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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 28, 2004

FOREST OIL CORPORATION
(Exact name of registrant as specified in charter)

New York
(State or other jurisdiction
of incorporation)
  1-13515
(Commission
file number)
  25-0484900
(IRS Employer
Identification No.)

1600 Broadway, Suite 2200, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 303.812.1400





Item 2. Acquisition or Disposition of Assets.

        In June 2004 Forest Oil Corporation (Forest) acquired The Wiser Oil Company (Wiser) for total cash consideration of approximately $171 million and the assumption of approximately $163 million of Wiser's debt including existing notes and amounts outstanding under its credit facility. The acquisition was funded by borrowings under Forest's credit facilities, the net proceeds from a common stock offering and internally generated cash.


Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

Exhibit

  Description
23.1   Consent of Ernst & Young LLP

2



INDEX TO FINANCIAL STATEMENTS

 
  Page
FINANCIAL STATEMENTS OF THE WISER OIL COMPANY:    
 
CONSOLIDATED FINANCIAL STATEMENTS OF THE WISER OIL COMPANY AS OF MARCH 31, 2004 AND DECEMBER 31, 2003, AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED)

 

F-2
 
CONSOLIDATED FINANCIAL STATEMENTS OF THE WISER OIL COMPANY AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

 

F-19

FINANCIAL STATEMENTS OF FOREST OIL CORPORATION:

 

 
 
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF FOREST OIL CORPORATION AS OF MARCH 31, 2004 AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND YEAR ENDED DECEMBER 31, 2003

 

F-58

 

 

 

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THE WISER OIL COMPANY

CONSOLIDATED FINANCIAL STATEMENTS OF THE WISER OIL COMPANY AS OF MARCH 31, 2004 AND DECEMBER 31, 2003, AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (UNAUDITED):

 

 
 
Consolidated Balance Sheets at March 31, 2004 and December 31, 2003

 

F-3
 
Consolidated Statements of Income for the three months ended March 31, 2004 and March 31, 2003

 

F-4
 
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2004 and March 31, 2003

 

F-5
 
Consolidated Statements of Changes in Stockholders' Equity for the three months ended March 31, 2004

 

F-6
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and March 31, 2003

 

F-7
 
Notes to Consolidated Financial Statements

 

F-8

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THE WISER OIL COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 
  March 31,
2004

  December 31,
2003

 
 
  (000's)

 
ASSETS              
Current Assets              
Cash and cash equivalents   $ 5,123   $ 1,442  
Accounts receivable     15,721     13,551  
Inventories     567     270  
Prepaid expenses     1,613     1,141  
   
 
 
  Total current assets     23,024     16,404  
   
 
 
Property and Equipment, at cost:              
Oil and gas properties (successful efforts method)     432,884     422,084  
Other properties     4,320     4,299  
   
 
 
      437,204     426,383  
Accumulated depreciation, depletion and amortization     (227,031 )   (220,222 )
   
 
 
Net property and equipment     210,173     206,161  
Other Assets     1,870     2,031  
   
 
 
    $ 235,067   $ 224,596  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current Liabilities:              
  Accounts payable   $ 18,380   $ 18,999  
  Fair value of derivatives     8,404     4,447  
  Accrued liabilities     12,431     6,584  
   
 
 
    Total current liabilities     39,215     30,030  
   
 
 
Pension Liability     2,563     2,566  
Long-term Debt     160,355     154,196  
Asset Retirement Obligation     7,182     7,008  
Stockholders' Equity:              
  Common stock - $.01 par value; shares authorized - 30,000,000; shares issued - 15,646,211 at March 31, 2004 and December 31, 2003; shares outstanding - 15,470,007 at March 31, 2004 and December 31, 2003     156     156  
  Paid-in capital     66,677     66,677  
  Retained earnings     (42,272 )   (37,951 )
  Accumulated other comprehensive income     3,519     4,242  
  Treasury stock - 176,204 shares at cost at March 31, 2004 and December 31, 2003     (2,328 )   (2,328 )
   
 
 
    Total stockholders' equity     25,752     30,796  
   
 
 
    $ 235,067   $ 224,596  
   
 
 

The notes to financial statements included in the Consolidated Financial Statements of The Wiser Oil Company as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 included in this report on Form 8-K/A are an integral part of these financial statements.

F-3



THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
  For the Three Months
Ended March 31,

 
 
  2004
  2003
 
Revenues:              
  Oil and gas sales   $ 28,398   $ 30,630  
  Interest income     35     13  
  Other         555  
   
 
 
      28,433     31,198  
   
 
 
Costs and Expenses:              
  Operating costs     9,222     7,196  
  Production taxes     906     1,132  
  Loss on derivatives     5,719     7,308  
  Depreciation, depletion and amortization     8,797     7,643  
  Exploration     1,730     3,626  
  General and administrative     2,805     2,292  
  Interest expense     3,575     3,551  
   
 
 
      32,754     32,748  
   
 
 
Income (Loss) Before Income Taxes     (4,321 )   (1,550 )
Income Tax Expense (Benefit)         (441 )
   
 
 
Net Income (Loss) Before Cumulative Effect of Accounting Change     (4,321 )   (1,109 )
Cumulative Effect of Accounting Change, net of tax         5,238  
   
 
 
Net Income (Loss) Before Preferred Dividends and Amortization     (4,321 )   4,129  
Preferred dividends         (432 )
Amortization of preferred stock discount         (1,481 )
   
 
 
Net Income (Loss) Available to Common Stock   $ (4,321 ) $ 2,216  
   
 
 
Earnings (Loss) Per Share:              
Basic:              
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (0.28 ) $ (0.32 )
  Cumulative Effect of Accounting Change, net of tax         0.55  
   
 
 
    Net Income (Loss)   $ (0.28 ) $ 0.23  
   
 
 
Diluted:              
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (0.28 ) $ (0.32 )
  Cumulative Effect of Accounting Change, net of tax         0.55  
   
 
 
    Net Income (Loss)   $ (0.28 ) $ 0.23  
   
 
 
Weighted average shares outstanding (000's):              
  Basic     15,470     9,474  
   
 
 
  Diluted     15,962     15,356  
   
 
 

The notes to financial statements included in the Consolidated Financial Statements of The Wiser Oil Company as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 included in this report on Form 8-K/A are an integral part of these financial statements.

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THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 
  For the Three Months
Ended March 31,

 
  2004
  2003
Net income (loss)   $ (4,321 ) $ 4,129
Other comprehensive income (loss):            
  Foreign currency translation adjustment     (723 )   5,110
   
 
Comprehensive income (loss)   $ (5,044 ) $ 9,239
   
 

The notes to financial statements included in the Consolidated Financial Statements of The Wiser Oil Company as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 included in this report on Form 8-K/A are an integral part of these financial statements.

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THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Three Months Ended March 31, 2004

 
  Shares
  Amount
 
 
  (000's)

 
Common stock, $0.01 par value:            
  Balance at beginning and end of period   15,646     156  
   
 
 
Paid-in capital            
  Balance at beginning and end of period         66,677  
       
 
Retained Earnings:            
  Balance at beginning of period         (37,951 )
  Net Income (loss)         (4,321 )
       
 
    Balance at end of period         (42,272 )
       
 
Accumulated other comprehensive income:            
  Balance at beginning of period         4,242  
  Foreign currency translation adjustment         (723 )
       
 
    Balance at end of period         3,519  
       
 
Treasury Stock:            
  Balance at beginning and end of period   (176 )   (2,328 )
   
 
 
Total Stockholders' Equity   15,470   $ 25,752  
   
 
 

The notes to financial statements included in the Consolidated Financial Statements of The Wiser Oil Company as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 included in this report on Form 8-K/A are an integral part of these financial statements.

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THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
  For the Three Months
Ended March 31,

 
 
  2004
  2003
 
Cash Flows from Operating Activities:              
  Net income (loss)   $ (4,321 ) $ 4,129  
  Adjustments to reconcile net income (loss) to cash flows from operating activities:              
    Depreciation, depletion and amortization     8,797     7,643  
    Cumulative effect of an accounting change, net of tax         (5,238 )
    Deferred income taxes         (441 )
    Gains on sales of property         (491 )
    Property impairments and abandonments     928     1,131  
    Non-cash loss on derivative value     3,957     668  
    Amortization of other assets     170     178  
  Other changes              
    Accounts receivable     (2,235 )   (7,554 )
    Inventories     (318 )   35  
    Prepaid expenses     (483 )   (910 )
    Accounts payable     (574 )   8,939  
    Accrued liabilities     5,845     2,593  
    Asset retirement obligation     (85 )    
   
 
 
      Operating Cash Flows     11,681     10,682  
   
 
 
Cash Flows from Investing Activities:              
  Capital expenditures     (14,440 )   (14,634 )
  Proceeds from sales of property and equipment         881  
   
 
 
    Investing Cash Flows     (14,440 )   (13,753 )
   
 
 
Cash Flows from Investing Activities:              
  Net borrowing (repayments) of long-term debt     6,313     3,998  
  Preferred dividends         (221 )
   
 
 
    Financing Cash Flows     6,313     3,777  
   
 
 
Effect of exchange rate changes on Cash and cash equivalents     127     188  
   
 
 
Net Increase in Cash and Cash Equivalents     3,681     894  
Cash and Cash Equivalents beginning of period     1,442     3,590  
   
 
 
Cash and Cash Equivalents, end of period   $ 5,123   $ 4,484  
   
 
 

The notes to financial statements included in the Consolidated Financial Statements of The Wiser Oil Company as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 included in this report on Form 8-K/A are an integral part of these financial statements.

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THE WISER OIL COMPANY

Notes to Financial Statements

Note 1. Basis of Presentation

Presentation

        In the opinion of management, the unaudited consolidated financial statements of The Wiser Oil Company (the "Company") as of March 31, 2004 and for the three month periods ended March 31, 2004 and 2003 include all adjustments and accruals, consisting only of normal, recurring accrual adjustments, which are necessary for a fair presentation of the results for the interim periods. These interim results are not necessarily indicative of results for a full year.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). These consolidated financial statements should be read in connection with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

Stock-Based Compensation

        The Company accounts for stock-based compensation granted under it's long-term incentive plan using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Stock-based compensation expenses associated with option grants were not recognized in the net (loss) income of the three month periods ended March 31, 2004 and 2003, as all options granted had exercise prices equal to the market value of the underlying common stock on the dates of grant. The following table illustrates the effect on net income (loss) and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" to stock-based employee compensation (in thousands, except per share data):

 
  Three months ended
March 31,

 
 
  2004
  2003
 
Net income (loss) available to common stock — as reported   $ (4,321 ) $ 2,216  
Pro forma stock-based employee compensation expenses net of income taxes     (52 )   (20 )
   
 
 
Net income (loss) available to common stock — pro forma   $ (4,373 ) $ 2,196  
   
 
 
Basic earnings (loss) per share — as reported   $ (0.28 ) $ 0.23  
Basic earnings (loss) per share — pro forma   $ (0.28 ) $ 0.23  
Diluted earnings (loss) per share — as reported   $ (0.28 ) $ 0.23  
Diluted earnings (loss) per share — pro forma   $ (0.28 ) $ 0.23  

Asset Retirement Obligation

        Effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." The Statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. Periodic accretion of discount of the estimated liability is recorded in the income statement. Prior

F-8



to adoption of SFAS No. 143, the Company had accrued for any estimated asset retirement obligation, net of estimated salvage value, as part of our calculation of depletion, depreciation and amortization. This method resulted in recognition of the obligation over the life of the property on a unit-of-production basis, with the estimated obligation netted in property cost as part of the accumulated depreciation, depletion and amortization balance. We have determined our asset retirement obligation by calculating the present value of estimated cash flows related to the liability.

        At January 1, 2003, the Company recorded a long-term liability for asset retirement obligation of $5.0 million, an increase in property cost of $3.7 million, a reduction of accumulated depreciation, depletion and amortization of $6.8 million and cumulative effect of accounting change gain, net of tax, of $5.2 million.

        The following table summarizes the changes in the Company's asset retirement obligation(in thousands):

 
  March 31, 2004
  March 31, 2003
Beginning asset retirement obligations   $ 7,008   $ 4,974
New wells placed on production and changes in estimates     169    
Acquisition liabilities assumed        
Liabilities settled     (85 )  
Exchange rate effect     (49 )   230
Accretion expense     139     106
   
 
Ending asset retirement obligations   $ 7,182   $ 5,310
   
 

        Accretion of discount expense is included in depreciation, depletion and amortization expense in the accompanying consolidated financial statements

Note 2. Derivative Instruments and Hedging Activities

        In 2001, the Company adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. None of the Company's derivative instruments at March 31, 2004 or March 31, 2003 were designated as hedges under the terms of SFAS No. 133. We recognized derivative losses of $5.7 million for the three months ended March 31, 2004 and derivative losses of $7.3 million for the three months ended March 31, 2003. At March 31, 2004, the fair value of derivatives was a liability of $8.4 million.

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        As of May 11, 2004 the Company's derivative instruments were as follows:

Crude Oil:

  Daily Volume
  Price per Bbl
May 1, 2004 to June 30, 2004   1,000 Bbls   $ 27.50
May 1, 2004 to June 30, 2004(1)   1,000 Bbls   $ 30.00 Call
May 1, 2004 to June 30, 2004   1,000 Bbls   $ 28.56
July 1, 2004 to September 30, 2004(1)   1,000 Bbls   $ 31.25 Call
July 1, 2004 to September 30, 2004   1,000 Bbls   $ 28.25
July 1, 2004 to September 30, 2004   1,000 Bbls   $ 28.20
October 1, 2004 to December 31, 2004   1,000 Bbls   $ 29.60
October 1, 2004 to December 31, 2004(1)   1,000 Bbls   $ 33.00 Call
January 1, 2005 to March 31, 2005(2)   1,000 Bbls   $ 35.30 ceiling, $32.00 floor
Natural Gas:

  Daily Volume
  Price per MMBTU
May 1, 2004 to September 30, 2004(2)   5,000 MMBTU   $ 5.45 ceiling, $4.50 floor
May 1, 2004 to September 30, 2004(2)   5,000 MMBTU   $ 5.50 ceiling, $4.30 floor
May 1, 2004 to September 30, 2004(2)   5,000 MMBTU   $ 5.50 ceiling, $4.25 floor
May 1, 2004 to December 31, 2004   5,000 MMBTU   $ 4.70
May 1, 2004 to December 31, 2004   5,000 MMBTU   $ 5.00
October 1, 2004 to December 31, 2004(2)   5,000 MMBTU   $ 7.40 ceiling, $5.50 floor
January 1, 2005 to March 31, 2005(2)   5,000 MMBTU   $ 8.00 ceiling, $5.50 floor

(1)
These are "call" derivative instruments the Company sold and the Company will pay the difference between the actual market price and the call price only if the actual market price is above the call price. If the actual market price is equal to or below the call price, the Company does not pay or receive any settlement amount.

(2)
These are "collar" derivative instruments whereby the Company contracts to receive the actual market price if the actual market price is between the floor price and the ceiling price. If the actual market price is below or above the floor or ceiling prices, the Company will receive the floor price or ceiling price, as applicable.

        The Company is exposed to credit losses in the event of nonperformance by the counterparties of its financial instruments. Management has entered into contracts with numerous counterparties to reduce the Company's exposure to credit losses and anticipates that such counterparties will be able to fully satisfy their obligations under the contracts. As of March 31, 2004, the Company had posted $1.0 million in letters of credit as collateral with counterparties for the fair value of contracts outstanding.

Note 3. Employee Pension Plan

        The Company has a noncontributory defined benefit Pension Plan that was "frozen" in December 1998. Prior to December 11, 1998, retirement benefits were earned based on the employee's earnings, length of service and age at retirement. After December 11, 1998, additional retirement benefits based on length of service and earnings were discontinued for all employees. Contributions required to fund plan benefits are determined according to the Projected Unit Credit Method.

        Effective October 2000, the Pension Plan was amended to provide additional benefits by implementing a Cash Balance Plan for current employees only. The Cash Balance Plan is a noncontributory plan whereby the Company contributes an amount equal to 3% of an employee's salary to the Cash Balance Plan and the cash balance in each employee's account earns interest at a fixed rate of 6%. Any accumulated retirement benefits under the original retirement benefit formula were "rolled over" into the Cash Balance Plan for current employees.

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        The net pension expense (included in general and administrative expense) and weighted average principal assumptions utilized in computing net pension expense were as follows (amounts in 000's):

 
  For the three months ended
March 31,

 
 
  2004
  2003
 
Service cost   $ 28   $ 28  
Interest cost     169     169  
Expected return on plan assets     (44 )   (124 )
Recognized loss (gain)         77  
   
 
 
Net periodic pension cost (credit)   $ 153   $ 150  
   
 
 
Discount rate     6.75 %   6.75 %
Rate of return on plan assets     8.50 %   8.50 %
Rate of increase in compensation levels     0.00 %   0.00 %

Note 4. Long-term Debt

        On May 21, 1997, the Company sold $125 million in principal amount of 91/2% Senior Subordinated Notes ("2007 Notes") due May 15, 2007, providing net proceeds to the Company of $120.9 million. The original issue price was 99.718%. The Company used the net proceeds from the sale of the 2007 Notes to repay all outstanding bank indebtedness and for general corporate purpose. The 2007 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 15, 2002 at a redemption price of 104.75%, plus accrued interest to the date of redemption, and declining at the rate of 1.583% per year to May 15, 2005 and 100% thereafter.

        On May 21, 2001 the Company entered into an $80 million revolving credit facility with Union Bank of California, N.A as U.S. administrative agent, and National Bank of Canada, a Canadian administrative agent, among other lenders, which matures on May 21, 2005. The aggregate borrowing base under the revolving credit facility is $65 million and is allocated $45 million for general corporate purposes (Tranche A) and $20 million exclusively for acquisition of proved oil and gas properties (Tranche B). The $65 million aggregate borrowing base is allocated $20 million for Canadian borrowings and $45 million for U.S. borrowings. The aggregate borrowing base is re-determined by the banks semi-annually. At March 31, 2004, the Company had CDN $18.9 million (U.S. $14.4 million) of Canadian borrowings outstanding, $21.0 million of U.S. borrowings outstanding, and $1.0 million in letters of credit outstanding, leaving approximately $8.6 million available under the Tranche A portion of the Revolver. The Tranche B portion is fully available. Prior to May 2005, the maturity date of the revolving credit facility, the Company plans to amend the revolving credit facility to extend the maturity date. If unable to amend the existing revolving credit facility, the Company may enter into a new credit facility. There can be no assurance that the Company will be able to obtain an amendment to the existing credit facility or to enter into a new credit facility.

        In addition, the Company is required to maintain a minimum interest coverage ratio of 1.5 and a minimum working capital ratio (including unused borrowing base) of 1.10, as defined. At March 31, 2004, the working capital ratio was 1.06. Under the terms of the revolving credit facility, if the minimum working capital ratio is not maintained the Company has a 30 day remedy period, which expires on June 11, 2004. Management believes it is probable that the working capital ratio will be remedied within the 30 day period.

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Note 5. Business Segment Information and Summary of Guaranties of 91/2% Senior Subordinated Notes

        In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" which requires reporting of financial and descriptive information about a company's reportable operating segments. The Company has identified only one operating segment, which is the exploration for and production of oil and gas with sales made to domestic and Canadian energy customers.

        In May 1997, the Company issued $125 million aggregate principal amount of its 2007 Notes pursuant to an offering exempt from registration under the Securities Act of 1933. The notes are unsecured obligations of the Company, subordinated in right of payment to all existing and any future senior indebtedness of the Company. The notes rank pari passu with any future senior subordinated indebtedness and senior to any future junior subordinated indebtedness of the Company. The notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured, senior subordinated basis by wholly owned subsidiaries of the Company (the "Subsidiary Guarantors"). At the time of the initial issuance of the notes, Wiser Oil Delaware, Inc., The Wiser Marketing Company, Wiser Delaware LLC, T.W.O.C., Inc. and The Wiser Oil Company of Canada were the Subsidiary Guarantors (the "Initial Subsidiary Guarantors"). Except for five wholly owned subsidiaries that are inconsequential to the Company on a consolidated basis, the Initial Subsidiary Guarantors comprise all of the Company's direct and indirect subsidiaries.

        In 1997, the assets of T.W.O.C., Inc. were sold and in 1999 the assets of The Wiser Marketing Company were sold. Wiser Oil Delaware, Inc. and Wiser Delaware LLC own 100% of the stock of The Wiser Oil Company of Canada, therefore the remaining Subsidiary Guarantors consist entirely of Canadian assets and are collectively referred to as Wiser Canada.

        Sections 13 and 15(d) of the Securities Exchange Act of 1934 require presentation of the following unaudited summarized financial information of the Subsidiary Guarantors. The Company has not presented separate financial statements and other disclosures concerning each Subsidiary Guarantor because management has determined that they are not material to investors. There are no significant contractual restrictions on distributions from each of the Subsidiary Guarantors to the Company.

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        The following schedules disclose information about the Company's geographic segments and guaranties of its 91/2% Senior Subordinated Notes.

Condensed Income Statement for the Quarter Ended March 31, 2004

 
  Wiser Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
 
  (000's)

 
Revenues:                          
  Oil and gas sales   $ 14,835   $ 13,563   $   $ 28,398  
  Other     24     11         35  
   
 
 
 
 
    Total revenues     14,859     13,574         28,433  
   
 
 
 
 
Costs and Expenses:                          
  Operating costs and production taxes     4,460     4,762         9,222  
  Production taxes     906         906        
  Loss on derivatives     3,043     2,676         5,719  
  Depletion, depreciation and amortization     3,813     4,984         8,797  
  Exploration     411     1,319         1,730  
  General and administrative     2,146     659         2,805  
  Interest expense     3,388     187         3,575  
   
 
 
 
 
    Total expenses     18,167     14,587         32,754  
   
 
 
 
 
Loss Before Income Taxes     (3,308 )   (1,013 )       (4,321 )
Income Tax Benefit                  
   
 
 
 
 
  Net Loss   $ (3,308 ) $ (1,013 ) $   $ (4,321 )
   
 
 
 
 

F-13


Condensed Income Statement for the Quarter Ended March 31, 2003

 
  Wiser Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
 
  (000's)

 
Revenues:                          
  Oil and gas sales   $ 17,374   $ 13,256   $   $ 30,630  
  Other     51     517         568  
   
 
 
 
 
    Total revenues     17,425     13,773         31,198  
   
 
 
 
 
Costs and Expenses:                          
  Operating costs and production taxes     3,939     3,257         7,196  
  Production taxes     1,132     1,132              
  Loss on derivatives     4,607     2,701         7,308  
  Depletion, depreciation and amortization     2,728     4,915         7,643  
  Exploration     1,270     2,356         3,626  
  General and administrative     1,675     617         2,292  
  Interest expense     3,326     225         3,551  
   
 
 
 
 
    Total expenses     18,677     14,071         32,748  
   
 
 
 
 
Loss Before Income Taxes     (1,252 )   (298 )       (1,550 )
Income Tax Benefit         (441 )       (441 )
   
 
 
 
 
Loss Before Cumulative Effect of Accounting Change     (1,252 )   143         (1,109 )
Cumulative Effect of Accounting Change, net of tax     2,757     2,481         5,238  
   
 
 
 
 
  Net Loss   $ 1,505   $ 2,624   $   $ 4,129  
   
 
 
 
 

F-14


Condensed Statement of Cash Flows for The Quarter Ended March 31, 2004

 
  Wiser
Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
 
  (000's)

 
Cash Flows From Operating Activities:                          
  Net income (loss)   $ (3,308 ) $ (1,013 ) $   $ (4,321 )
  Add back reconciling items     6,401     7,451         13,852  
  Other changes     1,532     618         2,150  
   
 
 
 
 
    Operating Cash Flows     4,625     7,056         11,681  
   
 
 
 
 
Cash Flows from Investing Activities:                          
  Capital Expenditures     (5,329 )   (9,111 )       (14,440 )
  Proceeds from property sales                  
   
 
 
 
 
    Investing Cash Flows     (5,329 )   (9,111 )       (14,440 )
   
 
 
 
 
Cash Flows from Financing Activities:                          
  Borrowings (repayments) of long-term debt     4,000     2,313         6,313  
  Other                  
   
 
 
 
 
    Financing Cash Flows     4,000     2,313         6,313  
   
 
 
 
 
Effect of exchange rate changes on Cash and cash equivalents         127         127  
   
 
 
 
 
Net Increase in Cash and Cash Equivalents     3,296     385         3,681  
Cash and Cash Equivalents, beginning of year     1,397     45         1,442  
   
 
 
 
 
Cash and Cash Equivalents, end of year   $ 4,693   $ 430   $   $ 5,123  
   
 
 
 
 

F-15


Condensed Statement of Cash Flows for The Quarter Ended March 31, 2003

 
  Wiser Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
 
  (000's)

 
Cash Flows From Operating Activities:                          
  Net income (loss)   $ (1,252 ) $ 143   $   $ (1,109 )
  Add back reconciling items     3,206     4,814         8,020  
  Other changes     2,288     1,483         3,771  
   
 
 
 
 
    Operating Cash Flows     4,242     6,440         10,682  
   
 
 
 
 
Cash Flows from Investing Activities:                          
  Capital Expenditures     (5,114 )   (9,520 )       (14,634 )
  Proceeds from property sales         881         881  
   
 
 
 
 
    Investing Cash Flows     (5,114 )   (8,639 )       (13,753 )
   
 
 
 
 
Cash Flows from Financing Activities:                          
  Borrowings (repayments) of long-term debt     2,000     1,998         3,998  
  Other     (221 )           (221 )
   
 
 
 
 
    Financing Cash Flows     1,779     1,998         3,777  
   
 
 
 
 
Effect of exchange rate changes on Cash and cash equivalents         188         188  
   
 
 
 
 
Net Decrease in Cash and Cash Equivalents     907     (13 )       894  
Cash and Cash Equivalents, beginning of year     2,222     1,368         3,590  
   
 
 
 
 
Cash and Cash Equivalents, end of year   $ 3,129   $ 1,355   $   $ 4,484  
   
 
 
 
 

Condensed Balance Sheet March 31, 2004

 
  Wiser Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
  (000's)

Assets:                        
  Current assets   $ 13,497   $ 9,527   $   $ 23,024
  Net property and equipment     119,524     90,649         210,173
  Other assets     82,021         (80,151 )   1,870
   
 
 
 
    Total Assets   $ 215,042   $ 100,176   $ (80,151 ) $ 235,067
   
 
 
 
Liabilities and Stockholders' Equity:                        
  Current liabilities   $ 17,705   $ 21,510   $   $ 39,215
  Pension liability     2,563             2,563
  Asset retirement obligation     2,722     4,460         7,182
  Long-term debt     145,962     14,393         160,355
  Stockholders' equity     46,090     59,813     (80,151 )   25,752
   
 
 
 
    Total Liabilities and Stockholders' Equity   $ 215,042   $ 100,176   $ (80,151 ) $ 235,067
   
 
 
 

F-16


Condensed Balance Sheet December 31, 2003

 
  Wiser Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
  (000's)

Assets:                        
  Current assets   $ 8,610   $ 7,794   $   $ 16,404
  Net property and equipment     118,205     87,956         206,161
  Other assets     82,194         (80,163 )   2,031
   
 
 
 
    Total Assets   $ 209,009   $ 95,750   $ (80,163 ) $ 224,596
   
 
 
 
Liabilities and Stockholders' Equity:                        
  Current liabilities   $ 12,464   $ 17,566   $   $ 30,030
  Pension liability     2,566             2,566
  Asset retirement obligation     2,629     4,379         7,008
  Long-term debt     141,953     12,243         154,196
  Stockholders' equity     49,397     61,562     (80,163 )   30,796
   
 
 
 
    Total Liabilities and Stockholders' Equity   $ 209,009   $ 95,750   $ (80,163 ) $ 224,596
   
 
 
 

See other notes to financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

F-17


Note 6. Net Income per Common Share

        Basic net income per common share is computed based on the weighted average shares of common stock outstanding. Net income per share computations to reconcile basic and diluted net income consist of the following (in thousands, except per share data):

 
  For the Quarter Ended
March 31,

 
 
  2004
  2003
 
Net income (loss) available to common stock   $ (4,321 ) $ 2,216  
Plus: Income impact of assumed conversions:              
  Dividends and amortization on preferred stock         1,913  
   
 
 
    Net income (loss) available to common plus assumed conversions   $ (4,321 ) $ 4,129  
   
 
 
Basic weighted average shares     15,470     9,474  
Effect of dilutive securities              
  Convertible preferred stock         5,882  
  Warrants     365      
  Stock options     127      
   
 
 
    Diluted weighted average shares     15,962     15,356  
   
 
 
Earnings (Loss) Per Share:              
Basic:              
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (0.28 ) $ (0.32 )
  Cumulative Effect of Accounting Change, net of tax         0.55  
   
 
 
    Net Income (Loss)   $ (0.28 ) $ 0.23  
   
 
 
Diluted:              
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (0.28 ) $ (0.32 )
  Cumulative Effect of Accounting Change, net of tax         0.55  
   
 
 
    Net Income (Loss)   $ (0.28 ) $ 0.23  
   
 
 
Weighted average shares outstanding (000's)              
  Basic     15,470     9,474  
   
 
 
  Diluted     15,962     15,356  
   
 
 

The effect of the dilutive securities for the three months ended March 31, 2004 and 2003 was antidilutive.

F-18



THE WISER OIL COMPANY

 
   
CONSOLIDATED FINANCIAL STATEMENTS OF THE WISER OIL COMPANY AS OF DECEMBER 31, 2003 AND 2002 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001    
  Report of Ernst & Young LLP, Independent Auditors   F-20
  Report of Arthur Andersen LLP, Independent Public Accountants   F-21
  Consolidated Statements of Income   F-22
  Consolidated Statements of Comprehensive Income   F-23
  Consolidated Balance Sheets   F-24
  Consolidated Statements of Changes in Stockholders' Equity   F-25
  Consolidated Statements of Cash Flows   F-26
  Notes to Consolidated Financial Statements   F-27

F-19



Report of Independent Auditors

The Board of Directors and Stockholders
The Wiser Oil Company

We have audited the accompanying consolidated balance sheets of The Wiser Oil Company and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2003. 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. The financial statements of The Wiser Oil Company as of and for the year ended December 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated March 22, 2002.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of The Wiser Oil Company and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the Consolidated Financial Statements, on January 1, 2003, The Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations."

As discussed above, the consolidated financial statements of The Wiser Oil Company as of and for the year ended December 31, 2001, were audited by other auditors who have ceased operations. As described in Note 1, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 148, "Accounting for Stock Based Compensation—Transition and Disclosure," which was adopted by the Company as of December 31, 2002. Our audit procedures with respect to the disclosures in Note 1 for 2001 included (a) agreeing the as reported and pro forma net income (loss), as reported and pro forma basic earnings (loss) per share, and as reported and pro forma diluted earnings (loss) per share to the previously issued financial statements, (b) agreeing the pro forma stock-based employee compensation expense (including any related tax effects) determined under a fair value method for all awards to the Company's underlying records obtained from management, and (c) testing the mathematical accuracy of the reconciliation of pro forma net income to reported net income. In our opinion, the disclosures for 2001 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

  ERNST & YOUNG LLP
Dallas, Texas
February 27, 2004
 

F-20



Report of Independent Public Accountants

To the Shareholders of The Wiser Oil Company:

We have audited the accompanying consolidated balance sheets of The Wiser Oil Company (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. 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 auditing standards generally accepted in the United States. 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 consolidated financial position of The Wiser Oil Company and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

As explained in Note 1 to the financial statements, effective January 1, 2001, the Company changed its method of accounting for derivative instruments and hedging transactions.

  ARTHUR ANDERSEN LLP
Dallas, Texas,
March 22, 2002
 

Subsequent to the completion of the audit of the Company's 2001 financial statements, Arthur Andersen LLP was convicted of obstruction of justice charges relating to a federal investigation of Enron Corporation and ceased operations as a public accounting firm. Accordingly, the report of independent public accountants included above is a copy of a report previously issued by Arthur Andersen. Arthur Andersen has not reissued its report for inclusion in this document.

F-21



THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2003, 2002 and 2001

 
  2003
  2002
  2001
 
 
  (000's except per share data)

 
Revenues:                    
  Oil and gas sales   $ 107,346   $ 76,775   $ 80,344  
  Interest income     112     163     1,245  
  Gain on sales of properties     3,056     2,296     9,527  
  Other     (95 )   253     454  
   
 
 
 
      110,419     79,487     91,570  
   
 
 
 
Costs and Expenses:                    
  Operating costs and production taxes     30,555     30,023     28,404  
  Loss on derivatives     12,543     14,144     2,094  
  Depreciation, depletion and amortization     38,054     30,257     19,388  
  Property impairments     24,750     9,915     2,490  
  Exploration     13,449     21,317     7,542  
  General and administrative     10,435     9,558     8,082  
  Interest expense     14,517     14,328     13,364  
   
 
 
 
      144,303     129,542     81,364  
   
 
 
 
Income (Loss) Before Income Taxes     (33,884 )   (50,055 )   10,206  
Income Tax Expense (Benefit)     (8,239 )   (4,658 )   158  
   
 
 
 
Net Income (Loss) Before Cumulative Effect of Accounting Change     (25,645 )   (45,397 )   10,048  
Cumulative Effect of Accounting Change, net of tax     5,238          
   
 
 
 
Net Income (Loss) Before Preferred Dividends and Amortization     (20,407 )   (45,397 )   10,408  
Preferred dividends     (700 )   (1,750 )   (1,460 )
Amortization of preferred stock discount     (2,530 )   (5,066 )   (2,410 )
   
 
 
 
Net Income (Loss) Available to Common Stock   $ (23,637 ) $ (52,213 ) $ 6,178  
   
 
 
 
Earnings (Loss) Per Share:                    
Basic:                    
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (2.21 ) $ (5.59 ) $ 0.67  
  Cumulative Effect of Accounting Change, net of tax     .40          
   
 
 
 
    Net Income (Loss)   $ (1.81 ) $ (5.59 ) $ 0.67  
   
 
 
 
Diluted:                    
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (2.21 ) $ (5.59 ) $ 0.67  
  Cumulative Effect of Accounting Change, net of tax     .40          
   
 
 
 
    Net Income (Loss)   $ (1.81 ) $ (5.59 ) $ 0.67  
   
 
 
 
Weighted average shares outstanding (000's):                    
  Basic     13,078     9,333     9,161  
   
 
 
 
  Diluted     15,599     15,217     14,323  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-22



THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2003, 2002 and 2001

 
  2003
  2002
  2001
 
 
  (000's)

 
Net income(loss)   $ (20,407 ) $ (45,397 ) $ 10,048  
Other comprehensive income (loss):                    
Foreign currency translation adjustment     14,263     948     (3,778 )
Minimum pension liability adjustment     513     (2,069 )   (2,183 )
Net change in derivative fair value:                    
Cumulative effect of accounting change, net of tax             (3,083 )
Change in derivative fair value             1,870  
Reclassification adjustments — contract settlements         (802 )   2,013  
   
 
 
 
Comprehensive income (loss)   $ (5,631 ) $ (47,320 ) $ 4,887  
   
 
 
 

F-23



THE WISER OIL COMPANY

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002

 
  2003
  2002
 
 
  (000's)

 
ASSETS              
Current Assets              
  Cash and cash equivalents   $ 1,442   $ 3,590  
  Accounts receivable     13,551     10,571  
  Inventories     270     299  
  Prepaid expenses     1,141     2,030  
   
 
 
    Total current assets     16,404     16,490  
   
 
 
Property and Equipment, at cost:              
  Oil and gas properties (successful efforts method)     422,084     354,996  
  Other properties     4,299     3,961  
   
 
 
      426,383     358,957  
Accumulated depreciation, depletion and amortization     (220,222 )   (155,744 )
   
 
 
Net property and equipment     206,161     203,213  
Other Assets     2,031     2,504  
   
 
 
    $ 224,596   $ 222,207  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current Liabilities:              
  Accounts payable   $ 18,999   $ 12,775  
  Fair value of derivatives     4,447     5,325  
  Dividends         441  
  Accrued liabilities     6,584     4,957  
   
 
 
    Total current liabilities     30,030     23,498  
   
 
 
Pension Liability     2,566     3,299  
Long-term Debt     154,196     152,516  
Asset Retirement Obligation     7,008      
Deferred Income Taxes         6,603  
Commitments and Contingencies          
Stockholders' Equity:              
  Series C convertible preferred stock - $10 par value; 1,000,000 shares authorized; 1,000,000 shares issued and outstanding at December 31, 2002 - at $25 liquidation value per share         10,000  
  Common stock - $.01 par value; shares authorized - 30,000,000; shares issued -15,646,211 at December 31, 2003 and 9,625,929 at December 31, 2002; shares outstanding - 15,470,007 at December 31, 2003 and 9,401,855 at December 31, 2002     156     96  
  Preferred stock discount, net of $7,476,000 amortization at December 31, 2002         (2,530 )
  Paid-in capital     66,677     56,536  
  Retained earnings     (37,951 )   (14,314 )
  Accumulated other comprehensive income     4,242     (10,534 )
  Treasury stock - 176,204 shares at cost at December 31, 2003 and 224,104 shares at cost at December 31, 2002     (2,328 )   (2,963 )
   
 
 
    Total stockholders' equity     30,796     36,291  
   
 
 
    $ 224,596   $ 222,207  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-24



THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

For the Years Ended December 31, 2003, 2002 and 2001

 
  2003
  2002
  2001
 
 
  Shares
  Amount
  Shares
  Amount
  Shares
  Amount
 
 
  (000's)

  (000's)

  (000's)

 
Series C convertible preferred stock, $10 value:                                
  Balance at beginning of period   1,000   $ 10,000   1,000   $ 10,000   600   $ 6,000  
  Converted to common stock   (1,000 )   (10,000 )                    
  Issuance of preferred stock               400     4,000  
   
 
 
 
 
 
 
  Balance at end of period         1,000     10,000   1,000     10,000  
   
 
 
 
 
 
 
Common stock, $0.01 par value:                                
  Balance at beginning of period   9,626     96   9,467     94   9,209     92  
  Preferred stock converted to common   5,882     59              
  Common stock issued as preferred dividend   72     1   159     2   258     2  
  Stock options exercised   66                  
   
 
 
 
 
 
 
    Balance at end of period   15,646     156   9,626     96   9,467     94  
   
 
 
 
 
 
 
Preferred stock discount:                                
  Balance at beginning of period         (2,530 )       (7,596 )        
  Issuance of preferred stock                         (10,006 )
  Amortization of preferred stock discount         2,530         5,066         2,410  
       
     
     
 
    Balance at end of period                 (2,530 )       (7,596 )
       
     
     
 
Paid-in capital                                
  Balance at beginning of period         56,536         55,887         38,568  
  Issuance of preferred stock                         6,000  
  Beneficial conversion option                         9,192  
  Common stock issued as preferred dividend         221         649         1,314  
  Issuance of warrants                         813  
  Preferred stock converted to common       9,941              
  Shares transferred to company pension plan         (350 )                
  Stock options exercised         329                  
       
     
     
 
    Balance at end of period         66,677         56,536         55,887  
       
     
     
 
Retained Earnings:                                
  Balance at beginning of period         (14,314 )       37,899         31,721  
  Net Income (loss)         (20,407 )       (45,397 )       10,048  
  Dividends on preferred stock         (700 )       (1,750 )       (1,460 )
  Amortization of preferred stock discount         (2,530 )       (5,066 )       (2,410 )
       
     
     
 
    Balance at end of period         (37,951 )       (14,314 )       37,899  
       
     
     
 
Accumulated other comprehensive income:                                
  Balance at beginning of period         (10,534 )       (8,611 )       (3,450 )
  Foreign currency translation adjustment         14,263         948         (3,778 )
  Change in accrued pension         513         (2,069 )       (2,183 )
  Net change in derivative fair value:                                
    Cumulative effect of accounting change                         (3,083 )
    Change in derivative fair value                         1,870  
    Reclassification adjustments                 (802 )       2,013  
       
     
     
 
      Balance at end of period         4,242         (10,534 )       (8,611 )
       
     
     
 
Treasury Stock:                                
  Balance of beginning of period   (224 )   (2,963 ) (224 )   (2,963 ) (176 )   (2,729 )
  Shares transferred to company pension plan   48     635              
  Purchase of treasury stock               (48 )   (234 )
   
 
 
 
 
 
 
  Balance at end of period   (176 )   (2,328 ) (224 )   (2,963 ) (224 )   (2,963 )
   
 
 
 
 
 
 
Total Stockholders' Equity   15,470   $ 30,796   9,402   $ 36,291   9,243   $ 84,710  
   
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-25



THE WISER OIL COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2003, 2002 and 2001

 
  2003
  2002
  2001
 
 
  (000's)

 
Cash Flows from Operating Activities:                    
  Net income (loss)   $ (20,407 ) $ (45,397 ) $ 10,048  
  Adjustments to reconcile net income (loss) to cash flows from operating activities:                    
    Depreciation, depletion and amortization     38,054     30,257     19,388  
    Cumulative effect of an accounting change, net of tax     (5,238 )        
    Deferred income taxes     (8,239 )   (4,658 )   (58 )
    Gains on sales of property     (3,056 )   (2,296 )   (9,525 )
    Property impairments and abandonments     29,592     22,513     5,409  
    Pension funding     (309 )   294     (2,183 )
    Non-cash loss on derivative value     (747 )   4,923     400  
    Amortization of other assets     714     711     709  
  Other changes:                    
    Restricted cash             992  
    Accounts receivable     (2,607 )   3,710     2,340  
    Inventories     18     256     (135 )
    Prepaid expenses     917     1,113     (2,717 )
    Other assets         (56 )   (435 )
    Accounts payable     4,582     1,090     (2,625 )
    Accrued liabilities     2,002     753     3,345  
    Asset retirement obligation     (373 )        
   
 
 
 
      Operating Cash Flows     34,903     13,213     24,953  
   
 
 
 
Cash Flows from Investing Activities:                    
  Capital expenditures     (38,975 )   (38,539 )   (75,146 )
  Proceeds from sales of property and equipment     3,959     8,342     219  
   
 
 
 
    Investing Cash Flows     (35,016 )   (30,197 )   (74,927 )
   
 
 
 
Cash Flows from Financing Activities:                    
  Net borrowing (repayments) of long-term debt     (1,564 )   8,735     19,036  
  Deferred financing costs     (168 )        
  Stock options exercised     329          
  Preferred stock issued, net of issuance costs             10,000  
  Common stock issued             25  
  Warrants for common stock issued             6  
  Treasury stock purchased             (234 )
  Preferred dividends     (921 )   (879 )   (221 )
   
 
 
 
    Financing Cash Flows     (2,324 )   7,856     28,612  
   
 
 
 
Effect of exchange rate changes on Cash and cash equivalents     289     59     (123 )
   
 
 
 
Net Decrease in Cash and Cash Equivalents     (2,148 )   (9,069 )   (21,485 )
Cash and Cash Equivalents beginning of year     3,590     12,659     34,144  
   
 
 
 
Cash and Cash Equivalents, end of year   $ 1,442   $ 3,590   $ 12,659  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

F-26



THE WISER OIL COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2003, 2002 and 2001

1. Summary of Significant Accounting Policies

        a.  Principles of Consolidation—The consolidated financial statements include the accounts of The Wiser Oil Company ("Company"), a Delaware corporation, and its wholly owned subsidiaries: The Wiser Oil Company of Canada ("Wiser Canada"), The Wiser Marketing Company (inactive), and T.W.O.C., Inc. (inactive). Wiser Canada was formed in 1994 to conduct the Company's Canadian activities. Prior to the formation of Wiser Canada, the Company's oil and gas operations were conducted primarily in the United States. Intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to conform prior years' amounts to current presentation.

        b.  Risks and Uncertainties—The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("U.S.") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        c.  Cash and Cash Equivalents—Cash equivalents consist of short-term investments maturing in three months or less from the date of acquisition. These investments of $2.8 million at December 31, 2003 and $3.3 million at December 31, 2002 are recorded at cost plus accrued interest, which approximates market.

        d.  Concentration of Credit Risk and Accounts Receivable—Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and cash equivalents, accounts receivable, and its derivative financial instruments. The Company places its cash with reputable commercial banks and its derivative financial instruments with financial institutions and other firms that management believes have high credit ratings. For a discussion of the credit risks associated with the Company's derivative instruments, see "Derivative Instruments" below. Substantially all of the Company's accounts receivable are due from purchasers of oil and gas and such receivables seldom extend beyond 60 days. Oil and gas sales are generally unsecured. The Company performs ongoing review with respect to the collectibility of accounts receivable and credit losses consistently have been within management's expectations. Accounts receivable are presented net of the related allowance for doubtful accounts, which totaled $154,000 and $686,000 at December 31, 2003 and 2002, respectively.

        e.  Inventories—Oil and natural gas product inventories are recorded at the lower of average cost or market. Materials and supplies are recorded at the lower of average cost or market.

        f.  Financial Instruments—The following table sets forth the book value and estimated fair values of financial instruments at December 31, 2003 and 2002, respectively (000's):

 
  2003
  2002
 
 
  Book Value
  Fair Value
  Book Value
  Fair Value
 
Floating-rate debt   $ 29,243   $ 29,243   $ 27,768   $ 27,768  
Fixed-rate debt     124,953     123,750     124,748     93,750  
Net derivative liability     (4,447 )   (4,447 )   (5,325 )   (5,325 )

        The fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate book value due to the short maturities of these instruments. The fair value of the fixed-rate debt was based on quoted market prices of the Company's fixed-rate debt at

F-27



December 31, 2003 and 2002, respectively. For a discussion of the Company's derivative instruments, see "Derivative Instruments" below.

        g.  Oil and Gas Properties—The Company is engaged in the exploration for and development of oil and gas in the United States and Canada. The Company follows the successful efforts method of accounting for its oil and gas properties. Under this method of accounting, all costs of property acquisitions and exploratory wells are initially capitalized. If a well is unsuccessful, the capitalized costs of drilling the well, net of any salvage value, are charged to expense. If a well finds oil and gas reserves that cannot be classified as proved within a year after discovery, the well is assumed to be impaired and the capitalized costs of drilling the well, net of any salvage value, are charged to expense. The capitalized costs of unproven properties are periodically assessed to determine whether their value has been impaired below the capitalized cost, and if such impairment is indicated, a loss is recognized. The Company considers such factors as exploratory drilling results, future drilling plans and the lease expiration terms when assessing unproved properties for impairment. Geological and geophysical costs and the costs of retaining undeveloped properties are expensed as incurred. Expenditures for maintenance and repairs are charged to expense, and renewals and betterments are capitalized. Upon disposal, the asset and related accumulated depreciation, depletion and amortization are removed from the accounts, and any resulting gain or loss is reflected currently in income.

        Long-lived assets are assessed for possible impairment in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires the Company to assess the need for an impairment of capitalized costs of proved oil and gas properties and the costs of wells and related equipment and facilities on a property-by-property basis. If an impairment is indicated based on undiscounted expected future cash flows, then an impairment is recognized to the extent that net capitalized costs exceed the estimated fair value of the property. Fair value of the property is estimated by the Company using the present value of future cash flows discounted at 10%.

        The following expected future prices were used to estimate future cash flows to assess properties for impairment:

 
  Prices starting after December 31,
 
 
  2003
  2002
  2001
 
Oil Price per barrel:                    
Year 1   $ 30.00   $ 28.50   $ 20.50  
Year 2     29.00     27.50     21.50  
Year 3     28.00     27.00     23.00  
Thereafter     27.00     27.00     Escalated 3 %
Maximum     N/A     N/A     29.00  

Gas Price per MMBTU:

 

 

 

 

 

 

 

 

 

 
Year 1   $ 5.25   $ 4.50   $ 2.50  
Year 2     5.00     4.50     3.00  
Year 3     4.75     4.50     3.25  
Thereafter     4.50     4.50     Escalated 3 %
Maximum     N/A     N/A     3.50  

F-28


        Oil and gas expected future price estimates were based on NYMEX future prices at each year-end. Expected future prices were escalated if such prices were unusually low at year-end compared to historical averages, or expected future prices were reduced if such prices were unusually high at year-end compared to historical averages. These prices were applied to production profiles developed by the Company's engineers using proved developed and undeveloped and risk-adjusted probable reserves at December 31, 2003, 2002 and 2001, respectively. The Company's price assumptions may change from year to year based on current industry conditions and the Company's future plans. During 2003, 2002 and 2001, the Company recognized impairments of certain U.S. and Canadian properties of $24.8 million, $9.9 million and $2.5 million respectively, primarily due to declines in reserve quantities. The impairments were determined based on the difference between the carrying value of the assets and the present value of future cash flows discounted at 10%. It is reasonably possible that a change in reserve or price estimates could occur in the near term and adversely impact management's estimate of future cash flows and, consequently, the carrying value of properties.

        h.  Depreciation, Depletion and Amortization ("DD&A")—DD&A of the capitalized costs of producing oil and gas properties are computed for individual properties using the units-of-production method based on proved reserves. Other properties consist primarily of computer systems, vehicles and office equipment and depreciation is computed generally using the straight-line method over the estimated useful lives of these assets which range from 5 to 10 years.

        i.  Derivative Instruments—In 2001, the Company adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which requires that derivatives be reported on the balance sheet at fair value and, if the derivative is not designated as a hedging instrument, changes in fair value must be recognized in earnings in the period of change. If the derivative is designated and qualifies as a hedge and to the extent such hedge is determined to be effective, changes in fair value are reported as a component of other comprehensive income in the period of change, and subsequently recognized in earnings when the offsetting hedged transaction occurs. The change in fair value, to the extent the hedge is determined to be ineffective, is recorded currently in earnings. The definition of derivatives has also been expanded to include contracts that require physical delivery of oil and gas if the contract allows for net cash settlement.

        During 2003, 2002 and 2001, the Company entered into various forward sale agreements, price swap agreements and price collar agreements to limit the Company's exposure to price fluctuations. Oil and gas sales in the accompanying Consolidated Statements of Income are adjusted for the effects of derivative transactions that qualify as effective hedges under SFAS No. 133 when the underlying hedged production is sold. Adjustments to oil and gas sales from the Company's hedging activities resulted in an increase in oil and gas revenues of $.8 million in 2002 and $4.5 million in 2001. The Company had no designated hedges under SFAS No. 133 during 2003. The Company recognized a loss on derivatives not designated as hedges of $12.5 million, $14.1 million and $2.1 million in 2003, 2002 and 2001, respectively. At December 31, 2003, the fair value of derivatives was a liability of $4.4 million.

F-29



        As of December 31, 2003 the Company's derivative arrangements were as follows:

Crude Oil:

  Daily Volume
  Prices per Bbl
January 1, 2004 to February 29, 2004(2)   1,000 Bbls   $34.00 ceiling, $31.00 floor
March 1, 2004 to March 31, 2004(2)   1,000 Bbls   $33.00 ceiling, $30.00 floor
January 1, 2004 to March 31, 2004   1,000 Bbls   $28.00
January 1, 2004 to March 31, 2004   1,000 Bbls   $27.75
January 1, 2004 to March 31, 2004(1)   1,000 Bbls   $30.40 Call
April 1, 2004 to June 30, 2004   1,000 Bbls   $27.50
April 1, 2004 to June 30, 2004(1)   1,000 Bbls   $30.00 Call
April 1, 2004 to June 30, 2004   1,000 Bbls   $28.56
July 1, 2004 to September 30, 2004(1)   1,000 Bbls   $31.25 Call
July 1, 2004 to September 30, 2004   1,000 Bbls   $28.25
July 1, 2004 to September 30, 2004   1,000 Bbls   $28.20
October 1, 2004 to December 31, 2004   1,000 Bbls   $28.00

Natural Gas:


 

Daily Volume


 

Price per MMBTU

January 1, 2004 to March 31, 2004(2)   5,000 MMBTU   $10.25 ceiling, $5.00 floor
January 1, 2004 to March 31, 2004(2)   5,000 MMBTU   $8.00 ceiling, $6.00 floor
January 1, 2004 to March 31, 2004   5,000 MMBTU   $6.03
January 1, 2004 to March 31, 2004   5,000 MMBTU   $5.35
January 1, 2004 to March 31, 2004   5,000 MMBTU   $5.37
January 1, 2004 to March 31, 2004(2)   5,000 MMBTU   $7.15 ceiling, $4.75 floor
April 1, 2004 to September 30, 2004(2)   5,000 MMBTU   $5.45 ceiling, $4.50 floor
April 1, 2004 to September 30, 2004(2)   5,000 MMBTU   $5.50 ceiling, $4.30 floor
April 1, 2004 to September 30, 2004(2)   5,000 MMBTU   $5.50 ceiling, $4.25 floor
April 1, 2004 to December 31, 2004   5,000 MMBTU   $4.70
April 1, 2004 to December 31, 2004   5,000 MMBTU   $5.00

        The Company is exposed to credit losses in the event of nonperformance by the counterparties of its financial instruments. Management anticipates, however, that such counterparties will be able to fully satisfy their obligations under the contracts. Collateral or other security to support financial instruments subject to credit risk is not required but management monitors the credit standing of the counterparties.

F-30



        j.  Revenue Recognition—Oil and gas revenues are accounted for using the sales method. Under this method, sales are recorded on all production sold by the Company. Imbalances result when sales differ from the seller's net revenue interest in the particular property's reserves and are tracked to reflect the Company's balancing position. The Company's net imbalance position is not material at December 31, 2003 and 2002.

        k.  Foreign Currency Translation—The functional currency of Wiser Canada is the Canadian dollar. In accordance with SFAS No. 52, "Foreign Currency Translation," Wiser Canada's financial statements have been translated from Canadian dollars to U.S. dollars with a cumulative translation adjustment gain of $8.1 million for 2003 and a cumulative translation adjustment loss of $6.1 million and $7.1 million for 2002 and 2001, respectively, classified in Stockholders' Equity.

        l.  Comprehensive Income—In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income includes net income and other comprehensive income, which includes, but is not limited to, unrealized gains and losses for marketable securities and future contracts, foreign currency translation adjustments, minimum pension liability adjustments, and effective January 1, 2001, unrealized gains and losses on certain derivative financial instruments

        m.  Stock Options—The Company has elected to follow Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options. Under APB No. 25, if the exercise price of an employee's stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in 1996, as amended by SFAS No. 148. SFAS No. 123 requires companies that elect to continue applying the provisions of APB No. 25 to provide pro forma disclosures for employee stock compensation awards as if the fair value-based method defined in SFAS No. 123 had been applied. See Note 12.

        The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 instead of APB No. 25's intrinsic value method to account for stock-based employee compensation (in thousands, except per share data):

 
  2003
  2002
  2001
Net income (loss) available to common stock—as reported   $ (23,637 ) $ (52,213 ) $ 6,178
Pro forma stock-based employee compensation expenses, net of income taxes     118     631     257
   
 
 
Net income (loss) available to common stock—pro forma   $ (23,755 ) $ (52,844 ) $ 5,921
   
 
 
Basic earnings (loss) per share—as reported   $ (1.81 ) $ (5.59 ) $ 0.67
Basic earnings (loss) per share—pro forma   $ (1.82 ) $ (5.66 ) $ 0.65
Diluted earnings (loss) per share—as reported   $ (1.81 ) $ (5.59 ) $ 0.67
Diluted earnings (loss) per share—pro forma   $ (1.82 ) $ (5.66 ) $ 0.65

F-31


        The fair value for these options was estimated at the date of grant using the Black-Scholes option valuation model, with the following weighted average assumptions for the 2003, 2002 and 2001 grants: a risk-free interest rate of 3.92 in 2003, 5.14 in 2002 and 5.0% in 2001; a dividend yield of 0% in all years; and a volatility factor of 29.9% in 2003, 31.0% in 2002 and 27.7% in 2001. In addition, the fair value of these options was estimated based on an expected life of ten years.

        n.  Recent Accounting Pronouncements. On January 1, 2003, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections." Prior to SFAS No. 145, gains or losses on the early extinguishment of debt were required to be classified in a company's statements of income as extraordinary gains or losses, net of associated income taxes, after the determination of income or loss from continuing operations. SFAS No. 145 requires, except in the case of events or transactions of a highly unusual and infrequent nature, that gains or losses from the early extinguishment of debt be classified as components of a company's income or loss from continuing operations. The adoption of the provisions of SFAS No. 145 did not affect the Company's financial position or reported financial results.

        The Company also adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," in 2003. This statement establishes accounting and reporting standards that are effective for exit or disposal activities beginning after December 31, 2002, which require that a liability be recognized for an exit or disposal activity when that liability is incurred. The adoption of SFAS No. 146 had no effect on the Company's financial statements.

        In January 2003, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirement for Guarantees, including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires an entity to recognize a liability for the obligations it has undertaken in issuing a guarantee. This liability would be recorded at the inception of a guarantee and would be measured at fair value. Certain guarantees are excluded from the measurement and disclosure provisions while certain other guarantees are excluded from the measurement provisions of the interpretation. The adoption of the statement in 2003 had no effect on the Company's financial statements.

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which was modified in December 2003. FIN 46 requires an entity to consolidate a variable interest entity if it is designated as the primary beneficiary of that entity even if the entity does not have a majority of voting interests. A variable interest entity is generally defined as an entity whose equity is unable to finance its activities or where the owners of the entity lack the risks and rewards of ownership. The Company is not the primary beneficiary of any variable interest entities, and accordingly, the adoption of FIN 46 is not expected to have a material effect on the Company's financial statements when adopted.

        The Company has been made aware of an issue that has arisen in the industry regarding the application of certain provisions of Statement of Financial Accounting Standards No. 141, "Business Combinations," and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," to companies in the extractive industries, including oil and gas exploration and production companies. The issue is whether the provisions of SFAS No. 141 and SFAS No. 142 require companies to classify costs associated with mineral rights, including both proved and unproved lease

F-32



acquisition costs, as intangible assets on the balance sheet, apart from other capitalized oil and gas property costs. Historically, the Company has included oil and gas lease acquisition costs as a component of oil and gas properties. Also under consideration is whether SFAS No. 142 requires companies to provide additional disclosures prescribed by SFAS No. 142 for intangible assets for costs associated with mineral rights. In the event it is determined that costs associated with mineral rights are required to be classified as intangible assets, a substantial portion of the Company's capitalized oil and gas property costs would be separately classified on our balance sheet as intangible assets. The reclassification of these amounts would not affect the method in which such costs are amortized or the manner in which the Company assesses impairment of capitalized costs. As a result, net income would not be affected by the reclassification if it were to occur. As of December 31, 2003, the Company had $55.3 million in capitalized leasehold costs, net of accumulated depletion.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 provides criteria for when a contract with an initial net investment should be classified as a derivative, as discussed in SFAS No. 133. In addition, SFAS No. 149 clarifies circumstances requiring special reporting in the statement of cash flows for a derivative with a financing component. SFAS No. 149 was effective on a prospective basis for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. This amendment had no impact on our financial condition or results of operations.

        In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations," which is effective for fiscal years beginning after June 15, 2002. The Statement requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. We adopted the new rules on asset retirement obligations on January 1, 2003. Prior to January 1, 2003, we had provided for future abandonment costs by accruing estimated amounts as a component of Accumulated DD&A in the accompanying Consolidated Balance Sheets. At January 1, 2003 we recorded a long-term liability for asset retirement obligation of $5.0 million, an increase in property cost of $3.7 million, a reduction of accumulated depreciation, depletion and amortization of $6.8 million and a cumulative effect of accounting change gain, net of tax, of $5.2 million.

        The following pro forma data summarizes the Company's net income and net income per share for the years ended December 31, 2003, 2002 and 2001 as if the Company had adopted the provisions of

F-33



SFAS No. 143 on December 31, 2000, including aggregate pro forma asset retirement obligations on that date of $ 1.6 million.

 
  For the Year Ended December 31,
 
  2003
  2002
  2001
 
  (In thousands
except per share amounts)

Net income (loss) available to Common Stock, as reported   $ (23,637 ) $ (52,213 ) $ 6,178
Pro forma adjustments to reflect retroactive adoption of SFAS No. 143, net of tax     342     902     1,455
   
 
 
Pro forma net income   $ (23,295 ) $ (51,311 ) $ 7,633
   
 
 
Basic earnings (loss) per share—as reported   $ (1.81 ) $ (5.59 ) $ 0.67
   
 
 
Basic earnings (loss) per share—pro forma   $ (1.78 ) $ (5.50 ) $ 0.83
   
 
 
Diluted earnings (loss) per share—as reported   $ (1.81 ) $ (5.59 ) $ 0.67
   
 
 
Diluted earnings (loss) per share—pro forma   $ (1.78 ) $ (5.50 ) $ 0.80
   
 
 

        The following table summarizes the changes in the Company's total estimated liability (000's):

 
  For the Year Ended December 31,
 
 
  2003
  2002
  2001
 
Beginning asset retirement obligations   $ 4,974   $ 4,261   $ 562  
Cumulative effect adjustment             1,009  
New wells placed on production and changes in estimates     751     496     2,666  
Acquisition liabilities assumed              
Liabilities settled     (366 )   (223 )   (23 )
Exchange rate effect     695     36     (93 )
Accretion expense     954     404     140  
Ending asset retirement obligations   $ 7,008   $ 4,974   $ 4,261  

2. Impact of Enron Bankruptcy

        Enron declared bankruptcy on December 2, 2001 and on December 31, 2001 Enron owed the Company $1,688,000 in unpaid settlements of its hedging contracts for the months of November and December 2001. In addition, the claim amount against Enron of the Company's forward hedging contracts for the year 2002, calculated using then existing commodity prices, was $5.2 million. Based on the uncertainty of collecting either of these amounts from Enron, the Company decided to write-off the full amount of $6.9 million at December 31, 2001. Other comprehensive income included unrealized gains of $0.8 million at December 31, 2001, on certain derivatives with Enron which were accounted for as cash flow hedges. These gains were reclassified into oil and gas revenues over the original hedge period during 2002. A secondary market for the purchase and sale of claims against ENA and Enron Corporation has developed. Periodically, the Company has had discussions with market participants to

F-34



sell its claims but none are active presently. Enron has filed a Plan of Reorganization for itself and affiliates which is set for a confirmation hearing. If confirmed, the Company should receive, in a combination of cash, stock and other considerations, in the range of $1.0 to $1.5 million on its claims beginning in late summer 2004.

3. Acquisition of Invasion Energy Inc.

        On May 22, 2001, the Company acquired 100% of the outstanding common stock of Invasion Energy Inc. ("Invasion") through its wholly-owned subsidiary The Wiser Oil Company of Canada ("Wiser Canada"). The total purchase price was $37.5 million, which was financed with $22.6 million of cash and $14.9 million of borrowings by Wiser Canada under its credit facility.

        The aggregate purchase price is computed as follows (000's):

 
  Aggregate Purchase Price
Aggregate purchase price for 100% of Invasion Common Stock   $ 21,419
Nonrecurring cash transaction costs     1,201
   
Aggregate purchase price   $ 22,620
   

        The following table represents the allocation of the total purchase price of Invasion to the acquired assets and liabilities of Invasion (000's):

 
  Allocation of Aggregate
Purchase Price

 
Net working capital   $ 1,142  
Property and equipment     48,145  
Long-term debt     (14,928 )
Deferred income taxes     (11,739 )
   
 
Aggregate purchase price   $ 22,620  
   
 

        Following are the unaudited pro forma results of operations for the Company for the year ended December 31, 2001, as if the acquisition of Invasion took place on January 1, 2001 (000's):

 
  2001
Revenues   $ 101,134
Expenses     89,278
   
Net Income   $ 11,856
   
Earnings per share — Basic   $ 0.87
   
Earnings per share — Diluted   $ 0.83
   

F-35


4.     Gain on Sale of Assets

        On June 29, 2001, Wiser Canada entered into an Asset Exchange Agreement to acquire producing properties and exploration acreage valued at $25.3 million (CDN $38.3 million). Under the Agreement, Wiser Canada exchanged certain of its producing properties valued at $16.2 million and paid $9.1 million in cash, before closing adjustments. The exchange of producing properties valued at $16.2 million was accounted for as a sale of assets and, accordingly, a gain of $9.5 million was recognized in the consolidated statements of income for the year ended December 31, 2001. The $9.1 million cash portion of the transaction was funded with $4.5 million of cash on hand and $4.6 million of bank debt.

5.     Long-term Debt

        a.     On May 21, 1997, the Company sold $125 million in principal amount of 91/2% Senior Subordinated Notes ("2007 Notes") due May 15, 2007, providing net proceeds to the Company of $120.9 million. The original issue price was 99.718%. The Company used the net proceeds from the sale of the 2007 Notes to repay all outstanding bank indebtedness and for general corporate purposes. See Note 15.

        The 2007 Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 15, 2002 at a redemption price of 104.75%, plus accrued interest to the date of redemption, and declining at the rate of 1.583% per year to May 15, 2005 and 100% thereafter.

        Under the terms of the 2007 Notes, the Company must meet certain tests before it is able to pay cash dividends or make other restricted payments, incur additional indebtedness, engage in transactions with its affiliates, incur liens, and engage in certain sale and leaseback arrangements.

        The terms of the 2007 Notes also limit the Company's ability to undertake a consolidation, merger or transfer of all or substantially all of its assets. In addition, the Company is, subject to certain conditions, obligated to offer to repurchase the 2007 Notes at par value plus accrued interest to the date of repurchase with the net cash proceeds of certain sales or dispositions of assets. Upon a change of control, as defined, the Company will be required to make an offer to repurchase the 2007 Notes at 101% of the principal amount thereof, plus accrued interest to the date of repurchase.

        b.     On May 10, 1999, the Company entered into a $25 million Restated Credit Agreement ("Credit Agreement") with Bank One, Texas, N.A. The Credit Agreement provided the Company with up to a $25 million line of credit through May 31, 2001. The Credit Agreement was terminated on May 31, 2001.

        c.     On May 21, 2001, the Company entered into an $80 million revolving credit facility ("Revolver"), maturing on May 21, 2004 with Union Bank of California, N.A as U.S. administrative agent, and National Bank of Canada, a Canadian administrative agent, among other lenders. The aggregate borrowing base under the Revolver was $60 million and allocated $40 million for general corporate purposes (Tranche A) and $20 million exclusively for acquisition of proved oil and gas properties (Tranche B). The $60 million aggregate borrowing base was also allocated $20 million for Canadian borrowings and $40 million for U.S. borrowings. The aggregate borrowing base is re-determined by the banks semi-annually starting in April 2002. In August 2003, the maturity date of the Revolver was extended from May 2004 to May 2005 under substantially the same terms. In addition, the borrowing base under Tranche A of the Revolver was increased from $40 million to

F-36



$45 million. At December 31, 2003, the Company had CDN$ 15.9 million (USD$ 12.2 million) of Canadian borrowings outstanding, $17.0 million of U.S. borrowings outstanding under Tranche A, and $0.7 million in letters of credit outstanding, leaving approximately $15.1 million available under the Revolver. The Tranche B portion is fully available. Available loan and interest options are (i) Prime Rate Loans, at the bank's prime interest rate; (ii) Eurodollar Loans, at LIBOR plus 2.125%, 2.375% or 2.625% depending on the percentage of the borrowing base actually borrowed by the Company; (iii) Canadian Prime Rate Advances, at the Canadian bank's prime interest rate plus 2.125%, 2.375% or 2.625%, depending on the percentage of the borrowings actually borrowed by the Company; and (iv) Canadian Banker's Acceptances, at the Canadian drawing fee rate plus .5%, .75% or 1%, depending on the percentage of the borrowings actually borrowed by the Company.

        The average interest rate during 2003 under the Revolver was 5.3%. The commitment fee on the unused borrowing base is 0.375%. The Revolver imposes certain restrictions on sales of assets, payment of dividends, and incurring of indebtedness. In addition, the Company is required to maintain a minimum interest coverage ratio of 1.5 and a minimum working capital ratio (including unused borrowing base) of 1.1. Under the Revolver, there is no requirement to maintain restricted cash balances after May 21, 2001. Borrowings under the Revolver are secured by substantially all of the Company's oil and gas properties.

        The Company paid cash interest payments of $13.7 million, $13.2 million and $12.4 million during 2003, 2002 and 2001, respectively.

 
  December 31,
Long-term debt consists of the following (000's):

  2003
  2002
2007 Notes — 9.5% interest rate at December 31, 2003   $ 124,953   $ 124,748
Revolver — 4.7% interest rate at December 31, 2003     29,243     27,768
   
 
    $ 154,196   $ 152,516
   
 

        The annual requirements for reduction of principal of long-term debt outstanding as of December 31, 2003 are estimated as follows (000's):

2004   $
2005     29,243
2006    
2007     124,953
Thereafter    
   
    $ 154,196
   

6.     Income Taxes

        The Company provides deferred income taxes for differences between the tax reporting basis and the financial reporting basis of assets and liabilities. The Company follows the accounting procedures established by SFAS No. 109, "Accounting for Income Taxes." The Company did not pay any Federal income taxes in 2003, 2002 or 2001.

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        Income tax expense (benefit) for the three years ended December 31, 2003 was as follows (000's):

 
  2003
  2002
  2001
 
Current:                    
Canadian   $   $   $ 216  
Deferred:                    
Canadian     (8,239 )   (4,658 )   (58 )
   
 
 
 
Total income tax expense (benefit)   $ (8,239 ) $ (4,658 ) $ 158  
   
 
 
 

        A reconciliation of the statutory federal income tax rate to the Company's effective tax rate follows:

 
  2003
  2002
  2001
 
Statutory federal income tax rate   34.0 % 34.0 % 34.0 %
Canadian income tax rate differential   7.8 % 1.1 % 0.2 %
Change in valuation allowance   (17.5 )% (25.8 )% (34.0 )%
   
 
 
 
Effective tax rate   24.3 % 9.3 % 0.2 %
   
 
 
 

        The Company did not pay any U.S. or Canadian income taxes in 2003 or 2002. In 2001, the Company paid $216,000 of Canadian income taxes.

        The deferred tax liabilities and assets at December 31 were as follows (000's):

 
  2003
  2002
 
Deferred tax liabilities:              
Invasion Energy, Inc. acquisition   $   $ 6,603  
Property and equipment, principally due to differences in financial and tax reporting basis and the expensing of intangible drilling costs for tax purposes     1,846     3,572  
Deferred tax assets:              
Net operating loss carryforwards     (14,570 )   (14,405 )
Alternative minimum tax credit carryforwards     (2,683 )   (2,683 )
Invasion Energy, Inc.     (3,904 )    
Other     (2,098 )   (1,875 )
   
 
 
Total gross deferred tax assets     (23,255 )   (18,963 )
Less valuation allowance     21,409     15,391  
   
 
 
Net deferred tax assets     (1,846 )   (3,572 )
   
 
 
Net deferred tax liability   $   $ 6,603  
   
 
 

        In May 2001, the Company acquired Invasion Energy, Inc. and recognized an initial deferred tax liability of $11.7 million attributable to the difference between the acquisition cost basis and tax basis of the oil and gas properties. In 2003, the deferred tax liability for Invasion Energy, Inc. was reduced to zero as a result of $22.3 million of impairment expense recognized at Invasion Energy, Inc.

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        At December 31, 2003, the Company had a net operating loss ("NOL") for U.S. Federal income tax purposes of approximately $42.8 million. The majority of the NOL carryforwards do not expire until 2018 and 2022 and the alternative minimum tax credit carryforwards can be carried forward indefinitely. The tax benefits of carryforwards are recorded as an asset to the extent that management assesses the future utilization of such carryforwards as "more likely than not." When the future utilization of some portion of the carryforwards is determined not to be "more likely than not," a valuation allowance is provided to reduce the recorded tax benefits from such assets. At December 31, 2003, a valuation allowance of $15.6 million was provided to reduce deferred tax assets to an amount equal to deferred tax liabilities for U.S. Federal taxes.

7.     Oil and Gas Producing Activities

        Set forth below is certain information regarding the aggregate capitalized costs of oil and gas properties and costs incurred in oil and gas property acquisitions, exploration and development activities (000's):

 
  U.S.
  Canada
  Total
 
December 31, 2003:                    
Capitalized Costs:                    
Proved properties   $ 226,458   $ 184,927   $ 411,385  
Unproved properties     3,584     7,115     10,699  
   
 
 
 
Total     230,042     192,042     422,084  
Accumulated DD&A     (112,332 )   (104,185 )   (216,517 )
Net Capitalized cost   $ 117,710   $ 87,857   $ 205,567  
   
 
 
 
Costs incurred during 2003:                    
Property acquisition   $ 1,749   $ 1,102   $ 2,851  
Exploration     12,649     6,145     18,794  
Development     6,440     19,020     25,460  
December 31, 2002:                    
Capitalized Costs:                    
Proved properties   $ 209,636   $ 134,487   $ 344,123  
Unproved properties     3,422     7,451     10,873  
   
 
 
 
Total     213,058     141,938     354,996  
Accumulated DD&A     (97,471 )   (54,764 )   (152,235 )
   
 
 
 
Net Capitalized cost   $ 115,587   $ 87,174   $ 202,761  
   
 
 
 
Costs incurred during 2002:                    
Property acquisition   $ 1,450   $ 2,390   $ 3,840  
Exploration     14,322     3,136     17,458  
Development     8,230     16,187     24,417  
                     

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December 31, 2001:                    
Capitalized Costs:                    
Proved properties   $ 192,266   $ 130,952   $ 323,218  
Unproved properties     4,458     15,947     20,405  
   
 
 
 
Total     196,724     146,899     343,623  
Accumulated DD&A     (76,583 )   (45,508 )   (122,091 )
   
 
 
 
Net Capitalized cost   $ 120,141   $ 101,391   $ 221,532  
   
 
 
 
Costs Incurred during 2001:                    
Property acquisition   $ 4,276   $ 45,200   $ 49,476  
Exploration     11,041     1,344     12,385  
Development     5,570     12,166     17,736  

8.     Employee Pension Plan

        The Company has a noncontributory defined benefit Pension Plan that was "frozen" in December 1998. Prior to December 11, 1998, retirement benefits were earned based on the employee's earnings, length of service and age at retirement. After December 11, 1998, additional retirement benefits based on length of service and earnings were discontinued for all employees. Contributions required to fund plan benefits are determined according to the Projected Unit Credit Method.

        Effective October 2000, the Pension Plan was amended to provide additional benefits by implementing a Cash Balance Plan for current employees only. The Cash Balance Plan is a noncontributory plan whereby the Company contributes an amount equal to 3% of an employee's salary to the Cash Balance Plan and the cash balance in each employee's account earns interest at a fixed rate of 6%. Any accumulated retirement benefits under the original retirement benefit formula were "rolled over" into the Cash Balance Plan for current employees.

        The investment policies and strategies for Pension Plan assets are established by a committee of Company employees in consultation with third-party advisors. Historically, Plan assets have been allocated approximately 50% to 70% to equity securities with a goal of providing long-term growth of at least 8.5% per year. The Company expects the future long-term rate of return for its Pension Plan assets to average 8.5% based on an asset allocation policy of 50% to 70% to common equities with the remainder allocated to fixed income securities. The Company's long-term rate of return expectations are based on past performance of equity securities, which have yielded long-term returns in excess of 10%.

        In 2003, the Pension Plan acquired 123,553 shares of Company common stock. Following is a breakdown of Pension Plan assets at December 31, 2003 and 2002 (amounts in 000's):

 
  2003
  %
  2002
  %
Money market funds   $ 653   9   $ 46   1
U.S. Treasury obligations     1,127   15     2,653   46
Government & corporate bonds     935   13      
Common stocks     3,611   49     3,030   53
Wiser Oil Company stock     1,055   14      
   
 
 
 
Total   $ 7,381   100   $ 5,729   100
   
 
 
 

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        The net pension expense (included in general and administrative expense) and weighted average principal assumptions utilized in computing net pension expense were as follows (amounts in 000's):

 
  2003
  2002
  2001
 
Service cost   $ 112   $ 87   $ 58  
Interest cost     674     679     686  
Expected return on plan assets     (494 )   (597 )   (753 )
Amortization of transition obligation             (22 )
Recognized loss (gain)     309     126      
   
 
 
 
Net periodic pension cost (credit)   $ 601   $ 295   $ (31 )
   
 
 
 
Discount rate     6.75 %   6.75 %   7.25 %
Rate of return on plan assets     8.50 %   8.50 %   8.50 %
Rate of increase in compensation levels     0.00 %   0.00 %   0.00 %

        The measurement dates for the pension benefit obligation are December 31, 2003 and 2002, respectively. The following table presents the funded status of the Company's pension plan as of December 31 (000's):

 
  2003
  2002
 
Change in benefit obligations:              
Benefit obligation at beginning of year   $ 10,293   $ 9,715  
Service cost     112     87  
Interest cost     674     679  
Actuarial gain     611     618  
Benefits paid     (851 )   (806 )
   
 
 
Benefit obligation at end of year     10,839     10,293  

Change in plan assets:

 

 

 

 

 

 

 
Fair value of plan assets at beginning of year     5,729     7,515  
Actual return on plan assets     1,264     (980 )
Employer contribution     1,239      
Benefits paid     (851 )   (806 )
   
 
 
Fair value of plan assets at end of year     7,381     5,729  

Plan assets over (under) benefits obligations

 

 

(3,458

)

 

(4,564

)
Unrecognized net actuarial loss     3,950     4,419  
   
 
 
Net amount recognized   $ 492   $ (145 )
   
 
 
Accumulated Benefit Obligation   $ 10,697   $ 10,191  
   
 
 

        In 2003, the employer contribution of $1,239,000 consisted of $954,000 in cash and 47,900 shares of Wiser Oil Company common stock (held as treasury shares) valued at $285,000 on the date of contribution. The Pension Plan also purchased an additional 75,653 shares of Wiser Oil Company common stock on the open market during 2003.

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        The net amounts recognized in the consolidated balance sheets at December 31 consist of the following (000's):

 
  2003
  2002
 
Accrued benefit liability   $ (3,402 ) $ (4,564 )
Additional minimum liability     3,808     4,419  
   
 
 
Net amount recognized   $ 406   $ (145 )
   
 
 

        At December 31, 2003, accrued liabilities included $836,000 related to estimated 2004 contributions.

9.     Employee Savings Plan

        The Company has a qualified 401(k) Savings Plan available to all employees. An employee may elect to have up to 15% of the employee's base monthly compensation, exclusive of other forms of special or extra compensation, withheld and placed in the Savings Plan account. On a monthly basis, the Company contributes to this account an amount equal to 100% of the employee's contribution, limited to 5% of the employee's base compensation.

        Company contributions to the Savings Plan were $224,000, $124,000 and $135,000, in 2003, 2002 and 2001, respectively.

10.   Business Segment Information

        In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires reporting of financial and descriptive information about a company's reportable operating segments. The Company has identified only one operating segment, which is the exploration for and production of oil and gas with sales made to domestic and Canadian energy customers. Sales to major customers, which individually accounted for more that 10% of consolidated revenues, for the year ended December 31, 2003 were $35.0 million to Nexen Inc., $23.4 million to Sempra Energy Trading Corp, and $11.4 million to Conoco, Inc., which represented 34%, 22% and 11%, respectively, of the Company's total oil and gas revenues. Sales to major customers for the year ended December 31, 2002 were $28.3 million to Nexen Inc., which represented 37% of the Company's total oil and gas revenues. Sales to major customers for the year ended December 31, 2001 were $32.7 million to Highland Energy Company, $15.7 million to Nexen Inc. and $9.3 million to Enron Canada Corp. which represented 41%, 20% and 12%, respectively, of the Company's total oil and gas revenues. However, due to the nature of the oil and gas industry, the Company is not dependent upon any of these customers. The loss of any major customer would not have a material adverse impact on the Company's business.

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        The following table summarizes the oil and gas activity of the Company by geographic area for the years ended December 31, 2003, 2002 and 2001 (000's).

 
  U.S.
  Canada
  Total
 
2003:                    
Total Revenues   $ 61,102   $ 49,317   $ 110,419  

Costs and expenses:

 

 

 

 

 

 

 

 

 

 
Operating costs and production taxes     18,127     12,428     30,555  
Loss on derivatives     7,374     5,169     12,543  
DD&A     16,700     21,354     38,054  
Property impairments     2,443     22,307     24,750  
Exploration     5,306     8,143     13,449  
Other operating     20,876     4,076     24,952  
   
 
 
 
Total costs and expenses     70,826     73,477     144,303  
   
 
 
 
Loss before income taxes     (9,724 )   (24,160 )   (33,884 )
Income tax benefit         (8,239 )   (8,239 )
   
 
 
 
Net loss before cumulative effect of accounting change     (9,724 )   (15,921 )   (25,645 )
Cumulative effect of an accounting change, net of tax     2,757     2,481     5,238  
   
 
 
 
Net loss   $ (6,967 ) $ (13,440 ) $ (20,407 )
   
 
 
 
At year end:                    
Property and equipment, net of accumulated DD&A   $ 118,205   $ 87,956   $ 206,161  
   
 
 
 
Total assets   $ 128,846   $ 95,750   $ 224,596  
   
 
 
 
2002:                    
Total Revenue   $ 41,031   $ 38,456   $ 79,487  

Costs and expenses:

 

 

 

 

 

 

 

 

 

 
Operating costs and production taxes     18,696     11,327     30,023  
Loss on derivatives     7,551     6,593     14,144  
DD&A     11,613     18,644     30,257  
Property impairments     9,500     415     9,915  
Exploration     7,668     13,649     21,317  
Other operating     20,336     3,550     23,886  
   
 
 
 
Total costs and expenses     75,364     54,178     129,542  
   
 
 
 
Loss before income taxes     (34,333 )   (15,722 )   (50,055 )
Income tax benefit         (4,658 )   (4,658 )
   
 
 
 
Net loss   $ (34,333 ) $ (11,064 ) $ (45,397 )
   
 
 
 
At year end:                    
Property and equipment, net of accumulated DD&A   $ 116,039   $ 87,174   $ 203,213  
   
 
 
 
Total assets   $ 127,583   $ 94,624   $ 222,207  
   
 
 
 
                     

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2001:                    
Total Revenue   $ 50,073   $ 41,497   $ 91,570  

Costs and expenses:

 

 

 

 

 

 

 

 

 

 
Operating costs and production taxes     21,668     6,736     28,404  
Loss on derivatives     2,094         2,094  
DD&A     9,297     10,091     19,388  
Property impairments     1,028     1,462     2,490  
Exploration     5,313     2,229     7,542  
Other operating     18,472     2,974     21,446  
   
 
 
 
Total costs and expenses     57,872     23,492     81,364  
   
 
 
 
Earnings (loss) before income taxes     (7,799 )   18,005     10,206  
Income tax benefit         158     158  
   
 
 
 
Net income (loss)   $ (7,799 ) $ 17,847   $ 10,048  
   
 
 
 
At year end:                    
Property and equipment, net of accumulated DD&A   $ 120,789   $ 101,360   $ 222,149  
   
 
 
 
Total assets   $ 142,717   $ 114,556   $ 257,273  
   
 
 
 

11.   Commitments and Contingencies

        The Company and its subsidiaries and affiliates are named defendants in lawsuits and are involved in governmental proceedings from time to time, all arising in the ordinary course of business. Although the outcome of these lawsuits and proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse effect on the financial position of the Company.

        The Company is a defendant in a civil action in Kentucky where the plaintiff has alleged damages resulting from the construction of a pipeline on the plaintiff's property. A judgement against the Company was awarded by a Circuit Court in the amount of $75,000 plus approximately $275,000 of pre-judgement interest for a total award of $350,000 to the plaintiff. The Company has appealed the Circuit Court ruling to the Kentucky Court of Appeals and the Company believes it is more likely than not that the pre-judgement interest will be eliminated and the liability of the Company will be in the range of $25,000 to $75,000.

        The Company filed proofs of claims against Enron North America ("ENA") and Enron Corporation (jointly, "Enron") to collect the $6.9 million owed to it under hedging contracts, calculated as of the Enron Chapter 11 Petition Date. Based on the uncertainty of collecting this amount from Enron, the Company decided to write-off the full amount at December 31, 2001. ENA is a wholly-owned subsidiary of Enron Corporation and Enron Corporation has provided the Company with a guarantee on behalf of ENA of up to $10 million. A secondary market for the purchase and sale of claims against ENA and Enron Corporation (jointly "Enron") has developed. Periodically, the Company discussed with several market participants selling its claims, but none are currently active. Any proceeds received from the sale of Wiser's claims will be recognized in the year received.

        In January 2002 the Company was notified by a gas marketing company that it would not pay approximately $730,000 owed to Wiser for its November 2001 gas sales because the gas marketing

F-44



company claimed it had not been paid by Enron Corporation. The Company filed suit against the gas marketing company in 2002 to recover the $730,000 plus court costs. In 2003 the Company received approximately $280,000 from the gas company as a by-product of a settlement it reached with Enron on a number of claim items. The remaining suit amount is the subject of cross motions for summary judgment. While the Company believes the amount is owed to Wiser, it cannot at this point predict the litigation outcome.

        The Company purchased tubing and casing from Trident Steel, a pipe-distributing company for use at its West Texas Wellman Unit and in the drilling of a South Texas exploratory well. With only limited use, the tubing and surface casing generally became unusable. The Company requested relief from Trident and when none was offered the Company brought suit in Terry County. A trial was conducted in January, 2004 and resulted in a jury verdict favorable to Wiser. Judgment has yet to be entered but the aggregate jury findings total in excess of $900,000. The Company has not recognized a receivable for this amount in our December 31, 2003 Consolidated Balance Sheet because Trident Steel may appeal the judgment.

        The Company leases office space and equipment under lease obligations classified as operating leases. Rental expense under these leases was $527,000, $592,000 and $642,000 in 2003, 2002 and 2001, respectively. At December 31, 2003, aggregate minimum future rental payments of $1.9 million were due under operating leases with $430,000 due annually in the years 2004 through 2007 and $187,000 due in the year 2008.

12.   Stock Compensation Plans

        The Company has two stock option plans, the 1991 Stock Incentive Plan ("Incentive Plan") and the 1991 Non-Employee Directors' Stock Option Plan ("Directors' Plan"). The Incentive Plan provides for the issuance of ten-year options with a variable vesting period and a grant price equal to the fair market value at the issue date. The Directors' Plan, as amended, provides for the issuance of ten-year options with a six-month vesting period and a grant price equal to the fair market value at the issue date. The number of shares of common stock that may be subject to outstanding awards granted under the Incentive Plan and the Directors' Plan may not exceed 1.2 million and 100,000, respectively.

F-45


        A summary of the status of the Company's two stock option plans at December 31, 2003, 2002 and 2001 and changes during the years then ended follows:

 
  2003
  2002
  2001
 
  Shares
  Exercise Price(1)
  Shares
  Exercise Price(1)
  Shares
  Exercise Price (1)
Outstanding at beginning of year     981,325   $ 10.90     910,575   $ 11.15     1,111,075   $ 13.54
Granted     119,000     5.97     106,500     7.33     162,500     6.58
Exercised     (65,825 )   5.00             (5,000 )   5.00
Expired and cancelled     (497,750 )   14.76     (35,750 )   6.51     (358,000 )   16.57
   
 
 
 
 
 
Outstanding at end of year     536,750   $ 6.83     981,325   $ 10.90     910,575   $ 11.15
   
 
 
 
 
 
Exercisable at end of year     430,500   $ 7.14     936,325   $ 11.04     813,075   $ 11.74
   
 
 
 
 
 
Fair value of options granted (1)   $ 2.93         $ 3.96         $ 3.35      
   
       
       
     

(1)
Weighted average per option granted.

        489,250 of the options outstanding at December 31, 2003 have exercise prices between $3.50 and $10.00, with a weighted average exercise price of $6.29 and a weighted average remaining contractual life of 6.2 years. 383,000 of the $3.50 to $10.00 options are currently exercisable with a weighted average exercise price of $6.36. 29,750 of the options outstanding at December 31, 2003 have exercise prices between $11 and $15, with a weighted average exercise price of $11.80 and a weighted average remaining contractual life of 2.6 years. All of the $11 to $15 options are currently exercisable with a weighted average exercise price of $11.80. The remaining 17,750 options have exercise prices between $15 and $20, with a weighted average exercise price of $16.19 and a weighted average remaining contractual life of 3.1 years. All of the $15 to $20 options are currently exercisable with a weighted average exercise price of $16.19.

        The Company has a share appreciation rights ("SARs") plan which authorizes the granting of up to 200,000 SARs to employees of the Company. Upon exercise, SARs allow the holder to receive the difference between the SARs exercise price and the fair market value of the Company's common stock covered by the SARs on the exercise date. At December 31, 2003, 75,000 SARs were outstanding with an exercise price of $7.00 per share and 12,750 SARs were outstanding with an exercise price of $5.00 per share. All SARs are fully vested at December 31, 2003. No related liability or expense has been recorded as the exercise price of the outstanding SARS exceeds the market value of the underlying stock.

13.   Sales and Conversion of Preferred Stock

        On December 13, 1999, the Board of Directors approved the sale of not less than 600,000 shares and not more than 1,000,000 shares of Series C Cumulative Convertible Preferred Stock ("Preferred Stock") through a private placement exempt from registration under Section 4 (2) of the Securities Act of 1933, as amended (the "Securities Act") at $25.00 per share. The sale of Preferred Stock was approved by the Company's shareholders on May 16, 2000, and 600,000 shares were issued to Wiser Investment Company, LLC ("WIC") and another investor on May 26, 2000 for $15 million. On June 1, 2001, the Company sold an additional 396,000 shares of Preferred Stock to Wiser Investors, L.P., a

F-46



Delaware limited partnership ("Investors"), for $9.9 million and 4,000 shares of Preferred Stock to A. Wayne Ritter for $100,000. WIC is the general partner of Investors. The Preferred Stock paid quarterly dividends in cash or in shares of the Company's common stock, at the option of the Company, at an annual rate of 7%. From the date the Preferred Stock was issued until May 26, 2003, the mandatory conversion date of the Preferred Stock, the holders of Preferred Stock were issued 541,726 shares of unregistered common stock as dividends. The holders of the Preferred Stock had the same voting rights as the holders of the Company's common stock with each share of the Preferred Stock having one vote for each share of common stock into which it is convertible. The Company received $23.7 million in net proceeds from the sale of Preferred Stock in May 2000 and June 2001.

        On May 26, 2003, the Series C Convertible Preferred Stock converted into 5,882,353 shares of common stock based on a conversion price of $4.25 per share. Accordingly, there will be no preferred stock dividends payable on the Preferred Stock after May 26, 2003 and the preferred stock discount was fully amortized on May 26, 2003. In the stockholders' equity section of the consolidated balance sheet, the conversion transaction resulted in a decrease of $10.0 million in preferred stock par value, an increase of $59,000 in common stock par value and an increase of $9.9 million to paid-in capital. The common stock issued upon the conversion of the Preferred Stock and as dividends on the Preferred Stock has not been registered under the Securities Act and may not be offered or sold except pursuant to a registration statement under the Securities Act or an exemption thereto and is subject to certain restrictions on transfer described in the legends on the certificates. At any time, the holders of the 6.4 million shares of unregistered common stock can demand that the Company register all of the shares with the Securities and Exchange Commission ("SEC") at the Company's expense, however, no such demand has been made.

        In addition, WIC acquired warrants to purchase 741,716 shares of the Company's common stock at $4.25 per share. The purchase price of the warrants is $0.02 per warrant. The warrants became exercisable on until May 26, 2002 and will expire on May 26, 2007. The warrants were recorded based on their relative fair value to the Preferred Stock at the time of issuance.

        In connection with the issuance of $10 million of Preferred Stock in June 2001, a Preferred Stock discount was recorded because the market price of the Company's common stock exceeded the $4.25 conversion price on the date the preferred stock was issued. This discount was amortized as a reduction of net income available to common stock until the Preferred Stock redemption date of May 26, 2003.

        In connection with the sale of the Preferred Stock, the Board of Directors was changed to include four independent directors and three new directors designated by WIC.

        In May 2000, the Company also adopted an amended and restated certificate of incorporation which increased the number of authorized shares of common stock from 20,000,000 to 30,000,000, and the number of authorized shares of preferred stock from 300,000 shares to 1,000,000 shares. The par value of the common stock was also decreased from $3.00 per share to $.01 per share.

14.   Earnings Per Share

        The Company accounts for earnings per share ("EPS") in accordance with SFAS No. 128, "Earnings Per Share." Under SFAS No. 128, basic EPS is computed by dividing net income available to common by the weighted average common shares outstanding without including any potentially dilutive securities. Diluted EPS is computed by dividing net income by the weighted average common shares outstanding plus, when their effect is dilutive, common stock equivalents consisting of stock options,

F-47


warrants and convertible securities. Net income per share computations to reconcile basic and diluted net income for the years ended December 31, 2003, 2002 and 2001, respectively, consist of the following (in thousands, except per share data):

 
  2003
  2002
  2001
Net income (loss) available to common stock     (23,637 )   (52,213 )   6,178
Plus: Income impact of assumed conversions:                  
  Dividends and amortization on preferred stock     3,230     6,816     3,870
   
 
 
    Net income (loss) available to common plus assumed conversions   $ (20,407 ) $ (45,397 ) $ 10,048
   
 
 
Basic weighted average shares     13,078     9,333     9,161
Effect of dilutive securities:                  
  Convertible preferred stock     2,392     5,882     4,903
  Warrants     124         206
  Stock options     5     2     53
   
 
 
    Diluted weighted average shares     15,599     15,217     14,323

 

 

2003


 

2002


 

2001

Earnings (Loss) Per Share:                  
Basic:                  
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (2.21 ) $ (5.59 ) $ 0.67
  Cumulative Effect of Accounting Change, net of tax     .40        
   
 
 
    Net Income (Loss)   $ (1.81 ) $ (5.59 ) $ 0.67
   
 
 
Diluted:                  
  Net Income (Loss) Before Cumulative Effect of Accounting Change   $ (2.21 ) $ (5.59 ) $ 0.67
  Cumulative Effect of Accounting Change, net of tax     .40        
   
 
 
    Net Income (Loss)   $ (1.81 ) $ (5.59 ) $ 0.67
   
 
 
Weighted average shares outstanding (000's)                  
  Basic     13,078     9,333     9,161
   
 
 
  Diluted     15,599     15,217     14,323
   
 
 

        For the years ended December 31, 2003 and 2002, the effects of convertible preferred stock, warrants and stock options were antidilutive. For the year ended December 31, 2001, the effect of the convertible preferred stock was antidilutive.

15.   Summary of Guaranties of 91/2% Senior Subordinated Notes

        In May 1997, the Company issued $125 million aggregate principal amount of its 91/2% senior Subordinated Notes due 2007 pursuant to an offering exempt from registration under the Securities Act of 1933. The notes are unsecured obligations of the Company, subordinated in right of payment to all existing and any future senior indebtedness of the Company. The notes rank pari passu with any future senior subordinated indebtedness and senior to any future junior subordinated indebtedness of the Company. The notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured, senior subordinated basis by certain wholly owned subsidiaries of the Company (the "Subsidiary

F-48



Guarantors"). At the time of the initial issuance of the notes, Wiser Oil Delaware, Inc., Wiser Delaware LLC, The Wiser Oil Company of Canada, (collectively "Wiser Canada"), The Wiser Marketing Company and T.W.O.C., Inc. were the Subsidiary Guarantors (the "Initial Subsidiary Guarantors"). Except for two wholly owned subsidiaries that are inconsequential to the Company on a consolidated basis, the Initial Subsidiary Guarantors comprise all of the Company's direct and indirect subsidiaries.

        Following is summarized financial information of the Subsidiary Guarantors. The Company has not presented separate financial statements and other disclosures concerning each Subsidiary Guarantor because management has determined that they are not material to investors. There are no significant contractual restrictions on distributions from each of the Subsidiary Guarantors to the Company.

 
  Wiser Oil
(Parent)

  Subsidiary
Guarantors

  Consolidation
Adjustments

  Total
 
 
  (000's)

 
Condensed Income Statement for the Year Ended December 31, 2003                          
Revenues:                          
  Oil and gas sales   $ 61,157   $ 46,189   $   $ 107,346  
  Other     (55 )   3,128         3,073  
   
 
 
 
 
    Total revenues     61,102     49,317         110,419  
   
 
 
 
 
Costs and Expenses:                          
  Operating costs and production taxes     18,127     12,428         30,555  
  Loss on derivatives     7,374     5,169         12,543  
  Depletion, depreciation and amortization     16,700     21,354         38,054  
  Property impairments     2,443     22,307         24,750  
  Exploration     5,306     8,143         13,449  
  General and administrative     7,403     3,032         10,435  
  Interest expense     13,473     1,044         14,517  
   
 
 
 
 
    Total expenses     70,826     73,477         144,303  
   
 
 
 
 
Loss Before Income Taxes     (9,724 )   (24,160 )       (33,884 )
Income Tax Benefit         (8,239 )       (8,239 )
   
 
 
 
 
Loss Before Cumulative Effect of Accounting Change     (9,724 )   (15,921 )       (25,645 )
Cumulative Effect of Accounting Change, net of tax     2,757     2,481         5,238  
   
 
 
 
 
Net Loss   $ (6,967 ) $ (13,440 ) $   $ (20,407 )
   
 
 
 
 

F-49



 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total


 
 
  (000's)

 
Condensed Income Statement for the Year Ended December 31, 2002                          
Revenues:                          
  Oil and gas sales   $ 40,689   $ 36,086   $   $ 76,775  
  Other     342     2,370         2,712  
   
 
 
 
 
    Total revenues     41,031     38,456         79,487  
   
 
 
 
 
Costs and Expenses:                          
  Operating costs and production taxes     18,696     11,327         30,023  
  Loss on derivatives     7,551     6,593         14,144  
  Depletion, depreciation and amortization     11,613     18,644         30,257  
  Property impairments     9,500     415         9,915  
  Exploration     7,668     13,649         21,317  
  General and administrative     7,162     2,396         9,558  
  Interest expense     13,174     1,154         14,328  
   
 
 
 
 
    Total expenses     75,364     54,178         129,542  
   
 
 
 
 
Loss Before Income Taxes     (34,333 )   (15,722 )       (50,055 )
Income tax benefit         (4,658 )       (4,658 )
   
 
 
 
 
Net Loss   $ (34,333 ) $ (11,064 ) $   $ (45,397 )
   
 
 
 
 

 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total

 
  (000's)

Condensed Income Statement for the Year Ended December 31, 2001                        
Revenues:                        
  Oil and gas sales   $ 48,552   $ 31,792   $   $ 80,344
  Other     1,521     9,705         11,226
   
 
 
 
    Total revenues     50,073     41,497         91,570
   
 
 
 
Costs and Expenses:                        
  Operating costs and production taxes     21,668     6,736         28,404
  Loss on derivatives     2,094             2,094
  Depletion, depreciation and amortization     9,297     10,091         19,388
  Property impairments     1,028     1,462         2,490
  Exploration     5,313     2,229         7,542
  General and administrative     5,744     2,338         8,082
  Interest expense     12,728     636         13,364
   
 
 
 
    Total expenses     57,872     23,492         81,364
   
 
 
 
Income (Loss) Before Income Taxes     (7,799 )   18,005         10,206
Income Tax Expense         158         158
   
 
 
 
Net Income (Loss)   $ (7,799 ) $ 17,847   $   $ 10,048
   
 
 
 

F-50



 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total


 
 
  (000's)

 
Condensed Statement of Cash Flows for The Year Ended December 31, 2003                          
Cash Flows From Operating Activities:                          
  Net income (loss)   $ (6,967 ) $ (13,440 ) $   $ (20,407 )
  Add back reconciling items     17,888     32,883         50,771  
  Other changes     (906 )   5,445         4,539  
   
 
 
 
 
    Operating Cash Flows     10,015     24,888         34,903  
   
 
 
 
 
Cash Flows from Investing Activities:                          
  Capital Expenditures     (16,877 )   (22,098 )       (38,975 )
  Proceeds from property sales         3,959         3,959  
   
 
 
 
 
    Investing Cash Flows     (16,877 )   (18,139 )       (35,016 )
   
 
 
 
 
Cash Flows from Financing Activities:                          
    Inter-company transfers     1,383     (1,383 )        
  Borrowings (repayments) of long-term debt     4,500     (6,064 )       (1,564 )
  Other     (760 )           (760 )
   
 
 
 
 
    Financing Cash Flows     5,123     (7,447 )       (2,324 )
   
 
 
 
 
Effect of exchange rate changes on Cash and cash equivalents         289         289  
   
 
 
 
 
Net Decrease in Cash and Cash Equivalents     (1,739 )   (409 )       (2,148 )
Cash and Cash Equivalents, beginning of year     3,136     454         3,590  
   
 
 
 
 
Cash and Cash Equivalents, end of year   $ 1,397   $ 45   $   $ 1,442  
   
 
 
 
 

F-51



 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total


 
 
  (000's)

 
Condensed Statement of Cash Flows for The Year Ended December 31, 2002                          
Cash Flows From Operating Activities:                          
  Net income (loss)   $ (34,332 ) $ (11,065 ) $   $ (45,397 )
  Add back reconciling items     28,770     22,974         51,744  
  Other changes     23     6,843         6,866  
   
 
 
 
 
    Operating Cash Flows     (5,539 )   18,752         13,213  
   
 
 
 
 
Cash Flows from Investing Activities:                          
  Capital Expenditures     (18,476 )   (20,063 )       (38,539 )
  Proceeds from property sales         8,342         8,342  
   
 
 
 
 
    Investing Cash Flows     (18,476 )   (11,721 )       (30,197 )
   
 
 
 
 
Cash Flows from Financing Activities:                          
  Inter-company transfers     4,210     (4,210 )        
  Borrowings (repayments) of long-term debt     12,500     (3,765 )       8,735  
  Other     (879 )           (879 )
   
 
 
 
 
    Financing Cash Flows     15,831     (7,975 )       7,856  
   
 
 
 
 
Effect of exchange rate changes on Cash and cash equivalents         59         59  
   
 
 
 
 
Net Decrease in Cash and Cash Equivalents     (8,184 )   (885 )       (9,069 )
Cash and Cash Equivalents, beginning of year     11,320     1,339         12,659  
   
 
 
 
 
Cash and Cash Equivalents, end of year   $ 3,136   $ 454   $   $ 3,590  
   
 
 
 
 

F-52



 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total


 
 
  (000's)

 
Condensed Statement of Cash Flows for The Year Ended December 31, 2001                          
Cash Flows From Operating Activities:                          
  Net income (loss)   $ (7,799 ) $ 17,847   $   $ 10,048  
  Add back reconciling items     11,040     3,100         14,140  
  Other changes     5,492     (4,727 )       765  
   
 
 
 
 
    Operating Cash Flows     8,733     16,220         24,953  
   
 
 
 
 
Cash Flows from Investing Activities:                          
  Capital Expenditures     (17,532 )   (57,614 )       (75,146 )
  Proceeds from property sales         219         219  
   
 
 
 
 
    Investing Cash Flows     (17,532 )   (57,395 )       (74,927 )
   
 
 
 
 
Cash Flows from Financing Activities:                          
  Inter-company transfers     (18,475 )   18,475          
  Borrowings (repayments) of long-term debt     (500 )   19,536           19,036  
  Preferred stock issued, net of costs     10,000               10,000  
  Other     (424 )           (424 )
   
 
 
 
 
    Financing Cash Flows     (9,399 )   38,011         28,612  
   
 
 
 
 
Effect of exchange rate changes on Cash and cash equivalents         (123 )       (123 )
   
 
 
 
 
Net Decrease in Cash and Cash Equivalents     (18,198 )   (3,287 )       (21,485 )
Cash and Cash Equivalents, beginning of year     29,518     4,626         34,144  
   
 
 
 
 
Cash and Cash Equivalents, end of year   $ 11,320   $ 1,339   $   $ 12,659  
   
 
 
 
 

 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total

 
  (000's)

Condensed Balance Sheet December 31, 2003                        
Assets:                        
  Current assets   $ 8,610   $ 7,794   $   $ 16,404
  Net property and equipment     118,205     87,956         206,161
  Other assets     82,194         (80,163 )   2,031
   
 
 
 
    Total Assets   $ 209,009   $ 95,750   $ (80,163 ) $ 224,596
   
 
 
 
Liabilities and Stockholders' Equity:                        
  Current liabilities   $ 12,464   $ 17,566   $   $ 30,030
  Pension liability     2,566             2,566
  Asset retirement obligation     2,629     4,379         7,008
  Long-term debt     141,953     12,243         154,196
  Stockholders' equity     49,397     61,562     (80,163 )   30,796
   
 
 
 
    Total Liabilities and Stockholders' Equity   $ 209,009   $ 95,750   $ (80,163 ) $ 224,596
   
 
 
 

F-53



 

 

Wiser Oil
(Parent)


 

Subsidiary
Guarantors


 

Consolidation
Adjustments


 

Total

 
  (000's)

Condensed Balance Sheet December 31, 2002                        
Assets:                        
  Current assets   $ 9,040   $ 7,450   $   $ 16,490
  Net property and equipment     116,039     87,174         203,213
  Other assets     64,628         (62,124 )   2,504
   
 
 
 
    Total Assets   $ 189,707   $ 94,624   $ (62,124 ) $ 222,207
   
 
 
 
Liabilities and Stockholders' Equity:                        
  Current liabilities   $ 12,867   $ 10,631   $   $ 23,498
  Pension liability     3,299             3,299
  Long-term debt     137,248     15,268         152,516
  Deferred income taxes         6,603         6,603
  Stockholders' equity     36,293     62,122     (62,124 )   36,291
   
 
 
 
    Total Liabilities and Stockholders' Equity   $ 189,707   $ 94,624   $ (62,124 ) $ 222,207
   
 
 
 


THE WISER OIL COMPANY
Supplemental Financial Information
For the years ended December 31, 2003, 2002 and 2001 (Unaudited)

        The following pages include unaudited supplemental financial information as currently required by the SEC and the Financial Accounting Standards Board.

16.   Estimated Quantities of Oil and Gas Reserves (Unaudited)

        Proved reserves are the estimated quantities of crude oil, natural gas and natural gas liquids, which upon analysis of geological and engineering data appear with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves which can be expected to be recovered through existing wells with existing equipment and under existing operating conditions.

        The estimation of reserves requires substantial judgment on the part of petroleum engineers and may result in imprecise determinations, particularly with respect to new discoveries. Accordingly, it is expected that the estimates of reserves will change as future production and development information becomes available and that revisions in these estimates could be significant.

F-54



        Following is a reconciliation of the Company's estimated net quantities of proved oil and gas reserves, as estimated by independent petroleum consultants.

 
  Oil (MBbls)
  Gas (MMcf)
 
 
  U.S.
  Canada
  Total
  U.S.
  Canada
  Total
 
Balance December 31, 2000   20,357   4,134   24,491   52,695   23,413   76,108  
Revisions of previous estimates   (5,830 ) 579   (5,251 ) (3,324 ) (657 ) (3,981 )
Properties sold and abandoned     (485 ) (485 )   (7,739 ) (7,739 )
Reserved purchased in place     1,166   1,166     34,822   34,822  
Extensions and discoveries   346   560   906   7,514   1,248   8,762  
Production   (992 ) (751 ) (1,743 ) (5,627 ) (4,372 ) (9,999 )
   
 
 
 
 
 
 
Balance December 31, 2001   13,881   5,203   19,084   51,258   46,715   97,973  
Revisions of previous estimates   (1,721 ) 676   (1,045 ) 13,167   2,839   16,006  
Properties sold and abandoned   (284 ) (999 ) (1,283 ) (241 ) (1,423 ) (1,664 )
Reserves purchased in place   1,321   326   1,647   245   17   262  
Extensions and discoveries   79   125   204   6,209   2,684   8,893  
Production   (881 ) (1,011 ) (1,892 ) (6,491 ) (5,959 ) (12,450 )
   
 
 
 
 
 
 
Balance December 31, 2002   12,395   4,320   16,715   64,147   44,873   109,020  
Revisions of previous estimates   (522 ) 306   (216 ) (3,181 ) (10,683 ) (13,864 )
Properties sold and abandoned   (8 ) (35 ) (43 ) (67 ) (1,040 ) (1,107 )
Extensions and discoveries   506   435   941   11,631   4,531   16,162  
Production   (826 ) (931 ) (1,757 ) (7,934 ) (4,886 ) (12,820 )
   
 
 
 
 
 
 
Balance December 31, 2003   11,545   4,095   15,640   64,596   32,795   97,391  
   
 
 
 
 
 
 
Proved Developed Reserves at December 31,(1):                          
2000   19,462   4,134   23,596   49,363   23,036   72,399  
2001   12,849   4,390   17,239   44,656   24,923   69,579  
2002   10,588   3,678   14,266   57,747   27,905   85,652  
2003   9,439   3,740   13,179   59,085   24,496   83,581  

(1)
Reserve volumes as assigned by third party engineers have been increased to reflect the effect of the Alberta Royalty Tax Credit refund. Total proved and proved developed reserves were increased by 118 MBbl and 1,060 MMcf for 2001, 77 MBbl and 799 MMcf for 2002 and 71 MBbl and 571 MMcf for 2003.

Standardized Measure of Discounted Future
Net Cash Flows of Proved Oil and Gas Reserves (Unaudited)

        The Company has estimated the standardized measure of discounted future net cash flows and changes therein relating to proved oil and gas reserves in accordance with the standards established by the Financial Accounting Standards Board through its Statement No. 69. The estimates of future cash inflows are based on year-end prices. The weighted-average year-end sales price used to estimate future cash inflows were: 2003—$28.99 for oil and $5.40 for gas; 2002—$29.12/Bbl for oil and $4.04/Mcf for gas, and 2001—$17.24/Bbl for oil and $2.26/Mcf for gas.

        Estimated future production of proved reserves and estimated future production and development costs of proved reserves are based on year-end costs and economic conditions. Estimated future income

F-55



tax expense is calculated by applying year-end statutory tax rates (adjusted for permanent differences and tax credits) to estimated future pretax net cash flows related to proved oil and gas reserves, less the tax basis of the properties involved.

        This standardized measure of discounted future net cash flows is an attempt by the Financial Accounting Standards Board to provide the users of financial statements with information regarding future net cash flows from proved reserves. However, the users of these financial statements should use extreme caution in evaluating this information. The assumptions required to be used in these computations are subjective and arbitrary. Had other equally valid assumptions been used, significantly different results of discounted future net cash flows would result. Therefore, these estimates do not necessarily reflect the current value of the Company's proved reserves or the current value of discounted future net cash flows for the proved reserves.

        The following are the Company's estimated standardized measure of discounted future net cash flows from proved reserves (000's):

 
  U.S.
  Canada
  Total
 
December 31, 2003
                   
Future cash inflows   $ 721,422   $ 258,952   $ 980,374  
Future production and development costs     (284,680 )   (89,438 )   (374,118 )
Future income tax expense     (113,955 )   (32,272 )   (146,227 )
   
 
 
 
Future net cash flows     322,787     137,242     460,029  
10% annual discount for estimated timing of cash flows     (143,832 )   (45,904 )   (189,736 )
   
 
 
 
Standardized measure of discounted net cash flows   $ 178,955   $ 91,338   $ 270,293  
   
 
 
 
December 31, 2002
                   
Future cash inflows   $ 640,461   $ 286,230   $ 926,691  
Future production and development costs     (248,369 )   (92,984 )   (341,353 )
Future income tax expense     (95,266 )   (37,621 )   (132,887 )
   
 
 
 
Future net cash flows     296,826     155,625     452,451  
10% annual discount for estimated timing of cash flows     (141,283 )   (56,611 )   (197,894 )
   
 
 
 
Standardized measure of discounted net cash flows   $ 155,543   $ 99,014   $ 254,557  
   
 
 
 
December 31, 2001:
                   
Future cash inflows   $ 366,650   $ 207,265   $ 573,915  
Future production and development costs     (216,998 )   (68,635 )   (285,633 )
Future income tax expense     (19,930 )   (19,393 )   (39,323 )
   
 
 
 
Future net cash flows     129,722     119,237     248,959  
10% Annual discount for estimated timing of cash flows     (63,395 )   (46,203 )   (109,598 )
   
 
 
 
Standardized measure of discounted net cash flows   $ 66,327   $ 73,034   $ 139,361  
   
 
 
 

F-56


        The following are the sources of changes in the standardized measure of discounted net cash flows (000's):

 
  2003
  2002
  2001
 
Standardized measure, beginning of year   $ 254,557   $ 139,361   $ 360,876  
Sales, net of production costs     (76,791 )   (45,950 )   (47,425 )
Net change in price and production costs     28,125     146,336     (295,427 )
Reserves purchased in place         8,218     48,155  
Extensions, discoveries and improved recoveries     51,803     24,361     10,309  
Development costs incurred during the year     15,784     12,215     5,188  
Change in future development and abandonment costs     (912 )   (9,718 )   1,464  
Revisions of previous quantity estimates and disposals     (22,390 )   13,831     (20,313 )
Sales of reserves in place     (2,035 )   (4,674 )   (40,768 )
Accretion of discount     32,312     16,088     47,974  
Changes in timing and other     566     1,546     (28,015 )
Net change in income taxes     (10,726 )   (47,057 )   97,343  
   
 
 
 
Standardized measure, end of year   $ 270,293   $ 254,557   $ 139,361  
   
 
 
 

17.   Unaudited Quarterly Financial Data

        The supplementary financial data in the table below for each quarterly period within the years ended December 31, 2003 and 2002 are derived from the unaudited consolidated financial statements of the Company.

 
  Revenues
  Net Income
(Loss)

  Earnings
(Loss)
Per
Share

 
 
  (000's)

  (000's)

   
 
2003:                    
First Quarter   $ 31,198   $ 4,129   $ 0.23  
Second Quarter   $ 27,534   $ (892 ) $ (0.19 )
Third Quarter   $ 25,426   $ 3,174   $ 0.20  
Fourth Quarter   $ 26,261   $ (26,818 ) $ (1.73 )
2002:                    
First Quarter   $ 14,748   $ (12,558 ) $ (1.53 )
Second Quarter   $ 19,606   $ (4,994 ) $ (0.72 )
Third Quarter   $ 21,331   $ (16,562 ) $ (1.95 )
Fourth Quarter   $ 23,802   $ (11,283 ) $ (1.39 )

F-57



FOREST OIL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2004   F-60
Unaudited Pro Forma Condensed Combined Statement of Operations for the Three Months Ended March 31, 2004   F-61
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2003   F-62
Notes to Unaudited Pro Forma Condensed Combined Financial Statements   F-63

F-58



FOREST OIL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

        During the fourth quarter of 2003, Forest Oil Corporation (Forest) completed an acquisition of certain oil and gas properties in South Louisiana and offshore Gulf of Mexico (the Acquired Properties) from Union Oil Company of California (Unocal). Forest also acquired certain assets and assumed certain liabilities related to the Acquired Properties. The total cash consideration paid by Forest in the acquisition was approximately $207 million. The acquisition was funded by borrowings under Forest's credit facility and net proceeds from a common stock offering completed in October 2003.

        In the second quarter of 2004, Forest acquired The Wiser Oil Company (Wiser) for total cash consideration of approximately $171 million and the assumption of approximately $163 million of Wiser's debt (the Wiser Acquisition). The acquisition was funded by borrowings under Forest's credit facilities, the proceeds from a stock offering completed in June 2004 and internally generated cash.

        The following unaudited pro forma condensed combined balance sheet gives effect to the Wiser Acquisition and the June 2004 common stock offering as if those transactions occurred on March 31, 2004. The unaudited pro forma condensed combined balance sheet should be read in conjunction with the historical financial statements and related notes of Forest.

        The following unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2004 gives effect to the Wiser Acquisition and the June 2004 common stock offering as if those transactions occurred as of January 1, 2004. The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2003 gives effect to the acquisition of the Acquired Properties from Unocal, the Wiser Acquisition and the two common stock offerings as if those transactions occurred as of January 1, 2003. The pro forma results of operations are not necessarily indicative of the results of operations that would have actually been attained if the transactions had occurred as of these dates. These unaudited pro forma statements of operations should be read in conjunction with the historical financial statements and related notes of Forest, Wiser and the Acquired Properties.

F-59



FOREST OIL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (NOTE A)

MARCH 31, 2004

 
  Forest Oil
Corporation
Historical

  Pro Forma
Adjustments
(Notes C and D)

  Pro Forma
Combined

 
 
  (In Thousands)

 
ASSETS                
Current assets:                
  Cash and cash equivalents   $ 25,149   3,220   (5) 28,369  
  Accounts receivable     119,266   23,688   (5) 142,954  
  Derivative instruments     2,720     2,720  
  Current deferred tax asset     35,707     35,707  
  Other current assets     30,158   2,281   (5) 32,439  
   
 
 
 
    Total current assets     213,000   29,189   242,189  
Net property and equipment     2,406,970   349,013   (5) 2,756,433  
          450   (5)    
Goodwill       64,357   (5) 64,357  
Other assets     26,591       26,591  
   
 
 
 
    $ 2,646,561   443,009   3,089,570  
   
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
  Accounts payable   $ 133,176   33,152   (5) 166,328  
  Accrued interest     15,083   1,549   (5) 16,632  
  Derivative instruments     76,644   8,028   (5) 84,672  
  Asset retirement obligation     24,017     24,017  
  Other current liabilities     4,415   1,157   (5) 5,572  
   
 
 
 
    Total current liabilities     253,335   43,886   297,221  
Long-term debt     886,287   163,325   (5) 1,103,377  
          171,188   (6)    
          (117,423 )(14)    
Asset retirement obligation     197,414   7,997   (5) 205,411  
Other liabilities     43,027   3,061   (5) 46,088  
Deferred income taxes     83,707   53,552   (5) 137,259  
Shareholders' equity:                
  Common stock     5,582   503   (14) 6,085  
  Capital surplus     1,306,029   116,920   (14) 1,422,949  
  Accumulated deficit     (37,433 )   (37,433 )
  Accumulated other comprehensive loss     (35,502 )   (35,502 )
  Treasury stock, at cost     (55,885 )   (55,885 )
   
 
 
 
    Total shareholders' equity     1,182,791   117,423   1,300,214  
   
 
 
 
    $ 2,646,561   443,009   3,089,570  
   
 
 
 

See accompanying notes to unaudited pro forma condensed combined financial statements.

F-60



FOREST OIL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (NOTE A)

THREE MONTHS ENDED MARCH 31, 2004

 
  Forest
Historical

  Wiser
Acquisition
Historical

  Pro Forma
Adjustments
(Notes C and D)

  Pro Forma
Combined
Forest

 
  (In Thousands)

Revenue:                  
  Oil and gas sales:                  
    Natural gas   $ 124,062   16,363     140,425
    Oil, condensate and natural gas liquids     69,775   12,035     81,810
   
 
 
 
      Total oil and gas sales     193,837   28,398     222,235
  Processing income, net     416       416
   
 
 
 
      Total revenue     194,253   28,398     222,651
Operating expenses:                  
  Oil and gas production     59,329   10,128     69,457
  Exploration       1,730   (1,730 )(7)
  General and administrative     6,360   2,805   (701 )(8) 8,464
  Depreciation and depletion     79,628   8,658   (18) (9) 88,268
  Accretion of asset retirement obligation     4,275   139     4,414
   
 
 
 
      Total operating expenses     149,592   23,460   (2,449 ) 170,603
   
 
 
 
Earnings from operations     44,661   4,938   2,449   52,048
Other income and expense:                  
  Other expense (income), net     (424 ) 5,684     5,260
  Interest expense     12,947   3,575   304   (12) 16,826
   
 
 
 
      Total other income and expense     12,523   9,259   304   22,086
   
 
 
 
Earnings before income taxes and discontinued operations     32,138   (4,321 ) 2,145   29,962
Income tax (benefit) expense:                  
  Current     711       711
  Deferred     11,790     (827 )(13) 10,963
   
 
 
 
      12,501     (827 ) 11,674
   
 
 
 
Earnings from continuing operations   $ 19,637   (4,321 ) 2,972   18,288
   
 
 
 
Weighted average number of common shares outstanding:                  
  Basic     53,684       5,030   (15) 58,714
   
         
  Diluted     54,749       5,030   (15) 59,779
   
         
  Basic earnings per common share from continuing operations   $ 0.37           0.31
   
         
  Diluted earnings per common share from continuing operations   $ 0.36           0.31
   
         

See accompanying notes to unaudited pro forma condensed combined financial statements.

F-61



FOREST OIL CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (NOTE A)

YEAR ENDED DECEMBER 31, 2003

 
  Forest
Historical

  Unocal
Acquisition
Historical

  Wiser
Acquisition
Historical

  Unocal
Pro Forma
Adjustments
(Notes B and D)

  Wiser
Pro Forma
Adjustments
(Notes C and D)

  Pro Forma
Combined
Forest

 
  (In Thousands)

Revenue:                          
  Oil and gas sales:                          
    Natural gas   $ 439,700   123,778   44,472       607,950
    Oil, condensate and natural gas liquids     215,493   36,903   62,874       315,270
   
 
 
 
 
 
      Total oil and gas sales     655,193   160,681   107,346       923,220
  Processing income, net     1,985           1,985
   
 
 
 
 
 
      Total revenue     657,178   160,681   107,346       925,205
Operating expenses:                          
  Oil and gas production     154,170   29,516   30,555       214,241
  Exploration         13,449     (13,449 )(7)
  General and administrative     36,322     10,435     (2,609 )(8) 44,148
  Depreciation and depletion     234,822     37,100   51,044   (1) (4,921 )(9) 318,045
  Impairment of oil and gas properties     16,910     24,750     (24,750 )(10) 16,910
  Accretion of asset retirement obligation     13,785     954   2,732   (2)   17,471
  Gain on sales of properties         (3,056 )   3,056   (11)
   
 
 
 
 
 
      Total operating expenses     456,009   29,516   114,187   53,776   (42,673 ) 610,815
   
 
 
 
 
 
Earnings from operations     201,169   131,165   (6,841 ) (53,776 ) 42,673   314,390
Other income and expense:                          
  Other expense, net     6,964     12,526       19,490
  Interest expense     49,341     14,517   1,948   (3) 1,742   (12) 67,548
   
 
 
 
 
 
      Total other income and expense     56,305     27,043   1,948   1,742   87,038
   
 
 
 
 
 
Earnings before income taxes, discontinued operations and cumulative effect of change in accounting principle     144,864   131,165   (33,884 ) (55,724 ) 40,931   227,352
Income tax (benefit) expense:                          
  Current     693           693
  Deferred     53,943     (8,239 ) 28,668   (4) 10,917   (13) 85,289
   
 
 
 
 
 
      54,636     (8,239 ) 28,668   10,917   85,982
   
 
 
 
 
 
Earnings from continuing operations   $ 90,228   131,165   (25,645 ) (84,392 ) 30,014   141,370
   
 
 
 
 
 
Weighted average number of common shares outstanding:                          
  Basic     49,450           5,123   (15) 5,030   (15) 59,603
   
                 
  Diluted     50,353           5,123   (15) 5,030   (15) 60,506
   
                 
Basic earnings per common share from continuing operations   $ 1.82                   2.37
   
                 
Diluted earnings per common share from continuing operations   $ 1.79                   2.34
   
                 

See accompanying notes to unaudited pro forma condensed combined financial statements.

F-62



FOREST OIL CORPORATION

Notes To Unaudited Pro Forma Condensed Combined Financial Statements

March 31, 2004

A.    Basis Of Presentation

        The accompanying unaudited pro forma condensed combined balance sheet gives effect to the Wiser Acquisition and a common stock offering completed in the second quarter of 2004 as if those transactions occurred on March 31, 2004 with pro forma adjustments to give effect to the purchase accounting for the acquisition and the application of the net proceeds from the common stock offering. The unaudited pro forma condensed combined balance sheet should be read in conjunction with the historical financial statements and related notes of Forest.

        The accompanying unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2004 gives effect to the Wiser Acquisition and the common stock offering completed in the second quarter of 2004 as if those transactions occurred as of January 1, 2004. The accompanying unaudited pro forma condensed combined statement of operations for the year ended December 31, 2003 gives effect to the acquisition of the Acquired Properties from Unocal, the Wiser Acquisition and the two common stock offerings, as if those transactions occurred as of January 1, 2003. The pro forma results of operations are not necessarily indicative of the results of operations that would actually have been attained if the transactions had occurred on the dates indicated. These unaudited pro forma statements of operations should be read in conjunction with the historical financial statements and related notes of Forest, Wiser and the Acquired Properties.

B.    Acquisition of Unocal Properties

        On October 31, 2003, Forest acquired certain oil and natural gas properties in South Louisiana and offshore Gulf of Mexico from Unocal for total cash consideration of approximately $207 million.

(1)
Adjustment to reflect combined depletion, depreciation and amortization expense based on the portion of the purchase price allocated to proved oil and gas properties and based on estimates of proved reserves of the Acquired Properties as of January 1, 2003.

(2)
Adjustment to reflect accretion expense for the asset retirement obligation related to the Acquired Properties.

(3)
Adjustment to reflect interest expense associated with the debt incurred in connection with the acquisition of the Acquired Properties net of reduced interest expense resulting from the application of the proceeds from the common stock offering completed in October 2003.

(4)
Adjustment to reflect provision for income taxes resulting from pro forma income before income taxes assuming an effective tax rate of 38%.

F-63


C.    Acquisition of The Wiser Oil Company

        On June 25, 2004 Forest acquired all of the common stock of Wiser for total cash consideration of approximately $171 million.

(5)
A reconciliation of the total consideration to the assets acquired and liabilities assumed is as follows:

 
  (In Thousands)
 
Assets Acquired:        
  Cash and cash equivalents   $ 3,220  
  Accounts receivable     23,688  
  Other current assets     2,281  
  Oil and gas assets     349,013  
  Administrative assets     450  
  Goodwill     64,357  
Liabilities Assumed:        
  Accounts payable     (33,152 )
  Accrued interest     (1,549 )
  Derivative instruments     (8,028 )
  Other current liabilities     (1,157 )
  Long-term debt     (163,325 )
  Asset retirement obligation     (7,997 )
  Other liabilities     (3,061 )
  Deferred income taxes     (53,552 )
   
 
  Cash consideration paid   $ 171,188  
   
 
(6)
Adjustment to record borrowings under Forest's credit facility utilized to fund the Wiser Acquisition.

(7)
Adjustment to capitalize Wiser exploration expense in accordance with the full cost method of accounting for oil and gas activities. Exploration activities are capitalized under the full cost method.

(8)
Adjustment to capitalize a portion of general and administrative expense pursuant to the full cost method of accounting for oil and gas activities.

(9)
Adjustment to reflect combined depletion, depreciation and amortization expense based on the portion of the purchase price allocated to proved oil and gas properties and based on estimates of proved reserves of the acquired properties as of the beginning of each period presented.

(10)
Adjustment to reverse impairment of individual oil and gas properties. Forest uses the full cost method of accounting for oil and gas properties and under the full cost method impairments are not recognized on individual properties.

(11)
Adjustment to eliminate the Wiser gain on sales of properties in accordance with the full cost method of accounting for oil and gas properties. Proceeds from property sales are recorded directly to the full cost pool under the full cost method.

F-64


(12)
Adjustment to reflect interest expense associated with the debt incurred in connection with the Wiser Acquisition, net of reduced interest expense resulting from the application of the proceeds from the common stock offering completed in the second quarter of 2004.

(13)
Adjustment to reflect provision for income taxes resulting from pro forma income before income taxes assuming an effective tax rate of 38%.

D.    2003 and 2004 Common Stock Offerings

        In October 2003 Forest issued 5,123,000 shares of common stock at a price of $23.10 per share. Net proceeds from this offering were approximately $112.6 million after deducting underwriting discounts and commissions and estimated offering expenses. Forest initially used the net proceeds from the offering to repay debt outstanding under its credit facility.

        In June 2004, Forest issued 5,030,000 shares of common stock at a price of $24.40 per share. Net proceeds from this offering were approximately $117.4 million after deducting underwriting discounts and commissions and estimated offering expenses. Forest initially used the proceeds from the offering to repay debt outstanding under its credit facility.

(14)
Adjustment to reflect the issuance of common stock in June 2004 and application of the resulting net proceeds to reduce debt outstanding under Forest's credit facility.

(15)
Adjustment to increase the weighted average shares outstanding for the common stock issued in October 2003 or June 2004, as applicable.

E.    Subsequent Events

        In July 2004, Forest utilized borrowings under its credit facility to repay the Wiser bank debt. The Wiser credit facility was terminated.

        Also in July 2004, Forest issued $125 million principal amount of 8% notes due 2011. The notes were issued at a premium of 107.75%. Net proceeds from this issuance were approximately $133.2 million after deducting underwriting commissions and estimated offering expenses. Forest used the net proceeds from this offering to repay borrowings under its credit facility.

        On July 30, 2004 Forest redeemed the Wiser 91/2% Notes using borrowings under its credit facility.

F-65



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 hereunto duly authorized.

    FOREST OIL CORPORATION
(Registrant)
 

Dated: August 5, 2004

 

By

/s/  
JOAN C. SONNEN      
Joan C. Sonnen
Vice President—Controller and
Chief Accounting Officer

3




QuickLinks

INDEX TO FINANCIAL STATEMENTS
THE WISER OIL COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited)
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Three Months Ended March 31, 2004
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THE WISER OIL COMPANY
Report of Independent Auditors
Report of Independent Public Accountants
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2003, 2002 and 2001
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2003, 2002 and 2001
THE WISER OIL COMPANY CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2003, 2002 and 2001
THE WISER OIL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2003, 2002 and 2001
THE WISER OIL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002 and 2001
THE WISER OIL COMPANY Supplemental Financial Information For the years ended December 31, 2003, 2002 and 2001 (Unaudited)
FOREST OIL CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
FOREST OIL CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
FOREST OIL CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (NOTE A) MARCH 31, 2004
FOREST OIL CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (NOTE A) THREE MONTHS ENDED MARCH 31, 2004
FOREST OIL CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (NOTE A) YEAR ENDED DECEMBER 31, 2003
FOREST OIL CORPORATION Notes To Unaudited Pro Forma Condensed Combined Financial Statements March 31, 2004
SIGNATURES