<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
=============================================================================
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
MARCH 31, 1998 0-23431
MILLER EXPLORATION COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 38-3379776
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3104 LOGAN VALLEY ROAD
TRAVERSE CITY, MICHIGAN 49685-0348
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (616) 941-0004
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS MAY 15, 1998
Common stock, $.01 par value 12,492,597 shares
=============================================================================
<PAGE>
MILLER EXPLORATION COMPANY
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations--
Three Months Ended March 31, 1998 and 1997 . . . . . . . . . . . . 3
Consolidated Balance Sheets--
March 31, 1998 and December 31, 1997. . . . . . . . . . . . . . . . 4
Consolidated Statement of Equity--
Three Months Ended March 31, 1998 . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1998 and 1997. . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 7
Pro Forma Statements of Operations--
Three Months Ended March 31, 1998 and 1997 . . . . . . . . . . . . 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 19
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MILLER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------
1998 1997
---------- -----------
(NOTE 1)
<S> <C> <C>
REVENUES:
Natural gas . . . . . . . . . . . . . . . . . . . . . $ 3,589 $ 1,822
Crude oil and condensate. . . . . . . . . . . . . . . 453 283
Other operating revenues. . . . . . . . . . . . . . . 194 203
---------- ------------
Total operating revenues. . . . . . . . . . . . . 4,236 2,308
---------- ------------
OPERATING EXPENSES:
Lease operating expenses and production taxes . . . . 647 350
Depreciation, depletion and amortization . . . . . . 2,501 670
General and administrative . . . . . . . . . . . . . 1,049 385
---------- ------------
Total operating expenses. . . . . . . . . . . . . 4,197 1,405
---------- ------------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . 39 903
---------- ------------
INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . (236) (182)
---------- ------------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . (197) 721
---------- ------------
INCOME TAX PROVISION (Note 2) . . . . . . . . . . . . . . 5,384
----------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . $ (5,581) $ 721
========== ============
EARNINGS (LOSS) PER SHARE (Note 4). . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . $ (0.79)
==========
Diluted . . . . . . . . . . . . . . . . . . . . . . . $ (0.78)
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE>
MILLER EXPLORATION COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
1998 1997
-------------- -----------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 2,471 $ 146
Accounts receivable . . . . . . . . . . . . . . . . . . . . . 4,063 2,109
Inventories, prepaids and advances to operators . . . . . . . 716 994
Other current assets. . . . . . . . . . . . . . . . . . . . . -- 2,936
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . 7,250 6,185
---------- ----------
OIL AND GAS PROPERTIES--at cost (full cost method):
Proved oil and gas properties . . . . . . . . . . . . . . . . 72,885 29,324
Unproved oil and gas properties . . . . . . . . . . . . . . . 34,599 7,069
Less-Accumulated depreciation, depletion and amortization . . (14,903) (12,425)
---------- ----------
Net oil and gas properties . . . . . . . . . . . . . . . 92,581 23,968
---------- ----------
PROPERTY AND EQUIPMENT--NET. . . . . . . . . . . . . . . . . . . . 396 275
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . . . . . . $ 100,227 $ 30,428
========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt . . . . . $ 18,000 $ 7,697
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 8,431 3,870
Other accrued expenses. . . . . . . . . . . . . . . . . . . . 747 603
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . 27,178 12,170
---------- ----------
NOTES PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 481
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 7,927 --
DEFERRED REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . 1,651 1,664
-4-
<PAGE>
COMMITMENTS AND CONTINGENCIES (NOTE 7)
EQUITY:
Preferred stock, $0.01 par value; 2,000,000 shares authorized;
none outstanding . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized; 12,602,097 shares outstanding. . . . . . . . . 126 --
Additional paid in capital . . . . . . . . . . . . . . . . . . 67,138 --
Deferred compensation. . . . . . . . . . . . . . . . . . . . . (876) --
Combined equity. . . . . . . . . . . . . . . . . . . . . . . . -- 8,588
Retained earnings (deficit). . . . . . . . . . . . . . . . . . (5,417) 7,525
---------- ----------
Total equity . . . . . . . . . . . . . . . . . . . . . . . 60,971 16,113
---------- ----------
Total liabilities and equity . . . . . . . . . . . . . . . $ 100,227 $ 30,428
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
MILLER EXPLORATION COMPANY
CONSOLIDATED STATEMENT OF EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID IN DEFERRED COMBINED RETAINED
STOCK STOCK CAPITAL COMPENSATION EQUITY EARNINGS
--------- ------ ---------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--December 31, 1997 -- -- -- -- $ 8,588 $ 7,525
Net loss and capital prior to
S Corporation termination -- -- -- -- 173 (164)
S Corporation termination -- -- $ 16,122 -- (8,761) (7,361)
Common stock issuance -- $ 56 39,983 -- -- --
Combination transaction -- 69 10,158 -- -- --
Restricted stock issuance -- 1 875 $ (876) -- --
Net loss after S Corporation
termination -- -- -- -- -- (5,417)
------- -------- --------- ---------- ---------- ---------
BALANCE--March 31, 1998 -- $ 126 $ 67,138 $ (876) $ -- $ (5,417)
======= ======== ========= ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
MILLER EXPLORATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
----------- -----------
(NOTE 1)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,581) $ 721
Adjustments to reconcile net income (loss) to net cash from
operating activities . . . . . . . . . . . . . . . . . . . . . . .
Depreciation, depletion and amortization. . . . . . . . . . . . 2,501 670
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . (13) (15)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . (8) --
Changes in assets and liabilities . . . . . . . . . . . . . . .
Accounts receivable. . . . . . . . . . . . . . . . . . . . . (1,954) 380
Other current assets . . . . . . . . . . . . . . . . . . . . 3,214 347
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 4,561 (344)
Other accrued expenses . . . . . . . . . . . . . . . . . . . 144 (228)
---------- ----------
Net cash flows provided by operating activities . . . . . 2,864 1,531
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures. . . . . . . . . . . . . . . (7,701) (2,430)
Acquisition of properties . . . . . . . . . . . . . . . . . . . . . . (51,271) --
Proceeds from sale of oil and gas properties and purchases of
equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . 507 85
---------- ----------
Net cash flows used in investing activities. . . . . . . . . (58,465) (2,345)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal . . . . . . . . . . . . . . . . . . . . . . . . (8,178) (402)
Net borrowing on notes payable. . . . . . . . . . . . . . . . . . . . 20,500 1,390
Contributions, return of capital and stock proceeds, net. . . . . . . 45,604 (264)
Payments of dividends . . . . . . . . . . . . . . . . . . . . . . . . -- (200)
---------- ----------
Net cash flows provided by financing activities. . . . . . . 57,926 524
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,325 (290)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD. . . . . . . . . . . 146 410
---------- ----------
-7-
<PAGE>
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD . . . . . . . . . . . . . $ 2,471 $ 120
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--Interest . . . . . . . . . . . . . $ 203 $ 305
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-8-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) ORGANIZATION AND NATURE OF OPERATIONS
The consolidated financial statements of Miller Exploration Company
("Miller" or the "Company") and subsidiaries included herein have been
prepared by management without audit pursuant to the rules and regulations
of the Securities and Exchange Commission (the "SEC"). Accordingly, they
reflect all adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial results for the interim periods.
Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. However,
management believes that the disclosures are adequate to make the
information presented not misleading. These consolidated financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Certain reclassifications have been made to prior period financial
statements to conform with the current presentation.
INITIAL PUBLIC OFFERING
On February 9, 1998, the Company completed the initial public offer-
ing (the "Offering") of its Common Stock and concurrently completed the
Combination Transaction (as defined below). On that date, the Company sold
5,500,000 shares of its Common Stock for an aggregate purchase price of
$44.0 million. On March 9, 1998, the Company sold an additional 62,500
shares of its Common Stock for an aggregate purchase price of $0.5 million,
pursuant to the exercise of the underwriters' over-allotment option.
The consolidated financial statements as of and for the periods ended
March 31, 1998 include the accounts of the Company and its subsidiaries after
taking into effect the Offering and the Combination Transaction. The financial
statements as of or for the periods ending in 1997 include the accounts of the
Company and its affiliated entities (as defined below) before the Offering and
the Combination Transaction as previously included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
-9-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of the Company and its subsidiaries after elimination of all
intercompany accounts and transactions.
THE COMBINATION TRANSACTION
The Company was formed as a Delaware corporation in November 1997 to
serve as the surviving company upon the completion of a series of
combination transactions (the "Combination Transaction"). The first part
of the Combination Transaction included the following activities: Miller
acquired all of the outstanding capital stock of Miller Oil Corporation
("MOC"), the Company's predecessor, and certain oil and gas interests
(collectively, the "Combined Assets") owned by Miller & Miller, Inc.,
Double Diamond Enterprises, Inc., Frontier Investments, Inc., Oak Shores
Investments, Inc., Eagle Investments, Inc. (d/b/a Victory, Inc.) and Eagle
International, Inc. (the "affiliated entities," all Michigan corporations
owned by the Miller family members who are beneficial owners of MOC) in
exchange for an aggregate consideration of approximately 5.3 million shares
of Common Stock of Miller. The operations of all of these entities had
been managed through the same management team, and had been owned by the
same members of the Miller family. Miller completed the Combination
Transaction concurrently with consummation of the Offering.
PRINCIPLES OF COMBINATION
The accompanying financial statements as of and for the periods ending
in 1997 include the accounts of Miller, MOC and the other affiliated
entities described above, all of which share common ownership and
management. The Combination Transaction was accounted for as a
reorganization of entities under common control in a manner similar to a
pooling-of-interests, as prescribed by SEC Staff Accounting Bulletin No. 47
because of the high degree of common ownership among, and the common
control of, the combined entities. Accordingly, the accompanying accounts
as of and for the periods ending in 1997 have been prepared using the
historical costs and results of operations of the affiliated entities.
There were no differences in accounting methods or their application among
the combining entities. All intercompany balances have been eliminated.
OTHER TRANSACTIONS COMPLETED CONCURRENTLY WITH THE OFFERING
In addition to the above combined activities of the Company, the
second part of the Combination Transaction that was consummated
-10-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
concurrently with the Offering was the exchange by the Company of an
aggregate of approximately 1.6 million shares of Common Stock for interests
in certain other oil and gas properties that were owned by non-affiliated
parties. Because these interests were acquired from individuals who were
not under the common ownership and management of the Company, these
exchanges were accounted for under the purchase method of accounting. Under
that method, the properties were recorded at their estimated fair value at
the date on which the exchange was consummated (February 9, 1998). The
financial statements as of and for the periods ending in 1997 do not
include the activities of these non-affiliated interests.
In November 1997, the Company entered into a Purchase and Sale
Agreement (the "Agreement"), whereby the Company acquired interests in
certain crude oil and natural gas producing properties and undeveloped
properties from Amerada Hess Corporation ("AHC") for approximately $50.5
million, subject to adjustment. This purchase was consummated concurrently
with the Offering. This acquisition was accounted for under the purchase
method of accounting and was financed with the use of proceeds from the
Offering and with new bank borrowings. The financial statements as of and
for the periods ending in 1997 do not include the activities of these AHC
interests.
In February 1998, MOC terminated its S corporation status which
required the Company to reclassify combined equity and retained earnings as
additional paid-in capital.
NATURE OF OPERATIONS
The Company is a domestic, independent energy company engaged in the
exploration, development and production of crude oil and natural gas. The
Company has established exploration efforts concentrated primarily in three
provinces: the Mississippi Salt Basin of central Mississippi; the onshore
Gulf Coast region of Texas and Louisiana; and the Michigan Basin.
(2) INCOME TAXES
Before consummation of the Offering, the Company and the combined
entities either elected to be treated as S corporations under the Internal
Revenue Code or were otherwise not taxed as entities for federal income tax
purposes. The taxable income or loss has therefore been allocated to the
equity owners of the Company and the affiliated entities. Accordingly, no
provision was made for income taxes in the accompanying financial
statements as of and for the periods ending in 1997.
-11-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Due to the use of different methods for tax and financial reporting
purposes in accounting for various transactions, the Company has temporary
differences between its tax basis and financial reporting basis. Had the
Company been a taxpaying entity before consummation of the Offering, a
deferred tax liability of approximately $5.4 million at December 31, 1997,
would have been recorded for this difference, with a corresponding
reduction in retained earnings.
Included in the deferred income tax provision for the three months
ended March 31, 1998, is a one-time non-cash accounting charge of $5.4
million to record net deferred tax liabilities, for the differences between
tax basis and financial reporting basis, upon consummation of the Offering
and the termination of MOC's S corporation status. The effective income
tax rate for the Company for the three months ended March 31, 1998, was
different than the statutory federal income tax rate for the following
reasons (in thousands):
<TABLE>
<CAPTION>
<S><C> <C>
Income tax provision (benefit) at the federal statutory rate. . . . . . . . $ (67)
Deferred tax liabilities recorded upon the Offering . . . . . . . . . . . . 5,392
All other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
----------
Income tax provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,384
==========
</TABLE>
The principal components of the Company's net deferred tax liabilities
at March 31, 1998, are (in thousands):
<TABLE>
<CAPTION>
<S><C> <C>
Net deferred tax liabilities:
Intangible drilling costs $ 2,823
Tax depletion and depreciation in excess of financial statement
amounts 2,185
Financial statement carrying value in excess of tax basis of
purchased assets 2,543
Other, net 376
----------
Total net deferred tax liabilities $ 7,927
==========
</TABLE>
-12-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) HEDGING ACTIVITIES
In 1997, the Company began to periodically enter into hedging
arrangements to manage price risks related to crude oil and natural gas
sales and not for speculative purposes. The Company's hedging arrangements
apply only to a portion of its production, provide only partial price
protection against declines in crude oil and natural gas prices and limit
potential gains from future increases in prices. For financial reporting
purposes, gains and losses related to hedging are recognized as income when
the hedged transaction occurs. Historically, gains and losses from hedging
activities have not been material. For the three months ended March 31,
1998, the Company had hedged 6% of its natural gas production. As of
March 31, 1998, the Company had 3.3 Bcf of open natural gas contracts at
prices ranging from $2.29 to $2.58 per Mcf.
(4) EARNINGS PER SHARE
Earnings per share has been omitted from the statement of operations
for the three months ended March 31, 1997, since such information is not
meaningful and the historically combined Company was not a separate legal
entity with a singular capital structure. The computation of earnings per
share for the three months ended March 31, 1998 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
<S><C> <C>
Net loss attributable to
basic and diluted EPS. . . . . . . . . . . . . . . . . . $ (5,581)
Average common shares outstanding
applicable to basic EPS. . . . . . . . . . . . . . . . . 7,079
Add: options treasury shares and restricted stock . . . . . 107
----------
Average common shares outstanding
applicable to diluted EPS. . . . . . . . . . . . . . . . 7,186
Earnings (loss) per share:
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.79)
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . $ (0.78)
</TABLE>
-13-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(5) PRO FORMA DATA
The pro forma unaudited financial data set forth below has been
prepared to give effect to the Combination Transaction and the Offering and
the application of the estimated net proceeds therefrom as if the
Combination Transaction and the Offering occurred on January 1, 1997. The
pro forma unaudited financial data is based on numerous assumptions and is
not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
------------- --------------
(In thousands, except per share data)
<S> <C> <C> <C>
Total operating revenues . . . . . . . $ 5,897 $ 7,809
Operating income . . . . . . . . . . . 901 3,882
Net income before income taxes <Fa>. . 664 3,601
Net income 439 2,535
Earnings per share:
Basic. . . . . . . . . . . . . . . . $ 0.04 $ 0.20
Diluted. . . . . . . . . . . . . . . 0.03 0.20
<FN>
<Fa> Excluding the one-time non-cash accounting charge of $5.4 million for the termination of MOC's S corporation status.
</FN>
</TABLE>
(6) NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1997, the Company had a notes payable balance of
approximately $4.9 million which represented a borrowing against a $5.0
million bank line-of-credit and another $1.0 million line-of-credit. These
notes were paid in full during February 1998 from the proceeds of the
Offering.
In November 1997, the Chairman of the Company loaned to MOC $2.5
million, pursuant to a promissory note, for the purpose of making a down
payment in connection with the AHC acquisition. This note was paid in full
during February 1998 from the proceeds of the Offering.
During 1996, the Company also entered into a $1.0 million term loan
payable to a bank. At December 31, 1997 the balance of the term-loan was
-14-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
approximately $0.7 million. The term loan was paid in full during February
1998 from the proceeds of the Offering.
In connection with the Offering, in February 1998, the Company entered
into a credit facility (the "Credit Facility") with Bank of Montreal,
Houston Agency ("BMO"). The Credit Facility consists of a three-year
revolving line of credit converting to a three-year term loan. The amount
of credit available during the revolving period and the debt allowed during
the term period may not exceed the Company's "borrowing base," or the
amount of debt that BMO and the other lenders under the Credit Facility
agree can be supported by the cash flow generated by the Company's
producing and non-producing proved oil and gas reserves. The initial
borrowing base is $23.0 million and may not exceed $75.0 million. Amounts
advanced under the Credit Facility bear interest, payable quarterly, at
either (i) BMO's announced prime rate or (ii) the London Inter-Bank Offered
Rate plus a margin rate ranging from 0.75% to 1.625%, as selected by the
Company. In addition, the Company is assessed a commitment fee equal to
0.375% of the unused portion of the borrowing base, payable quarterly in
arrears, until the termination of the revolving period. At the termination
of the revolving period, the revolving line of credit will convert to a
three-year term loan with principal payable in 12 equal quarterly
installments. The Credit Facility includes certain negative covenants that
impose limitations on the Company and its subsidiaries with respect to,
among other things, distributions with respect to its capital stock, the
creation or incurrence of liens, the incurrence of additional indebtedness,
making loans and investments, and mergers and consolidations. The
obligations of the Company under the Credit Facility are secured by a lien
on all real and personal property of the Company, including its oil and gas
properties. The Company borrowed $15.0 million under the Credit Facility
to complete the Combination Transaction, and to repay all other outstanding
indebtedness described above. At March 31, 1998, $17.5 million was
outstanding under the Credit Facility.
In connection with the closing of the AHC acquisition, the Company has
a note payable to AHC of $3.0 million (at March 31, 1998) which is payable
as follows: $0.5 million is payable in 1999, $1.0 million is payable in 2000
and $1.5 million is payable in 2001.
(7) COMMITMENTS AND CONTINGENCIES
STOCK OPTIONS AND RESTRICTED STOCK
During 1997, the Company adopted the Stock Option and Restricted Stock
Plan of 1997 (the "1997 Stock Option Plan"). The Board of Directors
contemplates that the 1997 Stock Option Plan primarily will be used to
-15-
<PAGE>
MILLER EXPLORATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
grant stock options. However, the 1997 Stock Option Plan permits grants of
restricted stock and tax benefit rights if determined to be desirable to
advance the purposes of the 1997 Stock Option Plan. These stock options,
restricted stock and tax benefit rights are collectively referred to as
"Incentive Awards." Persons eligible to receive Incentive Awards under the
1997 Stock Option Plan are directors, corporate officers and other full-time
employees of the Company and its subsidiaries. A maximum of 1,200,000
shares of Common Stock (subject to certain antidilution adjustments) are
available for Incentive Awards under the 1997 Stock Option Plan. Upon
consummation of the Offering in February 1998, a total of 577,850 stock
options were granted by the Company to directors, corporate officers and
other full-time employees of the Company. Additionally, upon consummation
of the Offering, 109,500 shares of restricted stock were transferred to
certain employees. At the time of the issuance of the restricted stock,
compensation expense of approximately $0.9 million was deferred. The
restricted stock will begin to vest at cumulative increments of one-half of
the total number of restricted stock of Common Stock subject thereto,
beginning on the first anniversary of the date of grant. Because the shares
of restricted stock are subject to the risk of forfeiture during the
vesting period, compensation expense (equivalent to the Offering price per
share of $8.00) will be recognized ratably over the two-year vesting period
as the risk of forfeiture passes.
Also in February 1998, the Company made a one-time grant of an
aggregate of 272,500 stock options to certain officers pursuant to the
terms of stock option agreements entered into between the Company and the
officers.
OTHER
In the normal course of business, the Company may be a party to
certain lawsuits and administrative proceedings. Management cannot predict
the ultimate outcome of any pending or threatened litigation or of actual
or possible claims; however, management believes resulting liabilities, if
any, will not have a material adverse impact upon the Company's financial
position or results of operations.
(8) NON-CASH INVESTING ACTIVITIES
During 1998, the Company recorded a one-time non-cash charge of
approximately $5.4 million for the termination of MOC's S corporation status,
as more fully discussed in Note 2, and acquired certain oil and gas properties
owned by non-affiliated parties for approximately $12.8 million of its Common
Stock, as more fully discussed in Note 1. These non-cash investing activities
have been excluded from the combined statement of cash flows.
-16-
<PAGE>
PRO FORMA FINANCIAL DATA
The pro forma financial data has been prepared to give effect to the
Combination Transaction and the Offering and the application of the
estimated net proceeds therefrom. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview." The
pro forma statements of operations for the three months ended March 31,
1998 and 1997 were prepared on the basis that the Combination Transaction
and the Offering occurred on January 1, 1997. Pro forma data gives effect
to the revenues and direct operating expenses of the properties acquired
from the non-affiliated participants in the Combination Transaction (the
"Acquired Properties"). In addition, the pro forma data are based on
assumptions and include adjustments as explained in the notes to the pro
forma data and are not necessarily indicative of the results of future
operations of the Company. The following financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Natural gas<Fa> . . . . . . . . . . . . . . . . . . . $ 5,063 $ 6,368
Crude oil and condensate<Fa>. . . . . . . . . . . . . 640 1,238
Other operating revenues. . . . . . . . . . . . . . . 194 203
---------- ----------
Total operating revenues. . . . . . . . . . . . . . 5,897 7,809
---------- ----------
Operating Expenses:
Lease operating expenses and production taxes<Fa> . . 855 616
Depreciation, depletion and amortization<Fb>. . . . . 3,392 2,821
General and administrative<Fc>. . . . . . . . . . . . 749 490
---------- ----------
Total operating expenses. . . . . . . . . . . . . . 4,996 3,927
---------- ----------
Operating Income. . . . . . . . . . . . . . . . . . . . . 901 3,882
---------- ----------
Interest Expense<Fd>. . . . . . . . . . . . . . . . . . . (237) (281)
---------- ----------
-17-
<PAGE>
Income before income taxes. . . . . . . . . . . . . . . . 664 3,601
---------- ----------
Provision for income taxes<Fe>. . . . . . . . . . . . . . 225 1,066
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 439 $ 2,535
========== ==========
Earnings per share<Ff>:
Basic . . . . . . . . . . . . . . . . . . . . . . . . $ 0.04 $ 0.20
Diluted . . . . . . . . . . . . . . . . . . . . . . . 0.03 0.20
Average number of shares outstanding<Ff>:
Basic . . . . . . . . . . . . . . . . . . . . . . . . 12,493 12,493
Diluted . . . . . . . . . . . . . . . . . . . . . . . 12,681 12,681
<FN>
Notes to pro forma financial data (unaudited):
<Fa> Reflects results of operations from the Acquired Properties.
<Fb> Reflects the estimated additional depreciation, depletion and amortization expense resulting from the
acquisition of the Acquired Properties using the unit-of-production method.
<Fc> Reflects estimated incremental general and administrative expenses expected to be incurred as a direct
result of increased operations after the Combination Transaction. Such expenses are primarily from
increased salaries and additional new employees to perform administrative and operational activities
($0.5 million per year) and the elimination of the Royalty Participation Program ($0.1 million per year).
Excluded from this amount is $275,000 of non-recurring bonuses paid to certain employees of the Company in
connection with consummation of the Offering.
<Fd> Reflects the reduction in interest expense attributable to MOC shareholder notes being contributed in
connection with the Combination Transaction, resulting in the cancellation of the indebtedness, the
cancellation of other indebtedness with the use of proceeds from the Offering and the increase in interest
expense from the new borrowing under the Credit Facility.
<Fe> Gives pro forma effect to the application of federal and state income taxes to the Company as if it were a
taxable corporation for the periods presented. Upon consummation of the Combination Transaction, the Company
was required to record a one-time non-cash charge to earnings of $5.4 million in connection with establishing a
deferred tax liability on the balance sheet. This non-recurring charge has been excluded from the statements.
<Ff> Reflects the issuance of Common Stock in exchange for certain of the Combined Assets in the Combination
Transaction and the issuance of Common Stock in the Offering.
</FN>
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
Miller is an independent oil and gas company with its current
exploration efforts concentrated in the Mississippi Salt Basin, the onshore
Gulf Coast region of Texas and Louisiana and the Michigan Basin. The
Company has an established production base in each area.
-18-
<PAGE>
In 1972, the Miller family began to acquire a substantial and
strategic leasehold position and apply emerging seismic technology to
discover oil and natural gas reserves in the Northern Michigan Niagaran
Reef Trend. The Company also explored and had production in Texas,
Wyoming, North Dakota and Montana. In 1988, the Miller family and their
affiliated companies sold their producing properties to Conoco, Inc.,
reserving the undeveloped acreage in the Michigan Basin. After the Conoco,
Inc. sale, the Company shifted its focus to development of the Antrim Shale
formation in its Northern Michigan leases. Since 1988, the Company has
participated in drilling over 600 commercially productive Antrim Shale
wells. Since 1993, the Company has developed its base of properties and
inventory of prospects in Mississippi, Louisiana and Texas.
The Company uses the full cost method of accounting for its oil and
natural gas properties. Under this method, all acquisition, exploration
and development costs, including any general and administrative costs that
directly are attributable to the Company's acquisition, exploration and
development activities, are capitalized in a "full cost pool" as incurred.
The Company records depletion of its full cost pool using the unit-of-
production method. To the extent that such capitalized costs in the full
cost pool (net of depreciation, depletion and amortization and related
deferred taxes) exceed the present value (using a 10% discount rate) of
estimated future net after-tax cash flows from proved oil and natural gas
reserves, such excess costs are charged to operations. The Company has not
been required to make any such write-downs. Once incurred, a write-down of
oil and natural gas properties is not reversible at a later date.
The Company was organized as a Delaware corporation in November 1997
to serve as the surviving company in the Combination Transaction. On
February 9, 1998, pursuant to the agreements among the Company and the
owners of the Combined Assets, the Company issued to those owners
approximately 6.9 million shares of Common Stock. Additionally, the
Company acquired interests in certain properties from AHC for approximately
$50.5 million in cash. The issuance of the shares and the cash payment
were completed on February 9, 1998 in connection with the Company's
initial public offering.
For further discussion of the Offering and the Combination
Transaction, see Note 1 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table summarizes production volumes, average sales
prices, operating revenues and average costs for the Company's oil and
natural gas operations for the periods presented (in thousands, except per
unit amounts):
-19-
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997 1998 1997
-------- -------- -------- --------
(HISTORICAL) (PRO FORMA)
(Dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C>
Production volumes:
Crude oil and condensate (Mbbls). . . . . . . . . 35.0 12.4 49.0 54.5
Natural gas (Mmcf) . . . . . . . . . . . . . . . 1,835.0 602.1 2,528.0 2,262.0
Natural gas equivalent (Mmcfe). . . . . . . . . . 2,045.0 676.3 2,822.0 2,589.0
Average sales prices:
Crude oil and condensate ($ per Bbl). . . . . . . $ 12.94 $ 22.90 $ 13.05 $ 22.70
Natural gas ($ per Mcf) . . . . . . . . . . . . . 1.96 3.02 2.00 2.82
Natural gas equivalent ($ per Mcfe) . . . . . . . 1.98 3.11 2.02 2.94
Operating revenues:
Crude oil and condensate . . . . . . . . . . . . $ 453 $ 283 $ 640 $ 1,238
Natural gas . . . . . . . . . . . . . . . . . . . 3,589 1,822 5,063 6,368
Average Costs ($ per Mcfe):
Lease operating expenses and production taxes . . $ 0.31 $ 0.52 $ 0.30 $ 0.24
Depletion, depreciation and amortization. . . . . 1.23 0.99 1.20 1.09
General and administrative. . . . . . . . . . . . 0.51 0.57 0.27 0.19
</TABLE>
Because of the significance of the Combination Transaction which
occurred on February 9, 1998, the results of operations have been presented
above on a pro forma and historical basis, and the results of operations
will be described below on a pro forma basis. For additional information
regarding the Combination Transaction, see Note 1 to the Consolidated
Financial Statements and the Pro Forma Statements of Operations in this
filing.
PRO FORMA THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO PRO FORMA THREE
MONTHS ENDED MARCH 31, 1997
Oil and natural gas revenues for the three months ended March 31, 1998
decreased 25% to $5.7 million from $7.6 million for the same period in
1997. Production volumes for natural gas during the three months ended
March 31, 1998 increased 9% to 2,822.0 MMcf from 2,589.0 MMcf for the same
period in 1997. Average natural gas prices decreased 29% to $2.00 per Mcf
for the three months ended March 31, 1998 from $2.82 per Mcf in the same
period in 1997. Production volumes for oil during the three months ended
March 31, 1998 decreased 10% to 49.0 MBbls from 54.5 MBbls for the same
period in 1997. Average oil prices decreased 42% to $13.05 per barrel
during the three months ended March 31, 1998 from $22.70 per barrel in the
-20-
<PAGE>
same period in 1997. This decrease in commodity prices was experienced by
the industry as a whole during the first three months of 1998.
Lease operating expenses and production taxes for the three months
ended March 31, 1998 increased 39% to $0.9 million from $0.6 million for
the same period in 1997. Lease operating expenses and production taxes
increased primarily due to increased production as described above and an
increase in operating expenses per equivalent unit to $0.30 per Mcfe for
the three months ended March 31, 1998 from $0.24 per Mcfe in the same
period in 1997.
Depreciation, depletion and amortization ("DD&A") expense for the
three months ended March 31, 1998 increased 20% to $3.4 million from $2.8
million for the same period in 1997. This increase was due to a 10%
increase in the 1998 depletion rate to $1.20 per Mcfe from $1.09 per Mcfe
for the three months ended March 31, 1997. The higher depletion rate was
the combined result of increased production and an increase in costs
subject to DD&A.
General and administrative expense for the three months ended March
31, 1998 increased 53% to $0.7 million from $0.5 million for the same
period in 1997, as a result of increases in the number of employees and
related salaries, benefits and employee bonuses.
Interest expense for the three months ended March 31, 1998 decreased
15% to $0.2 million from $0.3 million in the same period in 1997.
Decreases in interest expense were due to a reduction in debt levels from
early 1997 when substantial leasehold acquisition activities in the
Mississippi Salt Basin area were financed.
Net income for the three months ended March 31, 1998 decreased to $0.4
million from $2.5 million for the same period in 1997, as a result of the
factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital have been funds
generated by operations, capital contributions and borrowings, primarily
from MOC's shareholders and under bank credit facilities. The Company had
working capital deficits of $1.9 million (excluding current maturities of
notes payable) at March 31, 1998 and $6.0 million at December 31, 1997.
The Company has entered into the Credit Facility with BOM. The Credit
Facility consists of a three-year revolving line of credit converting to a
three-year term loan. The amount of credit available during the revolving
period and the debt allowed during the term period may not exceed the
Company's "borrowing base," or the amount of debt that BOM and the other
lenders under the Credit Facility agree can be supported by the cash flow
generated by the Company's producing and non-producing proved oil and
-21-
<PAGE>
natural gas reserves. Under the Credit Facility the initial borrowing base
is $23.0 million and may not exceed $75.0 million. Amounts advanced under
the Credit Facility bear interest, payable quarterly, at either (i) BOM's
announced prime rate or (ii) the London Inter-Bank Offered Rate plus a
margin rate ranging from 0.75% to 1.625%, as selected by the Company. In
addition, the Company is assessed a commitment fee equal to 0.375% of the
unused portion of the borrowing base, payable quarterly in arrears, until
the termination of the revolving period. At the termination of the
revolving period, the revolving line of credit will convert to a three-year
term loan with principal payable in 12 equal quarterly installments. The
Credit Facility includes certain negative covenants that impose limitations
on the Company and its subsidiaries with respect to, among other things,
distributions with respect to its capital stock, the creation or incurrence
of liens, the incurrence of additional indebtedness, making loans and
investments and mergers and consolidations. The obligations of the Company
under the Credit Facility are secured by a lien on all real and personal
property of the Company, including its oil and natural gas properties. The
Company borrowed $15.0 million under the Credit Facility to complete the
Combination Transaction and to repay all other outstanding indebtedness.
At March 31, 1998, $17.5 million was outstanding under the Credit Facility.
In connection with the closing of the AHC acquisition, the Company has
a note payable to AHC of $3.0 million (at March 31, 1998) which is payable
during 1999-2001.
Pursuant to a promissory note dated November 26, 1997, the C.E. Miller
Trust loaned on an unsecured basis $2.5 million to MOC, which MOC used to
fund a down payment made in connection with the Combination Transaction.
This note was paid in full during February 1998 from the proceeds of the
Offering.
At December 31, 1997, the Company had an approximate notes payable
balance of $5.0 million which represented a borrowing against a $5.0
million bank line-of-credit and another $1.0 million line-of-credit. These
notes were paid in full during February 1998 from the proceeds of the
Offering.
During 1996, the Company also entered into a $1.0 million term loan
payable to a bank. At December 31, 1997, the balance of the term loan was
$0.7 million. The term loan was paid in full during February 1998 from the
proceeds of the Offering.
The Company has budgeted capital expenditures of approximately
$44.3 million for 1998. Substantially all of the capital expenditures
will be used to fund 3-D seismic surveys, drilling and development
activities and leasehold acquisitions in the Company's project areas.
The actual amounts of capital expenditures and number of wells drilled
may differ significantly from such estimates. Actual capital
expenditures for the three months ended March 31, 1998 were approximately
$7.7 million.
-22-
<PAGE>
The Company intends to fund its budgeted capital expenditures through
the end of 1998 from cash flow from operations and borrowings under the
credit facility.
The Company's revenues, profitability, future growth and ability to
borrow funds or obtain additional capital, and the carrying value of its
properties, substantially are dependent on prevailing prices of oil and
natural gas. The Company cannot predict future oil and natural gas price
movements with certainty. Declines in prices received for oil and natural
gas may have an adverse effect on the Company's financial condition,
liquidity, ability to finance capital expenditures and results of
operations. Lower prices also may impact the amount of reserves that can
be produced economically by the Company.
The Company has experienced and expects to continue to experience
substantial working capital requirements primarily due to the Company's
active exploration and development programs and its increased participation
percentages and technology enhancement programs. While the Company
believes that cash flow from operations and borrowings under the Credit
Facility should allow the Company to implement its present business
strategy through 1998, additional financing may be required in the future
to fund the Company's growth, development and exploration program and
continued technological enhancement. In the event such capital resources
are not available to the Company, its exploration and other activities may
be curtailed.
HEDGING
In 1997, the Company began using certain hedging instruments (e.g.,
NYMEX futures contracts) for a portion of its natural gas production to
achieve a more predictable cash flow, as well as to reduce the exposure to
price fluctuations. The Company's hedging arrangements apply to only a
portion of its production, provide only partial price protection against
declines in oil and natural gas prices and limit potential gains from
future increases in prices. Such hedging arrangements may expose the
Company to risk of financial loss in certain circumstances, including
instances where production is less than expected, the Company's customers
fail to purchase contracted quantities of oil or natural gas or a sudden
unexpected event materially impacts oil or natural gas prices. For
financial reporting purposes, gains and losses related to hedging are
recognized as oil and natural gas revenues during the period the hedged
transactions occur. The Company expects that the amount of hedges that it
has in place will vary from time to time but at no time does it expect that
hedging activities will be of material significance.
The Company's hedging strategy is to maximize its return on investment
through hedging a portion of its activities relating to natural gas price
volatility. While this strategy should help the Company reduce its
exposure to price risks, it also limits the Company's potential gains from
-23-
<PAGE>
increases in market prices for natural gas. The Company intends to
continue to hedge up to 50% of its natural gas production to retain a
portion of the potential for greater upside from increases in natural gas
prices, while limiting to some extent the Company's exposure to declines in
natural gas prices. For the three months ended March 31, 1998, the Company
had hedged 6% of its natural gas production. As of March 31, 1998, the
Company had 3.3 Bcf of open natural gas contracts at prices ranging from
$2.29 to $2.58 per Mcf.
EFFECTS OF INFLATION AND CHANGES IN PRICE
The Company's results of operations and cash flows are affected by
changing oil and natural gas prices. If the price of oil and natural gas
increases (decreases), there could be a corresponding increase (decrease)
in the operating cost that the Company is required to bear for operations,
as well as an increase (decrease) in revenues. Recent rates of inflation
have had a minimal effect on the Company.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's business is subject to certain federal, state and local
laws and regulations relating to the exploration for, and the development,
production and transportation of, oil and natural gas, as well as
environmental and safety matters. Many of these laws and regulations have
become more stringent in recent years, often imposing greater liability on
a larger number of potentially responsible parties. Although the Company
believes it is in substantial compliance with all applicable laws and
regulations, the requirements imposed by laws and regulations frequently
are changed and subject to interpretation, and the Company is unable to
predict the ultimate cost of compliance with these requirements or their
effect on its operations. Any suspensions, terminations or inability to
meet applicable bonding requirements could materially adversely affect the
Company's business, financial condition and results of operations.
Although significant expenditures may be required to comply with
governmental laws and regulations applicable to the Company, compliance has
not had a material adverse effect on the earnings or competitive position
of the Company. Future regulations may add to the cost of, or
significantly limit, drilling activity.
COMPUTER MODIFICATIONS FOR YEAR 2000
The Year 2000 issue exists because many computer systems and
applications abbreviate dates by eliminating the first two digits of the
year, assuming that these two digits would always be "19." Unless
corrected, this shortcut is expected to cause problems when the century
date occurs. On that date, some computer programs may recognize the date
as January 1, 1900 instead of January 1, 2000. This may cause the
Company's systems to incorrectly process critical financial and operational
information, or stop processing altogether. Additionally, computer
-24-
<PAGE>
applications may be affected before January 1, 2000, if calculations into
the year 2000 are involved.
The Company has a plan to address the Year 2000 issue and will
continue to assess the impact of the Year 2000 issue on the remainder of
its computer-based systems and applications throughout 1998. If the
Company's plans are not successful, there could be a significant disruption
of the Company's ability to bill customers and pay suppliers, as well as a
possible slowdown of certain computer-dependent processes. Based on
currently available information, management presently does not anticipate
that the costs to address the Year 2000 issues or potential operating
disruptions will have an adverse impact on the Company's financial
conditions, results of operations or liquidity.
FORWARD-LOOKING STATEMENTS
This discussion and analysis of financial condition and results of
operations, and other sections of this Form 10-Q, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates and projections about the oil and gas industry, the
economy and about the Company itself. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "predicts," "projects," variations of such words and similar
expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions ("Future Factors") that are
difficult to predict with regard to timing, extent, likelihood and degree
of occurrence. Therefore, actual results and outcomes may differ materially
from what may be expressed or forecasted in such forward-looking
statements. Furthermore, the Company undertakes no obligation to update,
amend or clarify forward-looking statements, whether as a result of new
information, future events or otherwise.
Future Factors include, but are not limited to the results of the
Company's exploratory drilling activities, volatility of oil and natural
gas prices, uncertainty of estimates of oil and natural gas reserves,
implementation of the Company's growth strategy and its management of
future growth, substantial capital requirements associated with the
Company's operations, risks related to replacement of oil and natural gas
reserves, operating hazards and uninsured risks, competition, government
regulation and environmental matters, the Company's hedging policies and
transactions, marketability of production, dependence on key personnel,
technological changes and shortages of drilling rigs, equipment, supplies
and personnel. These are representative of the Future Factors that could
cause a difference between an ultimate actual outcome and a preceding
forward-looking statement.
-25-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently named as a defendant in any lawsuits
and/or administrative proceedings arising in the ordinary course of
business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company entered into an Exchange and Combination Agreement
effective November 12, 1997 (the "Combination Agreement") with certain
trusts for the benefit of Kelly E. Miller, the Company's President and
Chief Executive Officer, and members of his family, certain affiliated oil
and gas exploration companies and certain oil and gas exploration companies
who are business partners and investors with MOC, the Company's
predecessor.
The assets contributed to the company under the Combination Agreement
included the capital stock of MOC and interests in oil and gas properties
in which MOC also had an interest. In exchange for these assets, the
individuals and entities received a number of shares of Common Stock in the
Company proportionate to the value of their ownership interests in the
assets. The percentage interest of each person's interest in the assets
being contributed was established in the Combination Agreement.
The shares of Common Stock issued in connection with the Combination
Transaction were offered and sold by the Company without registration, in
reliance upon the exemption from registration made available under Section
4(2) of the Securities Act and Rules 501-503 and 506-508 of Regulation D
promulgated thereunder. On December 1, 1997, the Registrant filed with the
SEC a Form D with respect to the exempt offering, in accordance with the
requirements of Rule 503. The shares of Common Stock were issued to the
parties on February 9, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following documents are filed as exhibits to this
report on Form 10-Q:
EXHIBIT NO. DOCUMENT
3.1 Certificate of Incorporation of the Registrant. Previously
filed as an exhibit to the Company's Registration Statement
on Form S-1 (333-40383), and incorporated herein by
reference.
3.2 Bylaws of the Registrant. Previously filed as an exhibit to
the Company's Registration Statement on Form S-1
(333-40383), and incorporated herein by reference.
-26-
<PAGE>
4.1 Certificate of Incorporation. See Exhibit 3.1.
4.2 Bylaws. See Exhibit 3.2.
4.3 Form of Specimen Stock Certificate. Previously filed as an
exhibit to the Company's Registration Statement on Form S-1
(333-40383), and incorporated herein by reference.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during
the fiscal quarter ended March 31, 1998.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
MILLER EXPLORATION COMPANY
Date: May 15, 1998 By: /S/ WILLIAM J. BAUMGARTNER
William J. Baumgartner
Vice President-Finance, Chief
Financial Officer and Secretary
(Principal Accounting and Financial
Officer)
-28-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
3.1 Certificate of Incorporation of the Registrant. Previously
filed as an exhibit to the Company's Registration Statement
on Form S-1 (333-40383), and incorporated herein by
reference.
3.2 Bylaws of the Registrant. Previously filed as an exhibit to
the Company's Registration Statement on Form S-1
(333-40383), and incorporated herein by reference.
4.1 Certificate of Incorporation. See Exhibit 3.1.
4.2 Bylaws. See Exhibit 3.2.
4.3 Form of Specimen Stock Certificate. Previously filed as an
exhibit to the Company's Registration Statement on Form S-1
(333-40383), and incorporated herein by reference.
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule.
<PAGE>
EXHIBIT 11.1
MILLER EXPLORATION COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998
---------------------------
(In thousands, except per share data)
<S> <C>
BASIC EARNINGS (LOSS) PER
SHARE
Net Loss $ (5,581)
Shares
Weighted average shares outstanding 7,079
-----------------
Basic earnings per share $ (0.79)
=================
DILUTED EARNINGS (LOSS) PER
SHARE
Net Loss $ (5,581)
Shares
Weighted average shares outstanding 7,186
-----------------
Diluted earnings per share $ (0.78)
=================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q FOR MILLER EXPLORATION COMPANY AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,471
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0
0
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</TABLE>
