SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-8490
ALAMCO, INC.
(Exact name of registrant as specified in its charter)
Delaware 55-0615701
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
200 West Main Street, Clarksburg, WV 26301
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (304) 623-6671
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of each of the registrant's classes of
common stock as of August 1, 1995, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,690,606
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statement of Income . . . . . . . . . . 3
for the three and six months ended June 30, 1995 and 1994
Condensed Consolidated Balance Sheet as of . . . . . . . . . 4 - 5
June 30, 1995 and December 31, 1994
Condensed Consolidated Statement of Cash Flows . . . . . . . . 6
for the six months ended June 30, 1995 and 1994
Condensed Consolidated Statement of Stockholders' . . . . . . 7
Equity for the six months ended June 30, 1995 and 1994
Notes to the Condensed Consolidated Financial . . . . . . . 8 - 9
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . 10 - 13
Financial Condition and Results of Operations
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14
Signature Page . . . . . . . . . . . . . . . . . . . . . . . 15
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
Revenues:
Gas and oil sales $3,048 $2,850 $6,059 $5,658
Well tending income 287 317 536 824
Other 195 41 395 96
------ ------ ------ ------
Total revenues 3,530 3,208 6,990 6,578
------ ------ ------ ------
Expenses:
Operating 1,609 1,309 3,170 2,602
General & administrative 781 683 1,558 1,333
Depreciation, depletion &
amortization 1,029 771 2,045 1,501
Interest 332 1 631 19
------ ------ ------ ------
Total expenses 3,751 2,764 7,404 5,455
------ ------ ------ ------
Income (loss)
from operations (221) 444 (414) 1,123
Other nonoperating income,
net 50 63 114 97
------ ------ ------ ------
Income (loss) before
income taxes (171) 507 (300) 1,220
Income tax (benefit)
provision (96) 186 (123) 437
------ ------ ------ -------
Net income (loss) ($75) $ 321 ($177) $ 783
====== ====== ====== ======
Net income (loss) per share ($0.02) $0.07 ($0.04) $0.17
===== ===== ===== =====
Weighted average number of
shares outstanding 4,677,257 4,643,783 4,665,385 4,641,620
========= ========= ========= =========
June 30, December 31,
1995 1994
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,935 $ 2,632
Accounts receivable 2,636 2,693
Due from partnerships and programs 172 140
Inventories and other current assets 419 428
------ ------
Total current assets 5,162 5,893
------ ------
Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 73,399 71,782
Other property and equipment 5,476 5,270
------ -------
78,875 77,052
Less accumulated depreciation,
depletion and amortization 30,136 28,487
------- -------
48,739 48,565
Other assets 1,530 1,600
------- -------
Total assets $55,431 $56,058
======= =======
(Continued)
June 30, December 31,
1995 1994
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 73 $ 106
Accounts payable 524 1,325
Accrued expenses and other 1,144 1,398
Due working interest and royalty owners 1,197 1,064
Deferred revenue 904 1,165
------- -------
Total current liabilities 3,842 5,058
------- -------
Long-term debt and capital lease obligations 14,193 12,889
Due working interest and royalty owners 509 888
Deferred revenue 149 333
Deferred taxes 7,888 8,011
Other long-term liabilities 422 404
------- -------
Total liabilities 27,003 27,583
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Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $1.00 per share;
1,000,000 shares authorized; none issued
Common stock, par value $.10 per share;
15,000,000 and 7,500,000 shares
authorized, respectively;
4,745,413 and 4,712,713 shares
issued and outstanding, respectively
475 471
Additional paid-in capital 31,177 31,039
Accumulated deficit since
September 30, 1985
quasi-reorganization (3,024) (2,847)
-------- -------
28,628 28,663
Less: Treasury stock, at cost,
59,392 and 63,360 shares of
common stock, respectively 200 188
------- -------
Total stockholders' equity 28,428 28,475
-------- -------
Total liabilities and stockholders' equity $55,431 $56,058
======= =======
Six Months Ended
June 30,
-----------------
1995 1994
---- ----
Cash flows from operating activities:
Net income (loss) ($177) $ 783
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 2,045 1,501
Deferred taxes (123) 387
Gains on asset sales (22) (57)
Issuance of stock for employee benefits and
compensation expense 70 70
Other factors, net 2 6
Increase (decrease) in cash from changes in:
Accounts receivable 57 1,077
Due from partnerships and programs (32) (34)
Due working interest and royalty owners 133 (734)
Inventories and other current assets 9 (112)
Accounts payable & accrued expenses (1,055) (24)
Deferred revenue (261) (108)
-------- -------
Net cash provided by operating activities 646 2,755
-------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 237 221
Capital expenditures (2,356) (4,195)
Other assets (8) 89
-------- -------
Net cash used in investing activities (2,127) (3,885)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit 1,800 1,900
Payments on line of credit (500) --
Additions to long-term debt 32 --
Principal payments on long-term debt and
capital lease obligations (63) (122)
Acquisition of treasury stock (46) (6)
Additional costs of public offering of common stock -- (20)
Proceeds from exercise of stock options 106 9
Other liabilities (545) (741)
------- -------
Net cash provided by financing activities 784 1,020
------- -------
Net decrease in cash and cash equivalents (697) (110)
Cash and cash equivalents - beginning of period 2,632 2,465
------- -------
Cash and cash equivalents - end of period $1,935 $ 2,355
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 628 $ 56
Income Taxes $ -- $ 55
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Like-kind exchange of property -- $ 3,270
Accumulated
Additional Deficit
Common Paid-in Since Treasury
Stock Capital 09/30/85 Stock
------ ------ -------- ------
Balance December 31, 1993 $ 470 $30,981 ($4,493) $215
Issuance of treasury stock -- 36 -- (34)
Acquisition of treasury stock -- -- -- 6
Exercise of stock options 1 8 -- --
Public stock offering additional
costs -- (20) -- --
Net income -- -- 783 --
---- ------- ------- ----
Balance June 30, 1994 $ 471 $31,005 ($3,710) $187
==== ======= ======= ====
Balance December 31, 1994 $471 $31,039 ($2,847) $188
Issuance of treasury stock -- 36 -- (34)
Acquisition of treasury stock -- -- -- 46
Exercise of stock options 4 102 -- --
Net loss -- -- (177) --
---- ------- ------- ----
Balance June 30, 1995 $475 $31,177 ($3,024) $200
==== ======= ======= ====
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, which includes additional information about
the Company, its operations and its consolidated financial statements, and
contains a summary of major accounting policies followed by the Company in
preparation of its consolidated financial statements. These policies were also
followed in preparing the quarterly financial statements included herein. The
year-end consolidated balance sheet data contained herein was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
The management of the Company believes that all adjustments necessary to
make a fair statement of the results in these interim periods have been made.
All adjustments reflected in the financial statements are of a normal recurring
nature except as described in the Notes to Condensed Consolidated Financial
Statements. Net results for the six month period ended June 30, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. Cash and Cash Equivalents
Cash and cash equivalents totalled $1,935,000 at June 30, 1995. Of this
amount, approximately $1,003,000 was available for general corporate purposes
and the balance was held for third parties, including $396,000 in gas and oil
sales proceeds held for eventual distribution to outside working interest and
royalty owners, $321,000 representing the outside interest owners' estimated
share of cash prepaid by CNG Transmission Corporation ("CNG") for future gas
deliveries, and $215,000 withheld from outside working interest owners'
distributions to be utilized for future ad valorem tax payments (Note 3). The
Company's cash balance at June 30, 1995 includes $1,569,000 invested in
commercial paper, U.S. Government and Agency Securities and Bankers' Acceptances
having a current average annualized return of 5.6 percent.
3. Plugging and Ad Valorem Tax Funds
The Company retains a portion of outside investors' monthly gas and oil
production proceeds to be utilized for anticipated future well plugging and
abandonment costs and ad valorem tax payments. The funds, totalling $681,000 at
June 30, 1995, are invested in securities issued or guaranteed by the United
States Treasury at BANK ONE, Texas, N.A. ("BANK ONE") in accounts segregated
from those of the Company, of which $466,000 is included in other assets.
Interest earned on the funds accrues to the benefit of the working interest
owners. Corresponding amounts recorded in assets are included in liabilities.
4. Income Taxes
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year.
5. Common Stock Held In Treasury
The Company contributed 10,370 shares of its common stock held in treasury
to the Company's 401(k) Plan on both February 28, 1995 and January 19, 1994.
6. Well Swap
On March 31, 1994, the Company exchanged its interests in 141 gross wells
for outside investors' interests in 237 gross wells. The exchange was effective
March 1, 1994. The exchange has been treated as a like-kind exchange and no
gain or loss has been recognized on this transaction.
7. Section 29 Tax Credits
Effective August 11, 1994, the Company, through a series of transactions,
formed a partnership with a major East Coast financial institution (the
"Institution"). The partnership is structured such that the Institution will be
allocated IRC Section 29 tax credits as a result of production from properties
contributed by the Company to the partnership. The institution initially paid
$1.0 million (reduced by $100,000 for certain expenses incurred by the
Institution), and will pay additional amounts, up to $4.0 million, in
installments prior to December 31, 2002, upon achieving certain production
minimums and satisfying other conditions. The amounts received are being
recognized as other operating income based on production from these properties.
In the first six months of 1995, $322,000 of such income was recognized.
8. Common Stock Designation
On May 12, 1995, the Company's stockholders approved the amendment of the
Company's Certificate of Incorporation to increase the authorized capital of the
Company from 8,500,000 shares to 16,000,000 shares, of which the authorized
Common Stock of the Company was increased from 7,500,000 shares to 15,000,000
shares. The Capital Stock amendment did not change the authorized Preferred
Stock of the Company.
Management's discussion and analysis of changes in the Company's financial
condition, including results of operations and liquidity and capital resources
during the three and six-month periods ended June 30, 1995 and 1994,
respectively, are presented below.
Results of Operations
The Company recorded a net loss of $177,000 for the six months ended
June 30, 1995, compared to net income of $783,000 for the same period of 1994.
A loss from operations for the first six months of 1995 totalled $414,000
compared to income from operations of $1,123,000 for the first six months of
1994.
Total revenues of $6,990,000 in the first six months of 1995 were $412,000
or 6 percent higher than total revenues of $6,578,000 in the first six months of
1994.
Gas and oil sales totalled $6,059,000 in the first six months of 1995 and
represented a $401,000 increase over the same period last year. Higher gas
sales volumes, higher oil sales volumes and higher oil prices contributed
$1,940,000, $224,000 and $104,000, respectively, to the increase and were
substantially offset by lower average gas prices of $1,867,000 as compared
to the first six months of 1994. Gas and oil sales volumes totalled
2,875,445 equivalent thousand cubic feet ("EMCF"), a 38 percent increase
over the 2,075,481 EMCF sold during the six month period ended June 30,
1994. The Company received on average $2.05 per MCF and $16.28 per barrel
("BBL") for the six month period ended June 30, 1995, compared to $2.76 per
MCF and $13.83 per BBL in the same period last year.
Well tending income decreased $288,000 due principally to the reduction in
the number of wells the Company operates for outside investors because of a
well swap effective March 1, 1994 (Note 6).
Other operating revenue increased $299,000 due primarily to the recognition
of income relative to the transaction in which the Company formed a
partnership with an East Coast financial institution with respect to IRC
Section 29 tax credits (Note 7).
Total expenses in the first six months of 1995 were $7,404,000, an increase
of $1,949,000 or 36 percent from expenses in the first six months of 1994 of
$5,455,000.
Operating expenses were higher by $568,000 or 22 percent due primarily to
higher gas and oil lifting expenses of $256,000, higher employee-related
expenses of $169,000 relative to additional employees and higher medical
expenses, and $132,000 in nonrecurring expenses primarily for the Company's
unsuccessful effort to purchase the oil and gas minerals underlying the
Coopers Rock State Forest in Monongalia County, West Virginia.
General and administrative expenses for the first six months of 1995 were
higher by $225,000 or 17 percent as compared to last year due principally
to higher employee-related expenses of $166,000 as a result of higher
medical expenses, an employee settlement, an employee bonus and additional
employees as compared to last year, and higher property taxes of $71,000.
Depreciation, depletion and amortization expense was higher by $544,000 in
the first six months of 1995 due to, among other things, higher depletion
expenses related to the increased drilling activity and acquisitions in
1994.
Interest expense for the first six months of 1995 was $631,000, an increase
of $612,000 over the same period last year due primarily to higher debt
balances.
Non-operating income in the first six months of 1995 totalled $114,000 as
compared to $97,000 in the same period last year.
The Company recorded an income tax benefit of $123,000 for the six month
period ended June 30, 1995, as compared to an income tax provision of $437,000
last year.
The Company reported a net loss of $75,000 for the three months ended June
30, 1995, compared to net income of $321,000 for the three months ended June 30,
1994. Loss from operations totalled $221,000 for the second quarter of 1995,
compared to income from operations of $444,000 for the same period last year.
Second quarter 1995 revenues of $3,530,000 were higher by $322,000 or
10 percent compared to total revenues of $3,208,000 for the same period last
year.
Gas and oil sales increased by $198,000 to $3,048,000 over second quarter
1994 gas and oil sales of $2,850,000 due primarily to higher gas and oil
volumes of $917,000 and $70,000, respectively, and higher oil prices of
$39,000. Lower gas prices adversely affected revenues by $828,000. Gas
and oil sales volumes totalled 1,483,025 EMCF and 1,101,934 EMCF for the
second quarters of 1995 and 1994, respectively. The Company received an
average $1.99 per MCF and $16.50 per BBL for the second quarter of 1995
compared to $2.60 per MCF and $14.68 per BBL last year.
Well tending income of $287,000 for the three months ended June 30, 1995,
was lower by $30,000.
Other revenue increased $154,000 due principally to recognition of income
from IRC Section 29 credits.
Expenses in the three months ended June 30, 1995 totalled $3,751,000 and
were $987,000 or 36 percent higher than the three months ended June 30, 1994,
when expenses totalled $2,764,000.
Operating expenses of $1,609,000 for the quarter were $300,000 higher than
the second quarter last year due principally to higher employee-related
expenses, including medical expenses, gas and oil operating expenses and
abandonment expenses associated with the above mentioned Coopers Rock
transaction.
General and administrative expenses were $98,000 higher than the same
period last year due to, among other things, higher employee-related
expenses including higher medical expenses.
Depreciation, depletion and amortization expense was higher by $258,000 for
the same reason stated in the six-months results. Interest expense was
higher by $331,000 due to higher debt balances and the absence of the
capitalization of interest expense related to drilling projects.
Non-operating income in the second quarter of 1995 totalled $50,000 or a
decrease of $13,000 from the second quarter of 1994 due to, among other things,
lower gains on asset sales.
The Company recorded an income tax benefit of $96,000 in the second quarter
of 1995 as compared to an income tax provision of $186,000 for the second
quarter of 1994.
Liquidity and Capital Resources
Working Capital. At June 30, 1995, the Company had working capital of
$1,320,000, as compared to $835,000 at December 31, 1994. The $485,000 increase
in working capital is due to predominately a reduction in accounts payable due
to lower drilling levels. Because the Bank One credit facility agreement, as
amended, calls for the payment of interest only until July 1, 1998, current
liabilities on the Company's June 30, 1995, balance sheet do not include any
principal payments relative to the Bank One credit facility.
Cash and cash equivalents totalled $1,935,000 at June 30, 1995. Of this
amount, approximately $1,003,000 was available for general corporate purposes
and the balance was held for third parties. Operating activities provided a net
$646,000 while investing activities used a net $2,127,000 including $2,356,000
in capital expenditures. Financing activities provided a net $784,000.
Revolving Credit Facility. The Company has in place a $25.0 million
revolving credit facility with Bank One. Currently $10.9 million is available
for borrowing by the Company. Interest accrues and is paid monthly at a rate of
Bank One's prime rate plus three-quarters of one percent.
The Company is currently negotiating an Amended and Restated Credit
Agreement with Bank One which will provide, among other things, for an increased
facility amount and a reduction in the interest rate.
Capital Expenditures and Commitments. In the first six months of 1995, the
Company's capital expenditures totalled $2,356,000 including approximately
$1,990,000 spent on gas and oil investment activities.
Most of the Company's capital spending is discretionary and the ultimate
level of spending will be dependent, among other things, on the Company's
assessment of the gas and oil business environment, the number of gas and oil
prospects available to the Company, and gas and oil business opportunities in
general. The level of the Company's 1995 capital expenditures will to a great
extent depend upon the gas prices received by the Company. Based on current gas
futures prices, which indicate the Company will receive lower gas prices, as
compared to the average prices received in the past 15 years, the Company's
current capital budget limits annual drilling activities to an estimated five to
ten wells in order to maintain leasehold positions, fulfill contractual
commitments, defend competitive drainage positions and explore oil prospects.
Over the past five years, the Company has averaged drilling 17 wells per year.
The Company will continue with its enhancement program on existing wells,
particularly the wells acquired in 1994 in Kentucky and where the Company has
established a significant acreage position. The Company's objective will be to
maintain current production and gas and oil reserve levels through well
enhancements and limited drilling activity. The Company plans to continue with
its aggressive acreage acquisition strategy and will position itself to increase
both exploratory and development drilling when gas prices recover. The Company
remains committed to the acquisition of producing properties at favorable
prices.
Settlement of Columbia Litigation Claims. On June 8, 1992, the Company
settled its outstanding gas purchase contract claims against Columbia. Pursuant
to the settlement agreement, the Company, on behalf of itself and other interest
owners in the wells covered by the settlement, has an allowed claim in the
amount of $11,000,000 against Columbia, without security or priority, in
Columbia's bankruptcy reorganization proceedings. The Company's share of the
allowed claim is estimated to be approximately 55 percent, with the balance
going to the other interest owners in the wells covered by the settlement. The
Company's current financial statements do not include any benefits of the
settlement. The timing and actual amount to be received by the Company and
other interest owners will be affected by the terms of Columbia's reorganization
plan and the amount of assets available to satisfy Columbia's unsecured
creditors. Columbia is seeking bankruptcy court approval of its second Amended
Plan of Reorganization, as further amended dated July 17, 1995 (the "Plan").
The Plan provides for an initial distribution to the Company of 68.875 percent
of the allowed claim upon confirmation of the Plan, and a potential additional
distribution of up to 3.625 percent of the allowed claim in the future depending
upon various contingencies. The Plan remains subject to bankruptcy court
approval in accordance with the requirements for confirmation of a bankruptcy
plan of reorganization set forth in Chapter 11 of the United States Bankruptcy
Code.
Shut-ins. During mid-July 1995, CNG informed the Company and other local
suppliers that CNG system production would be shut-in for a period of up to two
weeks for system maintenance. Also during this time, Hope Gas, Inc. ("Hope")
notified the Company that all Hope system production would have to be shut-in
for a two-week period in August for system maintenance. Additionally, the Wiser
Oil Company notified the Company of a two-week system maintenance shut-in
affecting the Company's Kentucky production. These shut-ins will adversely,
though not materially, affect third quarter 1995 sales volumes, revenues and
cash flow.
Item 4. Submission of Matters to a Vote of Security Holders
The 1995 Annual Meeting of Stockholders of the Company was held on May 12,
1995, for the purpose of electing two directors each to serve a three year term
expiring at the 1998 Annual Meeting of Stockholders and one director to serve a
one year term expiring at the 1996 Annual Meeting. Robert S. Maust and Thomas
M. Levine were each reelected to three year terms and James B. Gehr was
reelected to a one year term. The term of office as director for each of
Stephen L. Barr, Richard R. Hoffman, John L. Schwager and James H. Weber
continued after the meeting.
Messrs. Maust, Levine and Gehr received the following votes:
Votes
Against/
Votes For Withheld Abstentions
--------- -------- -----------
Robert S. Maust 3,832,270 489,624 0
Thomas M. Levine 3,827,560 494,334 0
James B. Gehr 3,830,766 491,128 0
The stockholders also approved a proposal to increase the authorized
capital of the Company from 8,500,000 to 16,000,000 shares, of which authorized
Common Stock was increased from 7,500,000 to 15,000,000 shares, par value $.10
per share. There were 3,845,270 shares voted in favor of the Proposal, 438,715
against and 37,909 abstaining.
Additionally, there were 4,001,666 shares voted in favor of the proposal to
increase the number of shares available for issuance under the Alamco, Inc. 1992
Employees Stock Option Plan from 100,000 to 250,000, with 285,670 shares voting
against and 34,558 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Filing
---------- ----------- ------
3.1 Articles of Incorporation of Alamco, Inc., Filed herewith
as amended.
4.1 Certificate of Amendment of Certificate of Filed herewith
Incorporation of Alamco, Inc., as filed
with the Delaware Secretary of State on
May 12, 1995.
4.2 Certificate of Designation of Common Stock Filed herewith
of Alamco, Inc., as filed with the Delaware
Secretary of State on May 12, 1995.
10.1 Alamco, Inc. Directors' Deferred Income Filed herewith
Plan.
10.2 Form of Deferral Agreement between Filed herewith
Alamco, Inc. and its Directors.
27 Financial Data Schedule. Filed herewith
(b) No current reports on Form 8-K were filed during the quarter ended June 30,
1995.
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 under-
signed thereunto duly authorized.
August 11, 1995 /s/ John L. Schwager
-------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer