates
its operating segments performance based on earnings or loss
from operations before income taxes. The Company had five
reportable segments in 1998: Coal Reclamation-U.S., Coal
Reclamation-China, Carbon Dioxide, Environmental Remediation
and Brine Extraction/Iodine Manufacturing. The Company had
four reportable segments in 1997 and 1996, which included those
in 1998 except for Coal Reclamation-China, as those operations
began in 1998. The Coal Reclamation-U.S. and China Segments
consist of coal reclamation services which may or may not
involve the Company's patented Mulled Coal Technology. The
Carbon Dioxide Segment consists of the production of CO2 gas.
The Environmental Remediation Segment consists of services to
remediate creosote and polycyclic aromatic hydrocarbon
contamination. The Brine Extraction/Iodine Manufacturing
Segment consists of the Company's 40%-ownership investment in a
joint venture for the extraction, production and sale of crude
iodine.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in
note 1.
The following is certain financial information regarding the
Company's reportable segments (presented in thousands of
dollars). The information included in other relates to the
Company's Well Testing Segment which consists of its 50%-
ownership in a company involved in natural gas well testing
operations in northeastern Mexico.
General corporate assets and expenses are not allocated to any
of the Company's operating segments; therefore, they are
included as a reconciling item to consolidated total assets and
loss from continuing operations before income taxes reported in
the Company's accompanying financial statements.
Coal Coal
Recla- Recla- Iodine
mation mation Carbon Environmental Manu-
U.S. China Dioxide Remediation facturing Other Totals
------- ------- ------- ----------- ---------- ------ -------
1998
Revenues from external customers $ 8,588 $ - $ 616 $ 8 $ 2,589 $ - $11,801
Interest income 2 - - - 14 - 16
Interest expense 949 - - - 59 - 1,008
Depreciation, depletion and
amortization 815 - 31 4 724 - 1,574
Segment profit(loss) 672 (277) 466 (238) (1,380) (70) (827)
Other significant non cash items:
Impairment of long-lived assets - - - - 1,461 - 1,461
Segment assets 25,148 - 603 55 2,357 607 28,770
Expenditures for segment assets 24,072 - 41 6 31 548 24,698
1997
Revenues from external customers 1 - 503 13 2,947 - 3,464
Interest income - - 13 - 6 - 19
Interest expense - - - 3 75 - 78
Depreciation, depletion and
amortization 8 - 25 3 701 - 737
Segment profit(loss) (282) - 281 (113) 133 - 19
Other significant non cash items:
Impairment of long-lived assets - - 107 - - - 107
Segment assets 34 - 481 50 4,288 - 4,853
Expenditures for segment assets - - 147 3 316 - 466
1996
Revenues from external customers 15 - 301 - 271 - 587
Interest income - - 31 - - - 31
Interest expense - - - - - - -
Depreciation, depletion and
amortization 5 - 18 - 294 - 317
Segment profit (loss) (139) - 215 - (468) - (392)
Segment assets 35 - 342 - 4,525 - 4,902
Expenditures for segment assets 4 - 68 - 292 - 364
Reconciliation of reportable segment revenues to consolidated
revenues is as follows (in thousands):
1998 1997 1996
---- ---- ----
Total revenues for reportable segments $ 11,801 $ 3,464 $ 587
Revenues from brine extraction/iodine
manufacturing operations accounted
for as equity investment (2,589) (2,947) (271)
Revenues from corporate activities not
allocated to segments 34 58 61
-------- -------- --------
Total consolidated revenues $ 9,246 $ 575 $ 377
======== ======== ========
Reconciliation of reportable segment interest expense to
consolidated interest expense is as follows (in thousands):
1998 1997 1996
---- ---- ----
Total interest expense for reportable
segments $ 1,008 $ 78 $ -
Brine extraction/iodine manufacturing
operations accounted for as an
equity investment (59) (75) -
Interest expense from corporate activities
not allocated to segments 15 131 62
-------- -------- --------
Total consolidated interest expense $ 964 $ 134 $ 62
======== ======== ========
Reconciliation of reportable segment depreciation, depletion
and amortization to consolidated depreciation, depletion
and amortization is as follows (in thousands):
1998 1997 1996
---- ---- ----
Total depreciation, depletion and
amortization for reportable segments $ 1,574 $ 737 $ 317
Depreciation and amortization
from brine extraction/iodine manu-
facturing and well testing opera-
tions accounted for as equity
investments (724) (701) (294)
Corporate depreciation and amortization
not allocated to segments 19 20 22
-------- -------- --------
Total consolidated depreciation,
depletion and amortization $ 869 $ 56 $ 45
======== ======== ========
Reconciliation of total reportable segment profit (loss) to
consolidated loss from continuing operations is as follows (in thousands):
1998 1997 1996
---- ---- ----
Total profit (loss) for reportable
segments $ (827) $ 19 $ (392)
Eliminate (earnings) loss from brine
extraction/iodine manufacturing and
well testing operations accounted
for as equity investments 1,450 (133) 468
Equity in earnings (loss) from brine
extraction/iodine manufacturing
and well testing operations accounted
for as equity investments (331) 84 (43)
Net corporate costs not allocated to
segments (865) (1,258) (1,014)
-------- -------- --------
Total consolidated loss for continuing
operations $ (573) $ (1,288) $ (981)
======== ======== ========
Reconciliation of reportable segment assets to consolidated
assets is as follows (in thousands):
1998 1997 1996
---- ---- ----
Total assets for reportable segments $ 28,770 $ 4,853 $ 4,902
Assets of discontinued operations 5,439 4,648 14,001
Assets from brine extraction/iodine
manufacturing and well testing operations
accounted for as equity investments (2,964) (4,288) (4,525)
Investments in unconsolidated subsidiaries
(brine extraction/iodine manufacturing
and well testing operations accounted
for as equity investments) 1,166 1,143 1,058
Corporate assets not allocated to
segments 4,926 14,596 1,037
-------- -------- --------
Total consolidated assets $ 37,337 $ 20,952 $ 16,473
======== ======== ========
Reconciliation of expenditures for segment assets to total
expenditures for assets is as follows (in thousands):
1998 1997 1996
---- ---- ----
Total expenditures for assets for
reportable segments $ 24,698 $ 466 $ 364
Capital expenditures of discontinued
operations 4,034 1,449 3,044
Expenditures for brine extraction/iodine
manufacturing and well testing assets
accounted for as equity investments (578) (316) (292)
Corporate expenditures not allocated to
segments 55 4 15
-------- -------- --------
Total expenditures for assets $ 28,209 $ 1,603 $ 3,131
======== ======== ========
All of the revenues from the segments have been derived for the
years 1998, 1997 and 1996, from customers in the United States.
All of the long-lived assets are located in the United States
except for approximately $548,000 at December 31, 1998, which
is located in northeastern Mexico.
During 1998, one customer accounted for 93% of the Company's
revenues and all of the Coal Reclamation Segment's revenues.
The coal reclamation contracts under which the Coal Reclamation
Segment's revenues were earned in 1998 were cancelled in
December 1998 effective January 31, 1999. The Company's CO2
revenues are received from two operators in the CO2 Segment who
market the CO2 gas to numerous end users on behalf of the
interest owners who elect to participate in such sales. During
1998, 1997 and 1996, sales by these two operators accounted for
7%, 87% and 80%, respectively, of the Company's revenues and
all of the Carbon Dioxide Segment's revenues.
(16) Fourth Quarter Adjustments
The Company recorded adjustments in the fourth quarter of 1998
resulting from discontinuing its interstate travel facilities
operations (see further discussion in note 3). In the fourth
quarter of 1997, the Company recorded economic impairment
losses on long-lived assets and unsecured notes and other
investments totaling $285,000 and $238,000, respectively. The
net effect of the fourth quarter adjustments was to decrease
1997 net earnings by $523,000.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable
PART III
Item 10. Directors, Executive Officers and Significant
Employees of the Registrant.
The directors, executive officers and significant employees of
the Company are identified below. The table sets forth the
age, positions with the Company and the year in which each
person became a director, executive officer or significant
employee. All positions are held with the Company unless
otherwise indicated.
Director, Executive
Officer or Significant
Employee of Beard
Name Position or Beard Oil Since Age
---- -------- ---------------------- ---
W. M. Beard Chairman of the Board,
Chief Executive Officer and
Director(a) June 1969 70
Herb Mee, Jr. President, Chief Financial
Officer and Director(a) November 1973 70
Allan R. Hallock Director December 1986 69
Harlon E. Martin, Jr. Director October 1997 51
Ford C. Price Director March 1988 61
Michael E. Carr Director February 1994 63
Philip R. Jamison President - Beard Technologies,
Inc.(b)(c) February 1997 60
Jack A. Martine Controller and Chief Accounting
Officer October 1996 49
Rebecca G. Witcher Secretary-Treasurer(a) October 1993 39
_______________
(a) Trustee of certain assets of the Company's 401(k) Trust.
(b) Devotes all of his time to Beard Technologies, Inc.
(c) Indicated entity is a subsidiary of the Registrant.
The executive officers and other officers of the Company serve
at the pleasure of the Board of Directors.
W. M. Beard has served Beard as its Chairman of the Board and
Chief Executive Officer since December 1992. He previously
served as Beard's President and Chief Executive Officer from
the Company's incorporation in October 1974 until January 1985.
He has served Beard Oil as its Chairman of the Board and Chief
Executive Officer since its incorporation. He has also served
as a director of Beard and Beard Oil since their incorporation.
Mr. Beard has been actively involved since 1952 in all
management phases of Beard and Beard Oil from their inception,
and as a partner of their predecessor company.
Herb Mee, Jr. has served as Beard's President since October
1989 and as its Chief Financial Officer since June 1993. He
has served as Beard Oil's President since its incorporation,
and as its Chief Financial Officer since June 1993. He has also
served as a director of Beard and Beard Oil since their
incorporation. Mr. Mee served as President of Woods
Corporation, a New York Stock Exchange diversified holding
company, from 1968 to 1972 and as its Chief Executive Officer
from 1970 to 1972.
Allan R. Hallock was elected a director of Beard in July 1993.
He served as a director of Beard Oil from December 1986 until
October 1993. Mr. Hallock is currently an independent
consulting geologist. He served as Vice President and
Exploration Manager of Gemini Corporation from 1970 until
December 1986.
Harlon E. Martin, Jr. was elected a director of Beard in
October 1997 to fill the vacancy created by the death of W. R.
Plugge. Mr. Martin has served as the principal of H. E. Martin
& Company, a Houston investment banking firm, since its
founding in 1990. He was a co-founder of GTM Securities Corp.
in 1985 and served as a principal of such firm until 1989. Mr.
Martin is a certified public accountant and a licensed
securities principal with the NASD. However, Mr. Martin's
license with the NASD is now inactive as a result of his
becoming a board member of a public corporation.
Ford C. Price was elected a director of Beard in July 1993. He
served as a director of Beard Oil from June 1987 until October
1993. From 1961 until 1986 Mr. Price served in various
capacities with The Economy Company, a privately-held
schoolbook publishing company, last serving as its Chairman of
the Board and Chief Executive Officer. Mr. Price is a private
investor.
Michael E. Carr was elected in February 1994 by the preferred
stockholders to fill the driectorship vacancy which they are
entitled to fill. Mr. Carr served as Senior Vice President of
Beard Oil from December 1986 until October 1993. He served as
President and Chief Executive Officer of Sensor Oil & Gas, Inc.
("Sensor") from October 1993 until August 1996. He presently
serves as President of Mica Energy Corp.
Philip R. Jamison has served as President of BTI since August
1994. Mr. Jamison has been associated with the coal industry
since 1960, working in various positions. From 1972 to 1977 he
served as Vice President Operations for International Carbon
and Minerals and as President and CEO of all its coal producing
subsidiaries. From 1979 to 1988 he served as CEO of four small
companies which were engaged in the production and sales of
coal. From 1993 to 1995 he served as a consultant to EI in
connection with its development of the Mulled Coal process, and
installed and operated the process at the Alabama coal
preparation plant in connection with the DOE contract.
Jack A. Martine was elected as Controller, Chief Accounting
Officer and Tax Manager of Beard in October 1996. Mr. Martine
served as tax manager for Beard from June 1989 until October
1993 at which time he joined Sensor in a similar capacity. Mr.
Martine is a certified public accountant.
Rebecca G. Witcher has served as Corporate Secretary of the
Company and Beard Oil since October 1993, and has served as
Treasurer of such companies since July 1997.
The directors of the Company have been elected to serve until
the annual stockholders' meeting to be held in the year
indicated opposite their respective names or until their
successors are duly elected and qualified:
Director Term
-------- ----
W. M. Beard 1999
Allan R. Hallock 2000
Ford C. Price 2000
Harlon E. Martin, Jr. 2001
Herb Mee, Jr. 2001
Michael E. Carr(a)
_______________
(a) Will serve until his successor has been duly elected and
qualified.
There is no family relationship between any of the directors or
executive officers of the Company. All executive officers hold
office until the first meeting of the Board of Directors
following the next annual meeting of stockholders or until
their prior resignation or removal.
Compliance with Section 16(a) of the Securities Exchange Act of
1934. Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered
class of the Company's equity securities (collectively
"reporting persons"), to file with the Securities and Exchange
Commission and the American Stock Exchange initial reports of
ownership and reports of changes in ownership of common stock
and other equity securities of the Company. Reporting persons
are required by the SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on information
received from each reporting person which includes written
representations that no other reports were required during the
fiscal year ended December 31, 1998, all Section 16(a) filing
requirements applicable to its reporting persons were complied
with.
Item 11. Executive Compensation.
The table below sets forth the compensation paid or accrued
during each of the last three fiscal years by the Company and
its subsidiaries to the Company's Chief Executive Officer and
each of the Company's other most highly compensated executive
officers (hereafter referred to as the named executive
officers), whose aggregate salary and bonus exceeded $100,000,
for any of the fiscal years ended December 31, 1998, 1997 or
1996:
SUMMARY COMPENSATION TABLE
Long Term Compensation
---------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ---------- -------
Securities
Underlying
Name and Options/ LTIP Compen-
Principal Salary(a) Bonus SAR's Payouts sation(c)
Position Year ($) ($) (#) ($) ($)
--------- ---- --------- ----- ----------- -------- ---------
W. M. Beard 1998 99,000(d) -0- -0- 35,250(d) 5,503(d)
Chairman & CEO 1997 99,000(d) 18,750(d)(e) -0- 41,450(d)(e) 5,501(d)
1996 99,000(d) -0-(d) -0- 35,150(d) 5,031(d)
Herb Mee, Jr. 1998 132,000 1,250(b) -0- -0- 7,288
President & CFO 1997 132,000 26,200(b)(e) -0- -0- 7,285
1996 132,000 1,150(b) -0- -0- 6,658
______________
(a) Amounts shown include cash compensation earned and received by
executive officers as well as amounts earned but deferred pursuant to the
Company's 401(k) Plan at the election of those officers. Amounts shown
exclude cash compensation earned but deferred pursuant to the Company's
Deferred Stock Compensation Plan.
(b) Bonus for length of service with Beard or Beard Oil.
(c) Consists of the Company's contribution to the Company's 401(k) Plan.
(d) In 1998 Mr. Beard deferred one-fourth ($33,000) of his salary
and all ($2,250) of his bonus for the year; in 1997 Mr. Beard
deferred one-fourth ($33,000) of his salary and all ($2,200) of
his length of service bonus for the year; in 1996 he deferred
one-fourth ($33,000) of his salary and all ($2,150) of his
bonus for the year pursuant to the Company's Deferred Stock
Compensation Plan.
(e) In 1997 Messrs. Beard and Mee each received a special bonus of
$25,000, of which $12,500 was paid in 1997 and $12,500 in 1998. Mr. Beard
deferred one-fourth of such bonus in both 1997 ($3,125) and 1998 ($3,125).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to
the named executive officers, concerning the exercise of
options during the Company's last fiscal year and unexercised
options held as of the end of the last fiscal year:
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
----- --------------- ------------ ------------- -------------
W. M. Beard 37,500 $ 106,641 12,500/-0- $21,094/-0-
Herb Mee, Jr. 17,450 $ 59,575 32,550/-0- $21,875/-0-
Compensation of Directors
Mr. Carr received compensation of $9,050 for services rendered
during 1998 as a director of Beard. Messrs. Hallock, Martin
and Price received $8,800, $9,050 and $9,050, respectively, of
deferred fees under the Company's Deferred Stock Compensation
Plan (the "Plan"). Under the Plan, the electing officers and
directors can defer fees and compensation until termination of
service or termination of the Plan, at which time the accounts
will be settled by distribution of a number of shares of the
Company's common stock equal to the number of Units credited
under the Plan. A Unit is equal to the amount deferred divided
by the fair market value of a share of common stock on the date
of deferral. Currently, the non-management directors each
receive $500 per month for their services, and also receive the
following fees for directors' meetings which they attend:
annual and 1-1/2 day meetings -- $750; regular meeting -- $500;
telephone meeting -- $100 to $300 depending upon length of
meeting. The non-management directors also receive a small
year-end bonus depending upon their length of service as
directors of Beard and Beard Oil. Accordingly, Messrs.
Hallock, Martin, Price, and Carr received $500, $50, $500 and
$200, respectively, in 1998. All of the directors except Mr.
Carr deferred such bonuses pursuant to the Plan. Beard also
provides health and accident insurance benefits for its non-
management directors who are not otherwise covered and the
value of these benefits is included in the above compensation
amounts. None of the directors received additional
compensation in 1998 for their committee participation.
The two eligible non-management directors (Messrs. Hallock and
Price) were each granted 5,000 phantom stock units (the
"Units") under the Company's 1994 Phantom Stock Units Plan on
November 1, 1994. Mr. Carr was awarded 5,000 Units when he
became eligible on February 22, 1995. All of these awards were
based on an award price of $2.00* per share and vest over a
five year period at the rate of 20% per year. Messrs.
Hallock, Martin, Price and Carr were each granted 5,000 Units
on October 23, 1997 at an award price of $5.00 per share, the
market value of the stock on such date. The 1997 awards vest
over a four year period at the rate of 25% per year. Each
participant has the option of receiving payment for his award:
(i) as it vests; (ii) at the conclusion of the award period; or
(iii) 50% as it vests, with the other 50% deferred to the
conclusion of the award period. Payments are based upon
appreciation in the market value of the Company's common stock
during the appropriate time interval selected. Mr. Carr
received a cash payment of $1,987 in 1999 for 1,000 Units which
vested on February 11, 1999, $3,046 in 1998 for 1,000 Units
which vested on February 22, 1998 and $3,808 in 1997 for 2,000
Units which vested on February 22, 1997.
_______________
* The market value on November 1, 1994 was $1.875 per
share; on February 22, 1995 it was $1.75 per share.
Compensation Committee Interlocks and Insider Participation
Michael E. Carr, who has been elected by the preferred
shareholders to serve as their representative on the Board of
Directors, was elected to serve as a member of the Compensation
Committee on April 26, 1994. Mr. Carr served as Senior Vice
President of Beard Oil from December 1986 until October 1993.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The table below sets forth the name and address of each shareholder
who is known to the Company to own beneficially more than 5% of Beard's
outstanding common stock or preferred stock, the number of shares bene-
ficially owned by each and the percentage of outstanding common or preferred
stock so owned as of March 31, 1999. Unless otherwise noted, the person
named has sole voting and investment powers over the shares reflected
opposite his name.
Number of Number of Combined
Preferred Common Common and
Shares and Shares and Preferred
Nature of Percent Nature of Percent Voting
Name and Address Ownership of Class Ownership of Class Percentage
---------------- ---------- -------- ---------- ------------ --------------
John Hancock Mutual Life
Insurance Company ("Hancock") 27,838 100.00% 312,040 12.68% 17.47%
57th Floor
200 Clarendon Street
Boston, Massachusetts 02117
The Beard Group 401(k) Plan ("Plan") None 0.00% 252,977 10.28% 9.72%
c/o Bank One, Oklahoma, N.A., Trustee
100 N. Broadway Avenue
Oklahoma City, OK 73102
W. M. Beard None 0.00% 848,604 34.32% 32.60%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Lu Beard None 0.00% 274,912 11.17% 10.51%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Herb Mee, Jr. None 0.00% 414,415 16.63% 15.92%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK
73112
___________________
Shares are held by Hancock on behalf of itself and affiliated
entities.
Excludes the Beard preferred shares which will collectively become
convertible into 5.49% of the outstanding common stock (after conversion) on
January 1, 2003 to the extent not previously redeemed or converted.
Shares held by the Plan are owned by the participating employees,
each of whom has sole voting and investment power over the shares held in his
or her account. Includes 104,599.40 and 124,149.57 shares held for the
accounts of Messrs. Beard and Mee, respectively.
Includes 206,166 shares owned directly by Mr. Beard as to which he
has sole voting and investment power; 273,233 shares (or 11.11%) owned by the
William M. Beard and Lu Beard 1988 Charitable Unitrust (the "1988 Unitrust"),
of which Mr. Beard and his wife, Lu Beard, serve as co-trustees and share
voting and investment power; 68,786 shares held by the William M. Beard
Irrevocable Trust "A," 68,432 shares held by the William M. Beard Irrevocable
Trust "B," and 83,049 shares held by the William M. Beard Irrevocable Trust
"C" (collectively, the "Beard Irrevocable Trusts") of which Messrs. Beard and
Herb Mee, Jr. are trustees and share voting and investment power; 6,738 shares
each held by the John Mason Beard II Trust and by the Joseph G. Beard Trust
and 1,774 shares held by the Rebecca Banner Beard Trust as to which Mr. Beard
is the trustee and has sole voting and investment power; 3,256 shares held by
the Rebecca Banner Beard Lilly Living Trust as to which Mr. Beard is a co-
trustee and shares voting and investment power with his daughter; 104,599.40
shares held by The Beard Group 401(k) Trust (the "401(k) Trust") for the
account of Mr. Beard as to which he has sole voting and investment power;
and 13,333 shares held by B & M Limited, a general partnership, of which
Mr. Beard is a general partner and shares voting and investment power with
Mr. Mee. Also includes 12,500 shares subject to presently exercisable
options. Excludes 1,679 shares owned by his wife as to which Mr. Beard
disclaims beneficial ownership. Also excludes 41,228 shares held by four
separate trusts for the benefit of Mr. Beard's children as to which Mr. Beard
disclaims beneficial ownership.
Represents 273,233 shares owned by the 1988 Unitrust, of which Mr.
Beard and Mrs. Beard serve as co-trustees and share voting and investment
power. Also includes 1,679 shares owned directly by Mrs. Beard as to which
she has sole voting and investment power.
Includes 17,450 shares owned directly by Mr. Mee as to which he
has sole voting and investment power; 6,666 shares held by Mee Investments,
Inc., as to which Mr. Mee has sole voting and investment power; 13,333 shares
held by B & M Limited as to which Mr. Mee shares voting and investment power
with Mr. Beard but as to which Mr. Mee has no present economic interest;
and 124,149.57 shares held by the 401(k) Trust for the account of Mr. Mee
as to which he has sole voting and investment power. Also includes 220,267
shares held by the Beard Irrevocable Trusts as to which Mr. Mee is a co-
trustee and shares voting and investment power with Mr. Beard but as to
which Mr. Mee has no pecuniary interest and disclaims beneficial ownership.
Also includes 32,550 shares subject to presently exercisable options.
Excludes 45 shares owned by his wife, Marlene W. Mee, as to which Mr. Mee
disclaims beneficial ownership.
All percentages reflected above exclude 372,065 common shares
held by the Company as treasury stock.
Security Ownership of Management
The following table sets forth certain information regarding
the number of shares of Beard common stock beneficially owned
by each director and nominee, the Chief Executive Officer
("CEO"), each named executive officer and by all directors and
executive officers as a group and the percentage of outstanding
common stock so owned as of March 31, 1999.
Amount of
Nature of
Beneficial Percent
Name and Address Ownership of Class
---------------- ---------- --------
W. M. Beard 848,604(1) 34.32%
Herb Mee, Jr 414,415(2) 16.63%
Allan R. Hallock 28,658(3) 1.16%
Michael E. Carr 28,643 1.16%
Ford C. Price 18,665(4) ---(6)
Harlon E. Martin, Jr. 1,000 ---(6)
All directors and executive
officers as a group (8 in number) 1,116,015(5) 44.42%
________________
(1) See footnote (4) to table "Security Ownership of Certain
Beneficial Owners."
(2) See footnote (6) to table "Security Ownership of Certain
Beneficial Owners."
(3) Reflects shares owned by A. R. Hallock & Co., a partnership, as
to which Mr. Hallock shares voting and investment power with his wife.
(4) Includes 10,399 shares owned directly by Mr. Price and 3,266
shares held by an IRA for the benefit of Mr. Price, as to all
of which he has sole voting and investment power, and 5,000
shares held by the FCP Trust as to which he has shared voting
and investment power.
(5) Includes 574,768 shares as to which directors and executive
officers have sole voting and investment power and 541,247 shares as to
which they share voting and investment power with others.
(6) Reflects ownership of less than one (1) percent.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. Reference is made to the
Index to Financial Statements and Financial Statement
2. Financial Statement Schedules. Financial
Statement Schedules are omitted as inapplicable or not
required, or the required information is shown
in the financial statements or in the notes thereto.
3. Exhibits. The following exhibits are filed with
this Form 10-K and are identified by the numbers indicated:
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession:
2(a) Agreement and Plan of Reorganization by and among Registrant,
Beard Oil Company ("Beard Oil") and New Beard, Inc., dated as
of July 12, 1993 (see Addendum A to Part I, which is
incorporated herein by reference; schedules to the Agreement
have been omitted). (This Exhibit has been previously filed as
Exhibit 3(b), filed on July 27, 1993 to Registrant's
Registration Statement on Form S-4, File No. 33-66598, and same
is incorporated by reference).
2(b) Agreement and Plan of Merger by and between The Beard Company
and The New Beard Company, dated as of September 16, 1997.
(This Exhibit has been previously filed as Exhibit B to
Registrant's Proxy Statement filed on September 12, 1997, and
same is incorporated by reference).
2(c) Certificate of Merger merging The Beard Company into The New
Beard Company as filed with the Secretary of State of Oklahoma
on November 26, 1997. (This Exhibit has been previously filed
as Exhibit 2.1 to Registrant's Form 8-K, filed on December 8,
1997, and same is incorporated by reference).
2(d) Asset Purchase Agreement by and among Airgas Carbonic Reserves,
Inc. ("Airgas"), and Registrant, Carbonic Reserves
("Carbonics"), and Clifford H. Collen, Jr. ("Collen"). (This
Exhibit has been previously filed as Exhibit A, filed on
September 11, 1997 to Registrant's Proxy Statement dated
September 12, 1997, and same is incorporated by reference).
2(e) Asset Purchase Agreement by and among Registrant, Toby
B. Tindell, Cristie R. Tindell and Interstate Travel
Facilities, Inc. ("ITF"), dated as of February 27, 1998. (This
Exhibit has been previously filed as Exhibit 2 to Registrant's
Form 8-K, filed on March 16, 1998, and same is incorporated by
reference).
3(i) Certificate of Incorporation of The New Beard Company as
filed with the Secretary of State of Oklahoma on September 11,
1997. (This Exhibit has been previously filed as Exhibit C to
Registrant's Proxy Statement filed on September 12, 1997, and
same is incorporated by reference).
3(ii) Registrant's By-Laws as currently in effect. (This
Exhibit has been previously filed as Exhibit 3(ii) to
Registrant's Form 10-K for the period ended December 31, 1997,
filed on March 31, 1998, and same is incorporated herein by
reference).
4 Instruments defining the rights of security holders:
4(a) Certificate of Designations, Powers, Preferences and
Relative, Participating, Option and Other Special Rights, and
the Qualifications, Limitations or Restrictions Thereof of the
Series A Convertible Voting Preferred Stock of the Registrant.
(This Exhibit has been previously filed as Exhibit 3(c) to
Amendment No. 2, filed on September 17, 1993 to Registrant's
Registration Statement on Form S-4, File No. 33-66598, and same
is incorporated by reference).
4(b) Settlement Agreement, with Certificate of Amendment
attached thereto, by and among Registrant, Beard Oil, New York
Life Insurance Company ("NYL"), New York Life Insurance and
Annuity Company ("NYLIAC"), John Hancock Mutual Life Insurance
Company ("Hancock"), Memorial Drive Trust ("MDT") and Sensor,
dated as of April 13, 1995. (This Exhibit has been previously
filed as Exhibit 4(g) to Registrant's Form 10-K for the period
ended December 31, 1994 and same is incorporated by reference).
10 Material contracts:
10(a) Amendment No. One to The Beard Company 1993 Stock
Option Plan dated August 27, 1993, as amended June 4, 1998
(The Amended Plan supersedes the original Plan adopted on
August 27, 1993. This Exhibit has previously been filed as
Exhibit A, filed on April 30, 1998 to Registrant's Proxy
Statement dated April 30, 1998, and same is incorporated by
reference).*
10(b) The Beard Company 1994 Phantom Stock Units Plan adopted
November 1, 1994. (This Exhibit has been previously filed as
Exhibit 10(h) to Registrant's Form 10-K for the period ended
December 31, 1994, filed on April 17, 1995, and same is
incorporated by reference).*
10(c) The Beard Company Deferred Stock Compensation Plan.
(This Exhibit has been previously filed as Exhibit 10(k) to
Registrant's Form 10-K for the period ended December 31, 1995,
filed on April 1, 1996, and same is incorporated by
reference).*
10(d) Form of Change in Control Compensation Agreement dated
as of January 24, 1997, by and between Carbonics and three
employees. (This Exhibit has been previously filed as Exhibit
10(l) to Registrant's Form 10-Q for the period ended March 31,
1997, filed on May 14, 1997, and same is incorporated by
reference).*
10(e) Letter Agreement dated August 15, 1997 by and among
Collen, Carbonics, Beard Oil and Registrant. (This Exhibit has
been previously filed as Exhibit 10(m) to Registrant's Form 10-
Q for the period ended September 30, 1997, filed on November
13, 1997, and same is incorporated by reference).*
10(f) Letter Agreement dated October 8, 1997 by and among
Randy D. Thacker, Carbonics and Registrant. (This Exhibit has
been previously filed as Exhibit 10(n) to Registrant's Form 10-
Q for the period ended September 30, 1997, filed on November
13, 1997, and same is incorporated by reference).*
10(g) Amended and Restated Nonqualified Stock Option Agreement by
and between Richard D. Neely and ISITOP, Inc. ("ISITOP"), dated
November 12, 1998.*
10(h) Amended and Restated Nonqualified Stock Option Agreement
by and between Jerry S. Neely and ISITOP, dated November 12,
1998.*
10(i) Nonqualified Stock Option Agreement by and between Robert A.
McDonald and ISITOP, dated November 12, 1998.*
10(j) Nonqualified Stock Option Agreement by and between Toby Tindell
and ITF, dated February 27, 1998. (This Exhibit has been
previously filed as Exhibit 10(n) to Registrant's Form 10-K for
the period ended December 31, 1997, filed on March 31, 1998,
and same is incorporated herein by reference).*
10(k) Incentive Stock Option Agreement by and between Philip
R. Jamison and Beard Technologies, Inc. ("BTI"), dated May 18,
1998.
10(l) Subscription Agreement by and between Cibola Corporation ("Cibola")
and Registrant, dated April 10, 1996. (This Exhibit has been
previously filed as Exhibit 10.1 to Registrant's Form 10-Q for the
period ended June 30, 1996, filed on August 14, 1996, and same is
incorporated by reference).
10(m) Nonrecourse Secured Promissory Note from Registrant to Cibola,
dated April 10, 1996. (This Exhibit has been previously filed
as Exhibit 10.2 to Registrant's Form 10-Q for the period ended
June 30, 1996, filed on August 14, 1996, and same is
incorporated by reference).
10(n) Security Agreement by and among Registrant, Cibola and the
Cibola shareholders, dated April 10, 1996. (This Exhibit has
been previously filed as Exhibit 10.3 to Registrant's Form 10-Q
for the period ended June 30, 1996, filed on August 14, 1996,
and same is incorporated by reference).
10(o) Tax Sharing Agreement by and among Registrant, Cibola and the
Cibola shareholders, dated April 10, 1996. (This Exhibit has
been previously filed as Exhibit 10.4 to Registrant's Form 10-Q
for the period ended June 30, 1996, filed on August 14, 1996,
and same is incorporated by reference).
10(p) Compensation Agreement by and between Registrant and the
Trustees of the William M. Beard and Lu Beard 1988 Charitable
Unitrust (the "Trustees") dated April 17, 1997. (This Exhibit
has been previously filed as Exhibit 10(s) to Registrant's Form
10-K for the period ended December 31, 1997, filed on March 31,
1998, and same is incorporated herein by reference).
10(q) Indemnity Agreement by and between Registrant and the Trustees
dated April 17, 1997. (This Exhibit has been previously filed
as Exhibit 10(t) to Registrant's Form 10-K for the period ended
December 31, 1997, filed on March 31, 1998, and same is
incorporated herein by reference).
10(r) Coal Fines Extraction and Beneficiation Agreement among CRC NO.
1 LLC, CRC NO. 2 LLC, CRC NO. 3 LLC, CRC NO. 4 LLC, CRC NO. 5
LLC, CRC NO. 6 LLC, (the "Six LLC's") and Beard Technologies,
Inc. ("BTI"), dated as of June 24, 1998. (This Exhibit has
been previously filed as Exhibit 10.1 to Registrant's Form 8-K,
filed on July 15, 1998, and same is incorporated herein by
reference).
10(s) Operation and Maintenance Agreement among the Six LLC's and
BTI, dated as of June 24, 1998. (This Exhibit has been
previously filed as Exhibit 10.2 to Registrant's Form 8-K,
filed on July 15, 1998, and same is incorporated herein by
reference).
10(t) Guaranty Agreement among Registrant and the Six LLC's, dated as
of June 24, 1998. (This Exhibit has been previously filed as
Exhibit 10.3 to Registrant's Form 8-K, filed on July 15, 1998,
and same is incorporated herein by reference).
10(u) Guaranty Agreement between MCNIC Pipeline & Processing Company
("MCNIC") and BTI, dated as of June 24, 1998. (This Exhibit
has been previously filed as Exhibit 10.4 to Registrant's Form
8-K, filed on July 15, 1998, and same is incorporated herein by
reference).
10(v) Loan Agreement between MCNIC and Beard Mining, L.L.C.
("BMLLC"), dated as of June 24, 1998. (This Exhibit has been
previously filed as Exhibit 10.5 to Registrant's Form 8-K,
filed on July 15, 1998, and same is incorporated herein by reference).
10(w) Promissory Note from BMLLC to MCNIC, dated as of June 24, 1998.
(This Exhibit has been previously filed as Exhibit 10.6 to
Registrant's Form 8-K, filed on July 15, 1998, and same is
incorporated herein by reference).
10(x) Amendment to Coal Fines Extraction and Beneficiation Agreement
among the Six LLC's and BMLLC, dated October 30, 1998. (This
Exhibit has been previously filed as Exhibit 10(z) to
Registrant's Form 10-Q for the period ended September 30, 1998,
filed on November 23, 1998, and same is incorporated herein by
reference).
10(y) Amendment to Operation and Maintenance Agreement among the Six
LLC's and BTI, dated October 30, 1998. (This Exhibit has been
previously filed as Exhibit 10(aa) to Registrant's Form 10-Q
for the period ended September 30, 1998, filed on November 23,
1998, and same is incorporated herein by reference).
10(z) Notice by the Six LLC's of Termination of Operation and
Maintenance Agreement with BTI, dated December 16, 1998.
10(aa) Notice by the Six LLC's of Termination of Coal Fines
Extraction and Beneficiation Agreement with BMLLC, dated
December 16, 1998.
10(bb) Agreement by and among MCNIC, the Six LLC's, BMLLC,
Registrant and BTI, dated March 19, 1999.
10(cc) Letter Agreement by and among Registrant, ITF, Toby B. Tindell
and Cristie R. Tindell, dated April 13, 1999.
11 Statement re computation of per share earnings.
21 Subsidiaries of the Registrant.
23 Consent of KPMG LLP
27 Financial Data Schedule
_______________________
* Compensatory plan or arrangement. The Company will
furnish to any shareholder a copy of any of the above exhibits
upon the payment of $.25 per page. Any request should be sent
to The Beard Company, Enterprise Plaza, Suite 320, 5600 North
May Avenue, Oklahoma City, Oklahoma 73112
(b) No reports on Form 8-K were filed during the period during
the fourth quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE BEARD COMPANY
(Registrant)
DATE: April 13, 1999 By HERB MEE, JR.
Herb Mee, Jr., President
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, this report has been signed by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated below.
Signature Title Date
--------- ----- ----
By W. M. BEARD Chief Executive Officer April 13, 1999
W. M. Beard
By HERB MEE, JR. President and Chief April 13, 1999
Herb Mee, Jr. Financial Officer
By JACK A. MARTINE Controller and April 13, 1999
Jack A. Martine Chief Accounting Officer
By W. M. BEARD Chairman of the Board April 13, 1999
W. M. Beard
By HERB MEE, JR. Director April 13, 1999
Herb Mee, Jr.
By ALLAN R. HALLOCK Director April 13, 1999
Allan R. Hallock
By HARLON E. MARTIN, JR. Director April 13, 1999
Harlon E. Martin, Jr.
By FORD C. PRICE Director April 13, 1999
Ford C. Price
By MICHAEL E. CARR Director April 13, 1999
Michael E. Carr
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
2 Plan of acquisition, reorganization,
arrangement, liquidation or succession:
2(a) Agreement and Plan of Reorganization by Incorporated herein by
and among Registrant, Beard Oil Company reference
("Beard Oil") and New Beard, Inc., dated
as of July 12, 1993
2(b) Agreement and Plan of Merger by and Incorporated herein by
between The Beard Company and The New reference
Beard Company, dated as of September 16,
1997
2(c) Certificate of Merger merging The Beard Incorporated herein by
Company into The New Beard Company as reference
filed with the Secretary of State of
Oklahoma on November 26, 1997
2(d) Asset Purchase Agreement by and among Incorporated herein by
Airgas Carbonic Reserves, Inc. ("Airgas"), reference
and Registrant, Carbonic Reserves
("Carbonics"), and Clifford H. Collen,
Jr. ("Collen").
2(e) Asset Purchase Agreement by and among Incorporated herein by
Registrant, Toby B. Tindell, Cristie R. reference
Tindell and Interstate Travel Facilities,
Inc. ("ITF"), dated as of February 27, 1998
3(i) Certificate of Incorporation of The Incorporated herein by
New Beard Company as filed with the reference
Secretary of State of Oklahoma on
September 11, 1997
3(ii) Registrant's By-Laws as currently in Incorporated herein by
effect reference
4 Instruments defining the rights of
security holders:
4(a) Certificate of Designations, Powers, Incorporated herein by
Preferences and Relative, Participating, reference
Option and Other Special Rights, and
the Qualifications, Limitations or
Restrictions Thereof of the Series A
Convertible Voting Preferred Stock of
the Registrant
4(b) Settlement Agreement, with Certificate Incorporated herein by
of Amendment attached thereto, by and reference
among Registrant, Beard Oil, New York
Life Insurance Company ("NYL"), New
York Life Insurance and Annuity Company
("NYLIAC"), John Hancock Mutual Life
Insurance Company ("Hancock"), Memorial
Drive Trust ("MDT") and Sensor, dated
as of April 13, 1995
10 Material contracts:
10(a) Amendment No. One to The Beard Company Incorporated herein by
1993 Stock Option Plan dated August 27, reference
1993, as amended June 4, 1998
10(b) The Beard Company 1994 Phantom Stock Incorporated herein by
Units Plan adopted November 1, 1994 reference
10(c) The Beard Company Deferred Stock Incorporated herein by
Compensation Plan reference
10(d) Form of Change in Control Compensation Incorporated herein by
Agreement dated as of January 24, 1997, reference
by and between Carbonics and three
employees
10(e) Letter Agreement dated August 15, 1997 Incorporated herein by
by and among Collen, Carbonics, Beard reference
Oil and Registrant
10(f) Letter Agreement dated October 8, 1997 Incorporated herein by
by and among Randy D. Thacker, Carbonics reference
and Registrant
10(g) Amended and Restated Nonqualified Stock Filed herewith electronically
Option Agreement by and between Richard
D. Neely and ISITOP, Inc. ("ISITOP"),
dated November 12, 1998
10(h) Amended and Restated Nonqualified Stock Filed herewith electronically
Option Agreement by and between Jerry
S. Neely and ISITOP, dated November
12, 1998
10(i) Nonqualified Stock Option Agreement by Filed herewith electronically
and between Robert A. McDonald and
ISITOP, dated November 12, 1998
10(j) Nonqualified Stock Option Agreement by Incorporated herein by
and between Toby Tindell and ITF, reference
dated February 27, 1998
10(k) Incentive Stock Option Agreement by and Filed herewith electronically
between Philip R. Jamison and Beard
Technologies, Inc. ("BTI"), dated May 18,
1998
10(l) Subscription Agreement by and between Incorporated herein by
Cibola Corporation ("Cibola") and reference
Registrant, dated April 10, 1996
10(m) Nonrecourse Secured Promissory Note from Incorporated herein by
Registrant to Cibola, dated April 10, 1996 reference
10(n) Security Agreement by and among Incorporated herein by
Registrant, Cibola and the Cibola share- reference
holders, dated April 10, 1996
10(o) Tax Sharing Agreement by and among Incorporated herein by
Registrant, Cibola and the Cibola reference
shareholders, dated April 10, 1996
10(p) Compensation Agreement by and between Incorporated herein by
Registrant and the Trustees of the reference
William M. Beard and Lu Beard 1988
Charitable Unitrust (the "Trustees")
dated April 17, 1997
10(q) Indemnity Agreement by and between Incorporated herein by
Registrant and the Trustees dated reference
April 17, 1997
10(r) Coal Fines Extraction and Beneficiation Incorporated herein by
Agreement among CRC NO. 1 LLC, CRC NO. reference
2 LLC, CRC NO. 3 LLC, CRC NO. 4 LLC,
CRC NO. 5 LLC, CRC NO. 6 LLC, (the
"Six LLC's") and Beard Technologies,
Inc. ("BTI"), dated as of June 24, 1998
10(s) Operation and Maintenance Agreement Incorporated herein by
among the Six LLC's and BTI, dated as reference
of June 24, 1998
10(t) Guaranty Agreement among Registrant and Incorporated herein by
the Six LLC's, dated as of June 24, 1998 reference
10(u) Guaranty Agreement between MCNIC Pipeline Incorporated herein by
& Processing Company ("MCNIC") and BTI, reference
dated as of June 24, 1998
10(v) Loan Agreement between MCNIC and Beard Incorporated herein by
Mining, L.L.C. ("BMLLC"), dated as of reference
June 24, 1998
10(w) Promissory Note from BMLLC to MCNIC, Incorporated herein by
dated as of June 24, 1998 reference
10(x) Amendment to Coal Fines Extraction and Incorporated herein by
Beneficiation Agreement among the Six reference
LLC's and BMLLC, dated October 30, 1998
10(y) Amendment to Operation and Maintenance Incorporated herein by
Agreement among the Six LLC's and BTI, reference
dated October 30, 1998
10(z) Notice by the Six LLC's of Termination Filed herewith electronically
of Operation and Maintenance Agreement
with BTI, dated December 16, 1998
10(aa) Notice by the Six LLC's of Termination Filed herewith electronically
of Coal Fines Extraction and
Beneficiation Agreement with BMLLC,
dated December 16, 1998
10(bb) Agreement by and among MCNIC, the Six Filed herewith electronically
LLC's, BMLLC, Registrant and BTI,
dated March 19, 1999
10(cc) Letter Agreement by and among Filed herewith electronically
Registrant, ITF, Toby B. Tindell and
Cristie R. Tindell, dated April 13,
1999
11 Statement re computation of per share Filed herewith electronically
earnings
21 Subsidiaries of the Registrant Filed herewith electronically
23 Consent of KPMG LLP Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically