UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934
For the quarterly period ended March 31, 2003
------------------------------------------------
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934
For the transition period from to
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Commission File Number: 1-7940
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Goodrich Petroleum Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0466193
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(State or other jurisdiction of (I.R.S. Employer ID. No.)
incorporation or organization)
808 Travis Street, Suite 1320, Houston, Texas 77002
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 780-9494
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ X ] No
At May 8, 2003 there were 18,039,482 shares of Goodrich Petroleum
Corporation common stock outstanding.
1
GOODRICH PETROLEUM CORPORATION
INDEX TO FORM 10-Q
March 31, 2003
Page No.
--------
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
March 31, 2003 (Unaudited) and December 31, 2002.............. 3-4
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 2003 and 2002.................... 5
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2003 and 2002.................... 6
Consolidated Statements of Stockholders' Equity
and Comprehensive Income (Unaudited)
Three Months Ended March 31, 2003 and 2002.................... 7
Notes to Consolidated Financial Statements....................... 8-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 15-18
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 19
Item 4. Controls and Procedures 21
PART II - OTHER INFORMATION 22
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
2
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2003 2002
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents...........................$ 1,270,119 3,351,380
Accounts receivable
Trade and other, net of allowance.................. 2,339,275 3,111,240
Accrued oil and gas revenue........................ 3,444,716 3,141,968
Prepaid insurance and other......................... 610,876 884,318
----------- ------------
Total current assets............................. 7,664,986 10,488,906
----------- ------------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts method).. 110,066,646 105,971,168
Furniture, fixtures and equipment................... 618,693 567,908
----------- ------------
110,685,339 106,539,076
Less accumulated depletion, depreciation
and amortization.............................. (39,744,334) (38,978,816)
----------- -----------
Net property and equipment...................... 70,941,005 67,560,260
----------- -----------
OTHER ASSETS
Restricted cash............................... 2,039,000 2,039,000
Deferred taxes................................ 151,917 450,238
Other......................................... 143,998 227,570
----------- -----------
Total other assets....................... 2,334,915 2,716,808
----------- -----------
TOTAL ASSETS........................$ 80,940,906 80,765,974
=========== ===========
See notes to consolidated financial statements.
3
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
March 31, December 31,
2003 2002
-------- --------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................$ 3,648,873 6,927,158
Accrued liabilities.................................... 1,602,136 1,564,583
Fair value of oil and gas derivatives.................. 560,774 1,108,428
Fair value of interest rate derivatives.............. 168,038 ---
Current portion other non-current liabilities.......... 125,000 125,000
---------- -----------
Total current liabilities......................... 6,104,821 9,725,169
---------- -----------
LONG TERM DEBT.......................................... 20,000,000 18,500,000
OTHER NON-CURRENT LIABILITIES
Production payment payable............................. 897,953 978,321
Accrued abandonment costs.............................. 6,257,065 4,756,368
----------- ----------
Total liabilities................................. 33,259,839 33,959,858
----------- ----------
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par value
$1.00 per share; issued and outstanding 791,968
and 791,968 shares (liquidating preference $10
per share, aggregating to $7,919,680)................ 791,968 791,968
Common stock, par value $0.20 per share; authorized
50,000,000 shares; issued and outstanding 18,039,482
and 17,914,325 shares................................. 3,607,896 3,582,864
Additional paid-in capital............................. 53,194,712 52,333,738
Unamortized restricted stock awards.................... (456,166) ---
Accumulated deficit.................................... (9,024,988) (9,223,359)
Accumulated other comprehensive income................. (432,355) (679,095)
----------- ----------
Total stockholders' equity........................ 47,681,067 46,806,116
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........$80,940,906 80,765,974
=========== ==========
See notes to consolidated financial statements.
4
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2003 2002
-------- --------
REVENUES
Oil and gas sales.................................. $ 6,747,283 4,692,818
Other ............................................ 331,197 6,864
---------- -----------
Total revenues................................ 7,078,480 4,699,682
---------- -----------
EXPENSES
Lease operating expense............................ 1,757,185 1,987,048
Production taxes................................... 530,904 399,589
Depletion, depreciation and amortization........... 1,577,239 1,603,301
Exploration........................................ 553,472 445,758
General and administrative......................... 1,538,444 842,743
Interest expense................................... 235,497 316,417
---------- -----------
Total costs and expenses...................... 6,192,741 5,594,856
---------- -----------
GAIN (LOSS) ON SALE OF ASSETS......................... (21,082) 2,836,501
---------- -----------
INCOME BEFORE INCOME TAXES............................ 864,657 1,941,327
Income taxes....................................... 302,627 679,464
---------- -----------
INCOME BEFORE CUMULATIVE EFFECT.................... 562,030 1,261,863
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE NET OF TAX.......................... (205,293) ---
--------- -----------
NET INCOME........................................... 356,737 1,261,863
Preferred stock dividends.......................... 158,366 154,798
---------- -----------
NET INCOME APPLICABLE TO COMMON STOCK................. $ 198,371 1,107,065
========== ===========
INCOME PER COMMON SHARE - BASIC
INCOME BEFORE CUMULATIVE EFFECT.................. $ .03 .07
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................... (.01) ---
----------- -----------
NET INCOME....................................... $ .02 .07
========== ===========
NET INCOME APPLICABLE TO COMMON STOCK............ $ .01 .06
========== ===========
INCOME PER COMMON SHARE - DILUTED
INCOME BEFORE CUMULATIVE EFFECT.................. $ .03 .06
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................... (.01) ---
----------- -----------
NET INCOME....................................... $ .02 .06
========== ===========
NET INCOME APPLICABLE TO COMMON STOCK............ $ .01 .05
========== ===========
AVERAGE COMMON SHARES OUTSTANDING (BASIC)............. 17,971,341 17,896,356
AVERAGE COMMON SHARES OUTSTANDING (DILUTED)........... 20,112,090 20,282,305
See notes to consolidated financial statements.
5
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2003 2002
-------- --------
OPERATING ACTIVITIES
Net income...........................................$ 356,737 1,261,863
Adjustments to reconcile net income to cash
provided by operating activities:
Depletion, depreciation and amortization.......... 1,577,239 1,603,301
Deferred income taxes............................. 192,085 679,464
Amortization of leasehold costs................... 178,210 128,693
Non-cash charge for stock issued for
cancelled options............................. 403,006 ---
Cumulative effect of change in accounting
principle..................................... 315,835 ---
Amortization of production payment discount....... 19,013 24,839
Amortization of deferred debt financing........... 36,045 36,045
(Gain) loss on sale of assets..................... 21,082 (2,836,501)
Net change in:
Accounts receivable............................... 469,217 1,530,714
Prepaid insurance and other....................... 300,269 (30,961)
Accounts payable.................................. (3,278,285) (369,292)
Accrued liabilities............................... 37,553 (458,642)
---------- ----------
Net cash provided by operating activities........ 628,006 1,569,523
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of assets......................... 266,996 12,815,285
Capital expenditures................................. (4,218,516) (1,747,830)
----------- -----------
Net cash provided by (used in) investing
activities.................................... (3,951,520) 11,067,455
----------- ------------
FINANCING ACTIVITIES
Principal payments of bank borrowings................ --- (13,000,000)
Proceeds from bank borrowings........................ 1,500,000 1,000,000
Production payments.................................. (99,381) (88,046)
Preferred stock dividends............................ (158,366) (154,798)
----------- ------------
Net cash provided by (used in) financing
activities.................................... 1,242,253 (12,242,844)
----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.............................. (2,081,261) 394,134
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD..................................... 3,351,380 248,701
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............$ 1,270,119 642,835
========== ============
See notes to consolidated financial statements.
6
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Nine Months Ended March 31, 2003 and 2002
(Unaudited)
Additional
Series A Paid-In
Preferred Stock Common Stock Capital
--------------- ------------ -----------
Balance at December 31, 2001.... 791,968 $ 791,968 17,896,356 $ 3,579,271 $ 52,279,331
Net Income.................... --- --- --- --- ---
Other Comprehensive Income(Loss);
Net of Tax
Net Derivative Loss.......... --- --- --- --- ---
Reclassification Adjustment.. --- --- --- --- ---
Total Comprehensive Income.... --- --- --- --- ---
Preferred Stock Dividends..... --- --- --- --- ---
------- --------- ---------- --------- -----------
Balance at March 31, 2002....... 791,968 $ 791,968 17,896,356 $ 3,579,271 $ 52,279,331
======= ========= ========== ========= ===========
Balance at December 31, 2002.... 791,968 791,968 17,914,325 3,582,864 $ 52,333,738
Net Income.................... --- --- --- --- ---
Other Comprehensive Income(Loss);
Net of Tax
Net Derivative Loss.......... --- --- --- --- ---
Reclassification Adjustment.. --- --- --- ---
Total Comprehensive Income.... --- --- --- --- ---
Issuance of Restricted Stock and
Amortization........... --- --- --- --- 483,000
Issuance of Common Stock..... --- --- 125,157 25,032 377,974
Preferred Stock Dividends..... --- --- --- --- ---
------- --------- ---------- --------- -----------
Balance at March 31, 2003 ...... 791,968 $ 791,968 18,039,482 $ 3,607,896 $ 53,194,712
======= ========= ========== ========= ===========
Accumulated
Unamortized Other Total
Accumulated Restricted Comprehensive Stockholders'
Deficit Stock Awards Income Equity
------- ------------ -------------- ------
Balance at December 31, 2001.... $(8,738,473) --- $ 8,450 $ 47,920,547
Net Income.................... 1,261,863 --- --- 1,261,863
Other Comprehensive Income(Loss);
Net of Tax
Net Derivative Loss.......... --- --- (475,626) (475,626)
Reclassification Adjustment.. --- --- (3,975) (3,975)
----------
Total Comprehensive Income.... --- --- --- 782,262
Preferred Stock Dividends..... (154,798) --- --- (154,798)
--------- ---------- --------- -----------
Balance at March 31, 2002....... $(7,631,408) --- $ (471,151) $ 48,548,011
========= ========== ========= ===========
Balance at December 31, 2002.... $(9,223,359) --- (679,095) $ 46,806,116
Net Income.................... 356,737 --- --- 356,737
Other Comprehensive Income(Loss);
Net of Tax
Net Derivative Loss.......... --- --- (831,275) (831,275)
Reclassification Adjustment.. --- --- 1,078,015 1,078,015
----------
Total Comprehensive Income.... --- --- --- 603,477
Issuance of Restricted Stock and
Amortization........... --- --- --- 26,834
Issuance of Common Stock..... --- (456,166) --- 403,006
Preferred Stock Dividends..... (158,366) --- --- (158,366)
--------- ---------- --------- -----------
Balance at March 31, 2003 ...... $(9,024,988) (456,166) $ (432,355) $ 47,681,067
========= ========== ========= ===========
See notes to consolidated financial statements.
7
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003 and 2002
(Unaudited)
NOTE A - Basis of Presentation
- ------------------------------
The consolidated financial statements of Goodrich Petroleum Corporation
("Goodrich" or "the Company") included in this Form 10-Q have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and, accordingly, certain information normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States has been condensed or omitted. The consolidated
financial statements reflect all normal recurring adjustments that, in the
opinion of management, are necessary for a fair presentation.
The accompanying consolidated financial statements of the Company should be read
in conjunction with the consolidated financial statements and notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The results of operations for the three-month period ended March 31, 2003 are
not necessarily indicative of the results to be expected for the full year.
NOTE B - New Accounting Pronouncements
- --------------------------------------
Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 requires the Company to record a
liability equal to the fair value of the estimated cost to retire an asset. The
asset retirement liability must be recorded in the periods in which the
obligation meets the definition of a liability, which is generally when the
asset is placed in service. Prior to the adoption of SFAS No. 143, the Company
recorded liabilities for the abandonment of oil and gas properties only in its
two largest fields, with such liabilities amounting to $4,881,000 as of December
31, 2002. In accordance with the transition provisions of SFAS No. 143, the
Company recorded an adjustment to recognize additional estimated liabilities for
the abandonment of oil and gas properties, as of January 1, 2003, in the amount
of $1,408,000, and additional oil and gas properties, net of accumulated
depletion, depreciation and amortization, in the amount of $1,092,000. To
recognize the cumulative effect of this change in accounting principle, the
Company recorded a charge to earnings as of January 1, 2003 in the amount of
$205,000, reflecting the $316,000 difference between the adjustments to the
liability and asset accounts, net of the related income tax effect. In the three
months ended March 31, 2003, the Company recorded an additional charge to
earnings for the accretion of the abandonment liability in the amount of
$93,000. Any subsequent difference between costs incurred upon settlement of an
asset retirement obligation and the recorded liability will be recognized as a
gain or loss in the Company's earnings.
8
The pro forma accrued abandonment costs as of January 1, 2002 and March 31, 2002
were $5,933,000 and $6,022,000, respectively. Pro forma net income for the
period ended March 31, 2002, assuming SFAS No. 143 had been applied
retroactively, was as follows:
2002
----
Net income
As reported..................... $ 1,261,863
Pro forma....................... 1,168,415
Net income applicable to common stock
As reported..................... $ 1,107,065
Pro forma....................... 1,013,617
Net income per share
As reported, basic.............. $ .06
Pro forma, basic................ .06
As reported, diluted............ .05
Pro forma, diluted.............. .05
Effective January 1, 2002, the Company adopted three new accounting
pronouncements which had no significant impact on the Company's financial
statements: (a) SFAS No. 141, Business Combinations; (b) SFAS No. 142, Goodwill
and Other Intangible Assets; and (c) SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.
NOTE C - Sale of Oil and Gas Properties to Related Party
- --------------------------------------------------------
On March 12, 2002, the Company monetized a portion of the value created in its
Burrwood and West Delta fields by selling a thirty percent (30%) working
interest in the existing production and shallow rights, and a fifteen percent
(15%) working interest in the deep rights below 10,600 feet, in its Burrwood and
West Delta fields for $12 million to Malloy Energy Company, LLC led by Patrick
E. Malloy, III and participated in by Sheldon Appel, both members of the
Company's Board of Directors, as well as Josiah Austin, who subsequently became
a member of the Company's Board of Directors (Mr. Malloy is now Chairman of the
Company's Board of Directors). The sale price was determined by discounting the
present value of the acquired interest in the fields' proved, probable and
possible reserves using prevailing oil and gas prices. The Company retained an
approximate sixty-five percent (65%) working interest in the existing production
and shallow rights, and a thirty-two and one-half percent (32.5%) working
interest in the deep rights after the close of the transaction. In conjunction
with the sale, the investor group provided a $7.7 million line of credit. The
$7.7 million line of credit, which reduced to $5.0 million on January 1, 2003,
is subordinate to the Company's senior credit facility and can be used for
acquisitions, drilling, development and general corporate purposes until
December 31, 2004. The investor group retains the option to convert the amount
outstanding under the credit line, and/or provide cash on any unused credit to a
9
maximum of $5.0 million through December 31, 2004, into working interests in any
acquisition(s) the Company may make in Louisiana prior to January 1, 2005. The
conversion of the credit facility will be on a pro-rata basis with the Company's
interest and may not exceed a maximum of $5.0 million through December 31, 2004,
or thirty percent (30%) of any potential acquisition(s).
The Company recorded a non-recurring gain of approximately $2.4 million in the
first quarter of 2002 as a result of the sale. The proceeds were used to reduce
outstanding debt under its senior credit facility.
NOTE D - Senior Credit Facility
- -------------------------------
On November 9, 2001, the Company established a three-year $50,000,000 senior
credit facility with BNP Paribas, with an initial borrowing base of $25,000,000,
subject to periodic redetermination. As of March 31, 2003, the latest borrowing
base determination that had been made by BNP Paribas was completed in November
2002 in the amount of $23,000,000. A subsequent redetermination was scheduled
for March 31, 2003, however, that redetermination has not been completed pending
evaluation by BNP Paribas of production information on three new oil and gas
wells completed by the Company in the first quarter of 2003. As of March 31,
2003, borrowings outstanding under the credit facility were $20,000,000.
Interest on borrowings under the senior credit facility accrue at a rate
calculated, at the option of the Company, as either the BNP Paribas base rate
plus 0.00% to 0.50%, or LIBOR plus 1.50%--2.50%, depending on borrowing base
utilization. Interest on LIBOR-rate borrowings is due and payable on the last
day of its respective interest period. Accrued interest on each base-rate
borrowing is due and payable on the last day of each quarter. The credit
facility requires that the Company pay a 0.375% per annum commitment fee,
payable in quarterly installments based on the Company's borrowing base
utilization. Prior to maturity, no payments are required so long as the maximum
borrowing base amount exceeds the amounts outstanding under the credit facility.
The credit facility requires the Company to monitor tangible net worth and
maintain certain financial statement ratios at certain levels. The Company is in
substantial compliance with all such requirements. Substantially all the
Company's assets are pledged to secure the senior credit facility.
As indicated in Note E, the Company entered into three separate interest rate
swaps with BNP Paribas in February 2003 covering a three year period, with the
first interest rate swap having an effective date of February 26, 2003. As a
result of this arrangement, the Company's net interest expense on its borrowings
under the senior credit facility, was reduced to 3.46%, in the three months
ended March 31, 2003.
10
NOTE E - Hedging Activities
- ---------------------------
As of March 31, 2003, the Company's open forward position on its outstanding
natural gas and crude oil hedging contracts and its interest rates swap
contracts, all of which were with BNP Paribas, were as follows:
Natural Gas
-----------
3000 MMBtu per day with a no cost collar of $3.50 and $5.19 per Mmbtu for
January through December 2003; and
3000 MMBtu per day "swap" at $4.06 for January 2003 through December 2003.
Crude Oil
---------
300 barrels of oil per day "swap" at $27.45 for April 2003 through May 2003; and
200 barrels of oil per day "swap" at $29.08 for April 2003 through May 2003; and
300 barrels of oil per day "swap" at $32.58 for April 2003 through May 2003; and
300 barrels of oil per day "swap" at $28.47 for June 2003 through December 2003;
and
200 barrels of oil per day "swap" at $29.32 for June 2003 through December 2003;
and
200 barrels of oil per day "swap" at $29.97 for June 2003 through December 2003
The fair value of the natural gas and oil hedging contracts in place at March
31, 2003, resulted in a liability of $560,774. As of March 31, 2003, $323,120
(net of $173,987 in income taxes) of deferred losses on derivative instruments
accumulated in other comprehensive income are expected to be reclassified into
earnings during the next twelve months. In the three months ended March 31,
2003, $831,275 in realized loss (net of $447,610 in income taxes) was
reclassified from accumulated other comprehensive income to oil and gas sales as
the cash flow of the hedged items was recognized. For the three months ended
March 31, 2003, the Company's earnings were not materially affected by cash flow
hedging ineffectiveness arising from the oil and gas hedging contracts.
Interest Rate Swaps
-------------------
The Company has a variable-rate debt obligation that exposes the Company to the
effects of changes in interest rates. To partially reduce its exposure to
interest rate risk, the Company entered into three separate interest rate swaps
with BNP Paribas in February 2003 covering a three year period which are
designated as cash flow hedges. The first interest rate swap, which has an
effective date of February 26, 2003 and a maturity date of February 26, 2004 is
for $18,000,000 with a LIBOR swap rate of 1.53%. The second interest rate swap,
which has an effective date of February 26, 2004 and a maturity date of November
8, 2004, is for $18,000,000 with a LIBOR swap rate of 2.25%. The third interest
rate swap, which has an effective date of November 8, 2004 and a maturity date
of February 26, 2006, is for $18,000,000 with a LIBOR swap rate of 3.46%. The
fair value of the effective portions of the interest rate swaps and changes
thereto is deferred in other comprehensive income and is subsequently
reclassified into interest expense in the periods in which the hedged interest
payments on the variable-rate debt affect earnings. For the period ended March
31, 2003, the income effect from cash flow hedging ineffectiveness of interest
rates was immaterial. The fair value of the interest rate swaps are estimated
using LIBOR forward curve rates obtained from BNP Paribas. The estimated fair
value approximates the values based on quotes from BNP Paribas and resulted in a
liability at March 31, 2003 of $168,000. Of this amount, $57,000 will be
reclassified to earnings within the next twelve months.
11
NOTE F - Net Income/(Loss) Per Share
- ------------------------------------
Net income (loss) was used as the numerator in computing basic and diluted
income per common share for the three months ended March 31, 2003 and 2002. The
following table reconciles the weighted-average shares outstanding used for
these computations.
Three months
ended March 31,
2003 2002
---- ----
Basic Method...................... 17,971,341 17,896,356
Dilutive Stock Warrants........... 2,088,637 2,307,621
Dilutive Stock Options............ 52,112 78,328
---------- ----------
Diluted Method.................... 20,112,090 20,282,305
========== ==========
The computation of earnings per share for the three months ended March 31, 2003
and 2002 considered exercisable stock warrants and stock options to the extent
that the exercise of such securities would have been dilutive. The computation
of earnings per share for the three months ended March 31, 2003 and 2002 did not
consider preferred stock which is convertible into shares of common stock
because the effect of such conversion would have been antidilutive.
In February 2003, the Company issued 125,157 shares of its common stock to the
holders of 1,016,500 outstanding stock options in exchange for the cancellation
of such options (at the time of cancellation, the options were antidilutive). At
the same time, the Company agreed to issue 150,000 restricted shares of its
common stock, with a three year vesting period, to its employees under the
Company's existing incentive stock option and restricted stock awards plan. In
the first quarter of 2003, the Company recorded a non-cash charge to earnings of
approximately $403,000 related to the issuance of shares in lieu of cancelled
options and a charge to a contra equity account for the value of the restricted
stock awards in the amount of approximately $483,000. The contra equity account
is being amortized to earnings over the three year vesting period of the
restricted stock awards and resulted in a non-cash charge to earnings in the
first quarter of 2003 of approximately $27,000. The Company will be required to
record recurring non-cash charges to earnings of approximately $40,000 per
quarter, through the first quarter of 2006, related to the periodic vesting of
the restricted stock.
The Company applies APB Opinion No. 25 in accounting for its stock compensation
plans 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, net income for the three months ended March 31, 2003 and 2002 would
have reduced to the pro forma amounts indicated below.
12
2003 2002
---- ----
Net income before cumulative effect
As reported............................. $ 562,030 1,261,863
Pro forma............................... 499,035 1,026,411
Net income applicable to common stock
As reported............................. $ 198,371 1,107,065
Pro forma............................... 135,376 871,613
Net income per share
As reported, basic...................... $ .02 .06
Pro forma, basic........................ .01 .05
As reported, diluted.................... .02 .05
Pro forma, diluted...................... .01 .04
NOTE G - Commitments and Contingencies
- --------------------------------------
The U.S. Environmental Protection Agency ("EPA") has identified the Company as a
potentially responsible party ("PRP") for the cost of clean-up of "hazardous
substances" at an oil field waste disposal site in Vermilion Parish, Louisiana.
The Company estimates that the remaining cost of long-term clean-up of the site
will be approximately $3.5 million, with the Company's percentage of
responsibility estimated to be approximately 3.05%. As of March 31, 2003, the
Company had paid $321,000 in costs related to this matter and accrued $122,500
for the remaining liability. These costs have not been discounted to their
present value. The EPA and the PRPs will continue to evaluate the site and
revise estimates for the long-term clean-up of the site. There can be no
assurance that the cost of clean-up and the Company's percentage responsibility
will not be higher than currently estimated. In addition, under the federal
environmental laws, the liability costs for the clean-up of the site is joint
and several among all PRPs. Therefore, the ultimate cost of the clean-up to the
Company could be significantly higher than the amount presently estimated or
accrued for this liability.
In connection with the acquisition of its Burrwood and West Delta fields, the
Company secured a performance bond and established an escrow account to be used
for the payment of obligations associated with the plugging and abandonment of
the wells, salvage and removal of platforms and related equipment, and the site
restoration of the fields. Required escrowed outlays included an initial cash
payment of $750,000 and monthly cash payments of $70,000 beginning June 1, 2000
and continuing until June 1, 2005. The escrow agreement was amended in the
fourth quarter of 2001 to suspend monthly cash payments and cap the escrow
account at its current balance of $2,039,000.
On February 8, 2000, the Company commenced a suit against the operator and joint
owner of the Lafitte field, alleging certain items of misconduct and violations
of the agreements associated primarily with the joint acquisition of and
unfettered access to a license to 3-D seismic data over the field. The operator
has counter-claimed against Goodrich on the grounds that Goodrich was obligated
to post a bond to secure the plugging and abandonment obligations in the field.
13
On November 1, 2002 the 125th Judicial District Court of Harris County, Texas,
ruled in favor of the Company stating (1) The Sale and Assignment between the
Company and the operator assigned the same rights to the 3-D seismic data that
the operator had pursuant to the operator's data use license agreement from
Texaco Exploration and Production, Inc.("TEPI"); and (2) Also pursuant to the
terms of the Sale and Assignment, Goodrich is required to post 49% of the bond
liability to TEPI at such time that TEPI requests it. The Court has not
determined whether TEPI has already issued the request that would require the
Company to post 49% of the bond liability to TEPI. However, in a statement to
the Court, TEPI stated that whatever may be the obligation between the operator
and Goodrich regarding the requirement, if any, for Goodrich to post a bond in
favor of the operator covering Goodrich's P&A obligations, TEPI does not claim
that it is entitled to any bond unless and until the operator's total
shareholder value (as defined in the Purchase and Sale Agreement between the
operator and TEPI) falls below $80 million. The damages portion of the suit is
ongoing and it is too early to predict a likely outcome, however, this action is
not expected to have a significantly adverse impact on the operations or
financial position of the Company.
The Company is party to additional lawsuits arising in the normal course of
business. The Company intends to defend these actions vigorously and believes,
based on currently available information, that adverse results or judgments from
such actions, if any, will not be material to its financial position or results
of operations.
NOTE H - Subsequent Event
- -------------------------
The Company owns a 33% non-operating interest in Block EP-397 offshore Australia
on which drilling of an exploratory well was commenced on March 31, 2003. In
April 2003, the operator of the block reported that the well was unsuccessful
and had been abandoned. The Company's share of the estimated well costs, which
was paid into an escrow account in 2002, was $650,000. Of this amount, the
Company's share of estimated well costs that were incurred on or before March
31, 2003 was approximately $100,000. Accordingly, the Company recorded a charge
to exploration expense in the first quarter of 2003 in the amount of $100,000
and will expense its remaining share of the estimated well costs in the second
quarter of 2003.
14
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion is intended to assist in understanding the Company's
financial position, results of operations and cash flows for each of the periods
presented. The Company's Annual Report on Form 10-K for the year ended December
31, 2002 includes a description of the Company's critical accounting policies
and certain other detailed information that should be referred to in conjunction
with the following discussion.
Changes in Results of Operations
- --------------------------------
Three months ended March 31, 2003 versus three months ended
March 31,2002
Total revenues for the three months ended March 31, 2003 amounted to $7,078,000
compared to $4,700,000 for the three months ended March 31, 2002. Oil and gas
sales for the three months ended March 31, 2003 were $6,747,000 compared to
$4,693,000 for the three months ended March 31, 2002. This increase was
primarily due to increases in prices of both oil and gas as well as an increase
in gas production volumes, partially offset by a decrease in oil production
volumes. The following table presents the production volumes and pricing
information for the comparative periods, with the average oil and gas prices
reflecting the results of the Company's commodity hedging program as further
described under "Quantitative and Qualitative Disclosures About Market Risk -
Commodity Hedging Activity."
Three months Three months
ended March 31, 2003 ended March 31, 2002
Production Average Price Production Average Price
Gas (Mcf)........ 744,410 $ 4.21 732,182 $ 2.69
Oil (Bbls)....... 121,608 29.70 133,580 20.38
Other revenues for the three months ended March 31, 2003 were $331,000 compared
to $7,000 for the three months ended March 31, 2002, with the increase due to
prospect fees received by the Company on the sale of interests in its Spyglass
II and Tunney drilling prospects.
Lease operating expense was $1,757,000 for the three months ended March 31, 2003
versus $1,987,000 for the three months ended March 31, 2002, with the decrease
largely due to the March 2002 sale of an interest in the Company's Burrwood and
West Delta fields (see below "Sale of Oil and Gas Properties to Related Party")
as well as the Company's ongoing efforts to reduce costs on its operated
properties since replacing a contract operator in June 2002. Production taxes
were $531,000 in the three months ended March 31, 2003 compared to $400,000 in
the first quarter of 2002, due to higher oil and gas sales in the 2003 period.
Depletion, depreciation and amortization expense was $1,577,000 for the three
months ended March 31, 2003 versus $1,603,000 for the three months ended March
31, 2002, with the net decrease due to lower equivalent units of production,
partially offset by higher depletion rates. Exploration expense in the first
15
quarter of 2003 was $553,000 versus $446,000 in the first quarter of 2002, due
primarily to the Company recognizing dry hole cost of $100,000 related to an
exploration well in Australia which commenced drilling in March 2003 and was
abandoned in April 2003.
General and administrative expenses amounted to $1,538,000 in the three months
ended March 31, 2003 versus $843,000 in the first quarter of 2002. The most
significant factor in this variance was a non-cash charge of approximately
$403,000 related to the February 2003 issuance of 125,157 shares of common stock
in lieu of 1,016,500 cancelled stock options and a non-cash charge of
approximately $27,000 related to the initial vesting of 150,000 shares of
restricted common stock, with a three year vesting period, that were issued in
February 2003. Additionally, higher insurance and legal costs in the first
quarter of 2003 contributed to the increase in general and administrative
expenses. In the three months ended March 31, 2003, the Company accrued legal
expenses associated with litigation against the operator of the Lafitte field in
the amount of $70,000 per month whereas in the three months ended March 31,
2002, such accruals amounted to $35,000 per month.
Interest expense was $235,000 in the three months ended March 31, 2003 compared
to $316,000 in the first quarter of 2002, with the decrease primarily
attributable to a lower effective interest rate in the first quarter of 2003.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $628,000 in the three months ended
March 31, 2003 compared to $1,570,000 in the three months ended March 31, 2002.
While cash flow from operations, before changes in working capital,
substantially increased in the first quarter of 2003, net changes in current
assets and current liabilities resulted in a $2,473,000 decrease in working
capital in the three months ended March 31, 2003 compared to a $672,000 increase
in working capital in the three months ended March 31, 2002.
Net cash used in investing activities was $3,952,000 in the three months ended
March 31, 2003 compared to net cash provided by investing activities of
$11,067,000 in the three months ended March 31, 2002. In the first quarter of
2003, capital expenditures totaled $4,219,000 as the Company participated in the
drilling of four new wells in its Lafitte field (three of which were
successfully completed). In the same period, the Company sold its entire
interest in the South Drew field and the proceeds from the sale were $267,000.
In the first quarter of 2002, total capital expenditures were $1,748,000, which
were more than offset by proceeds from property sales of $12,815,000, primarily
due to the sale of an interest in the Company's Burrwood and West Delta fields
as further described below (see "Sale of Oil and Gas Properties to Related
Party").
Net cash provided by financing activities was $1,242,000 in the three months
ended March 31, 2003 compared to net cash used in financing activities of
$12,243,000 in the three months ended March 31, 2002. In the first quarter of
2003, net borrowings under the Company's senior credit facility provided cash of
16
$1,500,000 to fund capital expenditures, while preferred stock dividends and
production payments required cash of $258,000. In the first quarter of 2002, net
repayments under the Company's senior credit facility reduced cash by
$12,000,000, while preferred stock dividends and production payments required
additional cash of $243,000. The cash resources for the net debt repayments in
the first quarter of 2002 were provided by the sale of an interest in the
Company's Burrwood and West Delta fields as further described below (see "Sale
of Oil and Gas Properties to Related Party").
For the full year 2003, the Company anticipates making capital expenditures
totaling approximately $20 million, which will be primarily directed toward the
drilling of up to fifteen gross wells. The Company expects to finance its
capital expenditures out of operating cash flow and available bank credit, as
further described below (see "Senior Credit Facility").
Sale of Oil and Gas Properties to Related Party
- -----------------------------------------------
On March 12, 2002, the Company monetized a portion of the value created in its
Burrwood and West Delta fields by selling a thirty percent (30%) working
interest in the existing production and shallow rights, and a fifteen percent
(15%) working interest in the deep rights below 10,600 feet, in its Burrwood and
West Delta fields for $12 million to Malloy Energy Company, LLC led by Patrick
E. Malloy, III and participated in by Sheldon Appel, both members of the
Company's Board of Directors, as well as Josiah Austin, who subsequently became
a member of the Company's Board of Directors (Mr. Malloy is now Chairman of the
Company's Board of Directors). The sale price was determined by discounting the
present value of the acquired interest in the fields' proved, probable and
possible reserves using prevailing oil and gas prices. The Company retained an
approximate sixty-five percent (65%) working interest in the existing production
and shallow rights, and a thirty-two and one-half percent (32.5%) working
interest in the deep rights after the close of the transaction. In conjunction
with the sale, the investor group provided a $7.7 million line of credit. The
$7.7 million line of credit, which reduced to $5.0 million on January 1, 2003,
is subordinate to the Company's senior credit facility and can be used for
acquisitions, drilling, development and general corporate purposes until
December 31, 2004. The investor group retains the option to convert the amount
outstanding under the credit line, and/or provide cash on any unused credit to a
maximum of $5.0 million through December 31, 2004, into working interests in any
acquisition(s) the Company may make in Louisiana prior to January 1, 2005. The
conversion of the credit facility will be on a pro-rata basis with the Company's
interest and may not exceed a maximum of $5.0 million through December 31, 2004,
or thirty percent (30%) of any potential acquisition(s).
The Company recorded a non-recurring gain of approximately $2.4 million in the
first quarter of 2002 as a result of the sale. The proceeds were used to reduce
outstanding debt under its senior credit facility.
17
Senior Credit Facility
- ----------------------
On November 9, 2001, the Company established a three-year $50,000,000 senior
credit facility with BNP Paribas, with an initial borrowing base of $25,000,000,
subject to periodic redetermination. As of March 31, 2003, the latest borrowing
base determination that had been made by BNP Paribas was completed in November
2002 in the amount of $23,000,000. A subsequent redetermination was scheduled
for March 31, 2003, however, that redetermination has not been completed pending
evaluation by BNP Paribas of production information on three new oil and gas
wells completed by the Company in the first quarter of 2003. As of March 31,
2003, borrowings outstanding under the credit facility were $20,000,000.
Interest on borrowings under the senior credit facility accrue at a rate
calculated, at the option of the Company, as either the BNP Paribas base rate
plus 0.00% to 0.50%, or LIBOR plus 1.50% to 2.50%, depending on borrowing base
utilization. Interest on LIBOR-rate borrowings is due and payable on the last
day of its respective interest period. Accrued interest on each base-rate
borrowing is due and payable on the last day of each quarter. The credit
facility requires that the Company pay a 0.375% per annum commitment fee,
payable in quarterly installments based on the Company's borrowing base
utilization. Prior to maturity, no payments are required so long as the maximum
borrowing base amount exceeds the amounts outstanding under the credit facility.
The credit facility requires the Company to monitor tangible net worth and
maintain certain financial statement ratios at certain levels. The Company is in
compliance with all such requirements. Substantially all the Company's assets
are pledged to secure the senior credit facility.
In February 2003, the Company entered into three separate interest rate swaps
with BNP Paribas covering a three year period as further described below (see
"Quantitative and Qualitative Disclosures About Market Risk - Debt and
debt-related derivatives").
Changes in Critical Accounting Policies
- ---------------------------------------
Effective January 1, 2003, the Company adopted SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 requires the Company to record a
liability equal to the fair value of the estimated cost to retire an asset. The
asset retirement liability must be recorded in the periods in which the
obligation meets the definition of a liability, which is generally when the
asset is placed in service. In the three months ended March 31, 2003, the
adoption of SFAS No. 143 resulted in the Company recording a cumulative effect
of an accounting change in the amount of $205,000. The estimation of the
liability involves the projection of future costs to plug and abandon individual
wells. These estimates are based on current costs inflated to the end of the
well's economic life and discounted back to the well's origination date. The
liability will be accreted at the estimated discount rate to the expected cash
required to settle the liability. The estimate requires management's judgment
with respect to the future plugging and abandonment costs, the life of the well,
and the inflation and discount factors used. Changes in these estimates can
significantly impact the amount of the liability.
18
Quantitative and Qualitative Disclosures About Market Risk
Commodity Hedging Activity
- --------------------------
The Company enters into futures contracts or other hedging agreements from time
to time to manage the commodity price risk for a portion of its production. The
Company considers these to be hedging activities and, as such, monthly
settlements on these contracts are reflected in its oil and natural gas sales.
The Company's strategy, which is administered by the Hedging Committee of the
Board of Directors, and reviewed periodically by the entire Board of Directors,
has been to hedge between 30% and 70% of its production. A portion of the
Company's hedging arrangements are in the form of costless collars, whereby a
floor and a ceiling are fixed. It is the Company's belief that the benefits of
the downside protection afforded by these costless collars outweigh the costs
incurred by losing potential upside when commodity prices increase. The
remainder of the hedges utilized by the Company are in the form of fixed price
swaps, where the Company receives a fixed price and pays a floating price.
As of March 31, 2003, the Company's open forward position on its outstanding
natural gas and crude oil hedging contracts, all of which were with BNP Paribas,
were as follows:
Natural Gas
-----------
3000 MMBtu per day with a no cost collar of $3.50 and $5.19 per Mmbtu for
January through December 2003; and
3000 MMBtu per day "swap" at $4.06 for January 2003 through December 2003.
Crude Oil
---------
300 barrels of oil per day "swap" at $27.45 for April 2003 through May 2003; and
200 barrels of oil per day "swap" at $29.08 for April 2003 through May 2003; and
300 barrels of oil per day "swap" at $32.58 for April 2003 through May 2003; and
300 barrels of oil per day "swap" at $28.47 for June 2003 through December 2003;
and
200 barrels of oil per day "swap" at $29.32 for June 2003 through December 2003;
and
200 barrels of oil per day "swap" at $29.97 for June 2003 through December 2003
The fair value of the natural gas and oil hedging contracts in place at March
31, 2003, resulted, in a liability of $561,000. The hedging contracts summarized
above represent approximately 60% of the Company's estimated net oil and gas
production volumes for the remainder of 2003. Based on oil and gas pricing in
effect at March 31, 2003, a hypothetical 2% increase or decrease in oil and gas
prices would not have had a material effect on the Company's financial
statements.
Debt and debt-related derivatives
- ---------------------------------
In February 2003, the Company entered into three separate interest rate swaps
with BNP Paribas covering a three year period. The first interest rate swap,
which has an effective date of February 26, 2003 and a maturity date of February
26, 2004 is for $18,000,000 with a LIBOR swap rate of 1.53%. The second interest
19
rate swap, which has an effective date of February 26, 2004 and a maturity date
of November 8, 2004, is for $18,000,000 with a LIBOR swap rate of 2.25%. The
third interest rate swap, which has an effective date of November 8, 2004 and a
maturity date of February 26, 2006, is for $18,000,000 with a LIBOR swap rate of
3.46%. The fair value of the interest rate swap contracts in place at March 31,
2003, resulted in a liability of $168,000.
Price fluctuations and the volatile nature of markets
- -----------------------------------------------------
Despite the measures taken by the Company to attempt to control price risk, the
Company remains subject to price fluctuations for natural gas and oil sold in
the spot market. Prices received for natural gas sold on the spot market are
volatile due primarily to seasonality of demand and other factors beyond the
Company's control. Domestic oil and gas prices could have a material adverse
effect on the Company's financial position, results of operations and quantities
of reserves recoverable on an economic basis.
Disclosure Regarding Forward-Looking Statement
- ----------------------------------------------
Certain statements in this quarterly report on Form 10-Q regarding future
expectations and plans for future activities may be regarded as "forward looking
statements" within the meaning of Private Securities Litigation Reform Act of
1995. They are subject to various risks, such as financial market conditions,
operating hazards, drilling risks and the inherent uncertainties in interpreting
engineering data relating to underground accumulations of oil and gas, as well
as other risks discussed in detail in the Company's Annual Report on Form 10-K
and other filings with the Securities and Exchange Commission. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct.
20
Controls and Procedures
-----------------------
The Company, under the direction of its chief executive officer and chief
financial officer, has established controls and procedures to ensure that
material information relating to the Company and its consolidated subsidiaries
is made known to the officers who certify the Company's financial reports and to
other members of senior management and the Board of Directors.
Based on their evaluation as of a date within 90 days of the filing of the
Quarterly Report on form 10-Q, the chief executive officer and chief financial
officer of Goodrich Petroleum Corporation have concluded that the Company's
disclosure controls and procedures (as defined in rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934) are effective to ensure that the
information required to be disclosed by Goodrich Petroleum Corporation in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their most recent evaluation.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(b) Reports on Form 8-K
None.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOODRICH PETROLEUM CORPORATION
(registrant)
May 8, 2003 /s/ Walter G. Goodrich
- ----------------------------------- ---------------------------------------
Date Walter G. Goodrich,
Chief Executive Officer
May 8, 2003 /s/ D. Hughes Watler, Jr.
- ----------------------------------- ---------------------------------------
Date D. Hughes Watler, Jr.,
Chief Financial Officer
23
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Walter G. Goodrich, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Goodrich Petroleum
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ Walter G. Goodrich
- ----------------------
Walter G. Goodrich
Chief Executive Officer
24
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, D. Hughes Watler, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Goodrich Petroleum
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 8, 2003
/s/ D. Hughes Watler, Jr.
- -------------------------
D. Hughes Watler, Jr.
Chief Financial Officer
25