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 March 31, 1996
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
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The number of shares outstanding of each of the registrant's classes of
common stock as of May 1, 1996, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,717,774
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statements of Income . . . . . . . . . 3
for the three months ended March 31, 1996 and 1995
Condensed Consolidated Balance Sheets as of . . . . . . . . . 4-5
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash Flows . . . . . . . 6
for the three months ended March 31, 1996 and 1995
Condensed Consolidated Statements of Stockholders' . . . . . . 7
Equity for the three months ended March 31, 1996 and 1995
Notes to the Condensed Consolidated Financial . . . . . . . . 8
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . . 9-10
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 11
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Three Months Ended
March 31,
-----------------
1996 1995
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Revenues:
Gas and oil sales $ 6,187 $ 3,011
Well tending income 179 249
Other 258 200
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Total revenues 6,624 3,460
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Expenses:
Operating 2,073 1,561
General and administrative 711 777
Depreciation, depletion and
amortization 1,078 1,016
Interest 341 299
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Total expenses 4,203 3,653
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Income (loss) from operations 2,421 (193)
Other nonoperating income, net 83 64
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Income (loss) before income taxes 2,504 (129)
Income tax provision (benefit) 828 (27)
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Net income (loss) $1,676 ($ 102)
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Net income (loss) per share (Note 6) $0.34 ($0.02)
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Weighted average number of common and
common equivalent shares outstanding 4,865,865 4,653,382
========= ==========
March 31, December 31,
1996 1995
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,243 $ 3,297
Accounts receivable 5,468 3,116
Due from partnerships and programs 57 72
Inventories and other current assets 288 368
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Total current assets 9,056 6,853
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Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 79,530 78,076
Other property and equipment 6,755 5,740
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86,285 83,816
Less accumulated depreciation,
depletion and amortization 33,153 32,201
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53,132 51,615
Other assets 1,217 1,294
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Total assets $63,405 $59,762
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(Continued)
March 31, December 31,
1996 1995
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(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 35 $ 33
Accounts payable 847 1,026
Accrued expenses 1,313 1,545
Due working interest and royalty owners
1,911 3,309
Deferred revenue 7 113
Income tax payable 51 --
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Total current liabilities 4,164 6,026
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Long-term debt and capital lease obligations 16,857 13,674
Due working interest and royalty owners 273 325
Deferred revenue 27 29
Deferred taxes 9,572 8,936
Other long-term liabilities 378 429
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Total liabilities 31,271 29,419
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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 shares authorized; 4,768,898
and 4,762,898 shares issued and
outstanding, respectively including
treasury stock 477 476
Additional paid-in capital
31,338 31,243
Retained earnings (deficit) 524 (1,152)
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32,339 30,567
Less: Treasury stock, at cost, 51,124
and 62,405 shares of common
stock, respectively 205 224
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Total stockholders' equity 32,134 30,343
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Total liabilities and stockholders' equity $ 63,405 $ 59,762
======= =======
Three Months Ended
March 31,
-----------------
1996 1995
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Cash flows from operating activities:
Net income (loss) $ 1,676 ($ 102)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,078 1,016
Deferred taxes 636 57
Gains on asset sales (26) (22)
Issuance of stock for employee benefits and
compensation expense 111 70
Other factors, net 1 2
Increase (decrease) in cash from changes in:
Accounts receivable (2,352) 330
Due from partnerships and programs 15 13
Due working interest and royalty owners (1,398) 69
Inventories and other current assets 80 33
Accounts payable & accrued expenses (411) (958)
Deferred revenue (106) 93
Income tax payable 51 --
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Net cash (used in) provided by
operating activities (645) 601
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Cash flows from investing activities:
Proceeds from disposal of fixed assets 36 233
Capital expenditures (2,566) (1,350)
Investment in limited partnership (21) --
Other assets 59 (9)
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Net cash used in investing activities (2,492) (1,126)
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Cash flows from financing activities:
Borrowings under line of credit 3,200 750
Payments on line of credit -- (500)
Principal payments on long-term debt and
capital lease obligations (16) (47)
Acquisition of treasury stock (15) (5)
Proceeds from exercise of stock options 19 11
Other liabilities (105) (635)
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Net cash provided by (used in)
financing activities 3,083 (426)
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Net decrease in cash and cash equivalents (54) (951)
Cash and cash equivalents - beginning of period 3,297 2,632
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Cash and cash equivalents - end of period $ 3,243 $ 1,681
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 341 $ 303
Common Stock Additional Retained
Treasury Stock
------------- Paid-in Earnings
--------------
Shares Dollars Capital (Deficit) Shares Dollars
------ ------- -------- -------- ------ -------
Balance
December 31, 1994 4,712,713 $471 $31,039 ($2,847) 63,360 $188
Issuance of treasury
stock -- -- 36 -- (10,370) (34)
Acquisition of
treasury stock -- -- -- -- 795 5
Exercise of stock
options 3,733 1 10 -- -- --
Net loss -- -- -- (102) -- --
--------- ----- ------- -------- -------- -----
Balance
March 31, 1995 4,716,446 $472 $31,085 ($2,949) 53,785 $159
========= ===== ======= ======== ======== =====
Balance
December 31, 1995 4,762,898 $476 $31,243 ($1,152) 62,405 $224
Issuance of treasury
stock -- -- 77 -- (12,929) (34)
Acquisition of
treasury stock -- -- -- -- 1,648 15
Exercise of stock
options 6,000 1 18 -- -- --
Net income -- -- -- 1,676 -- --
--------- ----- ------- -------- -------- -----
Balance
March 31, 1996 4,768,898 $477 $31,338 $ 524 51,124 $205
========= ===== ======= ======== ========= =====
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 ("1995 10-K"), 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 three month period ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
The disclosure provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" will be adopted by the
Company in its 1996 annual financial statements.
2. Cash and Cash Equivalents
Cash and cash equivalents totalled $3,243,000 at March 31, 1996. Of this
amount, approximately $2,694,000 was available for general corporate purposes
and the balance was held for third parties, including $392,000 in gas and oil
sales proceeds held for eventual distribution to outside working interest and
royalty owners, $40,000 in drilling advances from other owners and $117,000
withheld from outside working interest owners' distributions to be utilized
for future ad valorem tax payments (Note 3). The Company's cash balance at
March 31, 1996 includes $2,980,000 invested in commercial paper, U.S.
Government and Agency Securities with an annualized 4.97 percent return.
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 $389,000
at March 31, 1996, 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 $272,000 is included in other
assets. Interest earned on the funds accrues to the benefit of the working
interest owners. Amounts corresponding to these assets are recorded 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. The effective tax rate for first quarter 1996 is
higher than for first quarter 1995 due to decreased effect of percentage
depletion deductions.
5. Common Stock Held In Treasury
The Company contributed 8,750 and 10,370 shares of its common stock held
in treasury to the Company's 401(k) Plan on January 16, 1996 and February 28,
1995.
6. Earnings Per Share
Primary earnings per share is based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares are
included in the calculation beginning in 1996. They were not significant in
previous years. Primary and fully diluted earnings per share are the same.
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-month periods ended March 31, 1996 and 1995, respectively, are
presented below.
Results of Operations
The Company recorded net income of $1,676,000 for the three months ended
March 31, 1996, compared to a net loss of $102,000 for the same period in 1995.
Income from operations for the first quarter of 1996 totalled $2,421,000
compared to a loss from operations of $193,000 for the first quarter of 1995.
Total revenues of $6,624,000 in the first three months of 1996 were
$3,164,000 or 91 percent higher than total revenues of $3,460,000 in the first
three months of 1995.
Gas and oil sales totalled $6,187,000 in the first quarter of 1996 and
represented a $3,176,000 increase over the same period last year. Higher
gas prices, higher gas sales volumes and higher oil sales volumes and
prices contributed $2,517,000, $582,000 and $77,000, respectively, to the
increase as compared to the first quarter of 1995. Gas and oil sales
volumes totalled 1,685,700 equivalent thousand cubic feet ("EMCF"), a 21
percent increase over the 1,392,400 EMCF sold during the three month
period ending March 31, 1995. The Company received an average of $3.74
per MCF for gas and $17.31 per barrel ("BBL") for oil for the three month
period ending March 31, 1996, compared to $2.11 per MCF and $16.05 per BBL
in the same period last year.
Well tending income decreased $70,000 due principally to the reduction in
the number of wells the Company operates for outside investors.
Other operating revenue increased $58,000 due primarily to increased
marketing revenue as a result of higher gas and oil sales.
Total expenses in the first quarter of 1996 were $4,203,000, an increase
of $550,000 or 15 percent compared to expenses in the first three months
of 1995 of $3,653,000.
Operating expenses were higher by $512,000 or 33 percent due primarily to
the Company's higher well ownership percentage. First quarter 1996
included higher operating expenses of $48,000 due to snow removal, higher
gas and oil production taxes of $186,000 and higher employee-related
expenses of $169,000.
General and administrative expenses for the first quarter of 1996 were
lower by $66,000 or 8 percent as compared to last year mainly because of
lower employee-related expenses.
Depreciation, depletion and amortization expense was higher by $62,000 in
the first quarter of 1996 due to higher production and property and
equipment levels, partially offset by higher oil and gas reserve levels.
Interest expense for the first three months of 1996 was $341,000, an
increase of $42,000 over the same period last year due primarily to higher
debt balances.
Non-operating income in the first quarter of 1996 totalled $83,000 as
compared to $64,000 in the same period last year due to higher interest income.
The Company recorded an income tax provision of $828,000 in the first
quarter of 1996 as compared to an income tax benefit of $27,000 for the first
quarter of 1995.
Liquidity and Capital Resources
Working Capital. At March 31, 1996, the Company had working capital of
$4,892,000, as compared to $827,000 at December 31, 1995. The $4,065,000
increase in working capital is primarily due to higher accounts receivables
resulting from the higher price received by the Company for gas sales in the
first quarter of 1996 as compared to that received in the fourth quarter of
1995. Because the Bank One credit facility agreement requires the payment of
interest only until July 1, 1998, current liabilities on the Company's March
31, 1996 balance sheet do not include any principal payments for this credit
facility.
Cash and cash equivalents totalled $3,243,000 at March 31, 1996. Of this
amount, approximately $2,694,000 was available for general corporate purposes
and the balance was held for third parties. Operating activities used a net
$645,000 which was negatively impacted by $1.9 million due to the payout of
proceeds to outside owners from the Columbia settlement. Investing activities
used a net $2,492,000 including $2,566,000 in capital expenditures, and
financing activities provided a net $3,083,000.
Revolving Credit Facility. The Company has in place a $30.0 million
revolving credit facility with Bank One. Currently $13.2 million is available
for borrowing by the Company. Interest accrues and is paid monthly at a rate
of Bank One's prime rate plus one-fourth of one percent.
Capital Expenditures and Commitments. In the first quarter of 1996, the
Company's capital expenditures totalled $2,566,000, including approximately
$1,454,000 spent on gas and oil exploration, development and acquisition
activities. The Company's executive offices, approximately 20,000 square feet,
were purchased on January 5, and February 7, 1996 for $568,000 using funds
borrowed from the Bank One credit facility. The remaining capital expenditures
were spent on other property and equipment.
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, and gas and oil business opportunities in general. The level of the
Company's 1996 capital expenditures will to a great extent depend upon the gas
prices received by the Company. As of May 6, 1996, the Company has drilled 9
wells this year, 7 of which have been successful, 1 dry hole and 1 well is
still being evaluated. Based on current gas futures prices, Alamco currently
plans to drill up to 30 wells in 1996. Alamco will continue with its
enhancement program on existing wells. The Company plans to continue with its
acreage acquisition strategy and will position itself to increase both
exploratory and development drilling. The Company remains committed to the
acquisition of producing properties at favorable prices.
On April 18, 1996, the Company agreed with the United States Environmental
Protection Agency ("EPA") to settle its outstanding administrative complaint
issued by the EPA for an amount significantly less than the initial proposed
penalty of nearly $124,000. The EPA issued the complaint on May 23, 1994 for
alleged violations of the Clean Water Act resulting from an oil discharge at
Alamco's Days Chapel Field in Claiborne County, Tennessee. The incident
occurred in December 1993 when vandals severed locks securing the valves on
the Alamco storage tanks and discharged approximately 174 barrels of oil into
a local creek. The Company expects that the consent decree finalizing this
matter will be completed and signed before year-end.
Other. Some of the statements contained in this Form 10-Q may be
"forward-looking" statements. Refer to the Company's 1995 10-K for a
discussion of factors that may affect forward-looking statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Filing
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10.1 Master Gas Purchase Contract Filed herewith
between the Company and
Hope Gas, Inc. dated
April 4, 1996
27 Financial Data Schedule Filed herewith
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1996.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 9, 1996 /s/ John L. Schwager
-----------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer