<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-9204
EXCO RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-1492779
(State of incorporation) (I.R.S. Employer
Identification No.)
5735 PINELAND DR., SUITE 235
DALLAS, TEXAS 75231
(Address of principal executive offices) (Zip Code)
(214) 368-2084
(Registrant's telephone number, including area code)
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 last practicable date.
Class: Common Stock, par value $0.02 per share
Outstanding at July 31, 1998: 594,336 shares
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EXCO RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.........................................................................2
Condensed Consolidated Balance Sheets
December 31, 1997 and June 30, 1998 (Unaudited)..............................................2
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1997
and 1998 (Unaudited).........................................................................3
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and 1998 (Unaudited)..........................................4
Notes to Condensed Consolidated Financial Statements.........................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................................11
Item 3. Quantitative and Qualitative Disclosure About Market Risk...................................15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................16
Signatures....................................................................................................17
Exhibit Index.................................................................................................18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------- ----------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 496 $ 595
Accounts receivable ............................................... 226 291
Other ............................................................. 5 130
---------- ----------
Total current assets ..................................... 727 1,016
Oil and natural gas properties (full cost accounting method):
Undeveloped oil and natural gas properties ........................ 36 32
Proved developed oil and natural gas properties ................... 4,267 10,320
---------- ----------
4,303 10,352
Allowance for depreciation, depletion and amortization ............ (3,830) (3,913)
---------- ----------
Oil and natural gas properties, net ............................... 473 6,439
Office and field equipment, net ...................................... 70 194
Deferred financing costs ............................................. -- 164
---------- ----------
Total assets ............................................. $ 1,270 $ 7,813
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $ 262 $ 619
Revenues and royalties payable .................................... 50 121
Current maturities of long-term debt .............................. 16 15
---------- ----------
Total current liabilities ................................ 328 755
Long-term debt, less current maturities .............................. 15 6,067
Stockholders' equity:
Common Stock, $.02 par value:
Authorized shares - 25,000,000
Issued and outstanding shares - 502,650 and 594,336 at
December 31, 1997 and June 30, 1998, respectively ............. 10 12
Additional paid-in capital ........................................ 9,716 1,465
Deficit eliminated ................................................ (8,799) --
Retained earnings (deficit), as adjusted for quasi-reorganization
at December 31, 1997 .......................................... -- (486)
---------- ----------
Total stockholder's equity ............................... 927 991
---------- ----------
Total liabilities and stockholders' equity ............... $ 1,270 $ 7,813
========== ==========
</TABLE>
See accompanying notes.
2
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EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Oil and natural gas ........................... $ 165 $ 255 $ 384 $ 428
Other income .................................. 6 17 17 27
------- ------- ------- -------
Total revenues ....................... 171 272 401 455
COSTS AND EXPENSES:
Oil and natural gas production ................ 100 147 199 242
Depreciation, depletion and amortization ...... 24 68 52 104
General and administrative .................... 129 318 235 557
Interest ...................................... 4 31 9 38
Loss on disposition of properties ............. 10 -- 10 --
------- ------- ------- -------
Total costs and expenses ............. 267 564 505 941
------- ------- ------- -------
Income (loss) before income taxes ................ (96) (292) (104) (486)
Income tax expense (benefit) ..................... -- -- -- --
------- ------- ------- -------
Net loss ......................................... $ (96) $ (292) $ (104) $ (486)
======= ======= ======= =======
Basic and diluted earnings per share ............. $ (.24) $ (.52) $ (.26) $ (.91)
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding .......... 403 559 403 534
======= ======= ======= =======
</TABLE>
See accompanying notes.
3
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EXCO RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ..................................................... $ (104) $ (486)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization .............. 52 104
Loss on disposition of property ....................... 10 --
Effect of changes in:
Accounts receivable ................................ 116 (8)
Other current assets ............................... 1 (117)
Accounts payable and other current liabilities ..... (91) 380
---------- ----------
Net cash provided by (used in) operating activities ............. (16) (127)
INVESTING ACTIVITIES:
Payment for acquisitions, net of cash ........................... -- (943)
Additions to property and equipment ............................. (29) (4,722)
Proceeds from disposition of property and equipment ............. 232 4
---------- ----------
Net cash provided by (used in) investing activities ............. 203 (5,661)
FINANCING ACTIVITIES:
Proceeds from long-term debt .................................... -- 6,060
Payments on long-term debt ...................................... (14) (9)
Payments on note payable ........................................ (150) --
Deferred financing costs ........................................ -- (164)
---------- ----------
Net cash provided by (used in) financing activities ............. (164) 5,887
---------- ----------
Net increase (decrease) in cash ................................. 23 99
Cash at beginning of period ..................................... 46 496
---------- ----------
Cash at end of period ........................................... $ 69 $ 595
========== ==========
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid ................................................... $ 9 $ 24
========== ==========
Income taxes paid ............................................... $ -- $ --
========== ==========
</TABLE>
See accompanying notes.
4
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
In management's opinion, the accompanying financial statements contain all
adjustments (consisting solely of normal recurring accruals) necessary to
present fairly the financial position of EXCO Resources, Inc. ("EXCO") as of
December 31, 1997 and June 30, 1998, the results of operations for the three
month and six month periods ended June 30, 1997 and 1998, respectively, and the
cash flows for the six month periods ended June 30, 1997 and 1998.
The accompanying unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to those rules and regulations, although EXCO believes that the
disclosures made are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with EXCO's financial
statements and notes thereto included in EXCO's Annual Report on Form 10-K for
the year ended December 31, 1997. The accompanying condensed consolidated
financial statements include the separate company financial statements of EXCO
Resources, Inc. and Jacobi-Johnson Energy, Inc.
The results of operations for the three month and six month periods ended June
30, 1998, are not necessarily indicative of the results expected for the full
year.
Effective January 1, 1998, EXCO adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income includes net
income and other comprehensive income, which includes, but is not limited to,
unrealized gains for marketable securities and futures contracts, foreign
currency translation adjustments and minimum pension liability adjustments.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is required
to be adopted in years beginning after June 15, 1999. Because of EXCO's minimum
use of derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of EXCO.
2. QUASI-REORGANIZATION
Effective December 31, 1997, EXCO effected a quasi-reorganization through the
application of $8,799,000 of its additional paid-in capital account to eliminate
its accumulated deficit. EXCO's Board of Directors decided to effect a
quasi-reorganization given the change in management, the infusion of new equity
capital and an increase in activities. EXCO's accumulated deficit was
5
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
primarily related to past operations and properties that have been disposed of.
The historical carrying values of the assets and liabilities of EXCO did not
need to be adjusted in connection with the quasi-reorganization.
3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated, to conform to the Statement No. 128
requirements. The effect of the adoption of Statement No. 128 did not have a
material impact.
4. REVERSE STOCK SPLITS
At EXCO's 1998 Annual Meeting of Shareholders, the shareholders of EXCO approved
an amendment to EXCO's Restated Articles of Incorporation, authorizing a
one-for-two reverse stock split of EXCO's common stock, which became effective
March 31, 1998. At EXCO's 1996 Annual Meeting of Shareholders, the shareholders
of EXCO approved an amendment to EXCO's Articles of Incorporation (as then in
effect), authorizing a one-for-five reverse stock split of EXCO's common stock,
which became effective July 19, 1996. All share and per share numbers contained
herein have been retroactively adjusted to record the effects of the reverse
stock splits.
5. CHANGE IN METHOD OF ACCOUNTING FOR OIL AND NATURAL GAS OPERATIONS
In the fourth quarter of 1997, EXCO changed from the successful efforts method
to the full cost method of accounting for its oil and natural gas operations.
All prior year's financial statements presented herein have been restated to
reflect the change.
The financial statements have been restated to apply the new accounting method
retroactively. The effect of the accounting change on the results of operations
for the six months ended June 30, 1997 are as follows (in thousands except per
share amounts):
6
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ADJUSTMENT FOR
EFFECT OF CHANGE IN
PREVIOUSLY ACCOUNTING AS
REPORTED PRINCIPAL ADJUSTED
----------- ------------------- ----------
<S> <C> <C> <C>
Net Income (Loss)....................... $ 13 $ (117) $ (104)
Per Share Amounts ...................... .02 (.28) (.26)
</TABLE>
6. NATIONSBANK CREDIT AGREEMENT
On February 11, 1998, EXCO entered into a credit facility (the "Credit
Facility") with NationsBank of Texas, N.A. ("NationsBank"). The Credit Facility
provides for borrowings up to $50 million, subject to borrowing base
limitations.
The Credit Facility consists of a regular revolver which on August 14, 1998, had
a borrowing base of approximately $6.7 million. On August 14, 1998,
approximately $6.4 million was available to be borrowed under the Credit
Facility. A portion of the borrowing base is available for the issuance of
letters of credit. All borrowings under the Credit Facility are secured by a
first lien deed of trust providing a security interest in tangible and
intangible assets representing at least 90% of the assessed present value of
EXCO's oil and natural gas properties.
The Credit Facility provides that if EXCO's aggregate outstanding indebtedness
is less than $5,000,000, advances will bear interest at 1.5% over the
appropriate LIBOR rate. If the aggregate outstanding indebtedness is greater
than $5,000,000, then advances will bear interest at 1.0% over LIBOR if the
borrowing base usage is less than 50%, 1.25% over LIBOR if the borrowing base
usage is between 50-70%, 1.5% over LIBOR if the borrowing base usage is between
70-90%, and 1.75% over LIBOR if the borrowing base usage exceeds 90%. The Credit
Facility also permits EXCO to repay and reborrow amounts under the Credit
Facility without any penalty, thereby allowing EXCO the flexibility to utilize
any available cash to reduce its outstanding indebtedness and thus, its costs of
borrowed funds.
Under the terms of the Credit Facility, EXCO must not permit its Current Ratio
(as defined) of Consolidated Current Assets (as defined) to its Consolidated
Current Liabilities (as defined) to be less than 1.0 to 1.0 at any time.
Furthermore, EXCO must not permit its Consolidated Tangible Net Worth (as
defined) to be less than $500,000 at any time between February 11, 1998 and
March 31, 1999. In addition, by March 31, 1999, EXCO's Consolidated Tangible Net
Worth must increase by 50% of EXCO's Consolidated Net Income (as defined) for
the fiscal quarter then ended and for every fiscal quarter thereafter must
increase by 50% of EXCO's Consolidated Net Income for the fiscal quarter then
ended. On June 30, 1998, EXCO was in compliance with both the Consolidated
Tangible Net Worth covenant and the Current Ratio covenant.
7
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
7. ACQUISITIONS
Maverick County Acquisition. On February 11, 1998, EXCO acquired certain
properties from Osborne Oil Company and Gypsy Production Company and certain
other sellers (the "Maverick County Acquisition") in the Chittim/Barclay Ranch
Properties located in Maverick County, Texas (the "Maverick County Properties").
As of December 31, 1997, the Maverick County Properties were estimated to
contain 415,975 barrels of oil equivalent (1 barrel to 6 thousand cubic feet) of
proved reserves, 98% of which were classified as natural gas, and owned
leasehold interests in a total of 3,744 gross acres (3,123 net acres) of oil and
natural gas properties, 9.6% of which were developed acres. The aggregate
purchase price for the Maverick County Properties was $760,200.
Jacobi-Johnson Acquisition. On May 8, 1998, EXCO acquired all of the outstanding
common stock (the "Jacobi-Johnson Acquisition") of Jacobi-Johnson Energy, Inc.
("Jacobi-Johnson"). Jacobi-Johnson owns oil and natural gas working interests in
Polk, Nacogdoches, Navarro, Smith and Wood Counties, Texas (collectively, the
"Jacobi-Johnson Properties"). The Jacobi-Johnson Properties include 34 gross
producing (14.3 net producing) wells with current net production of
approximately 59.4 barrels ("Bbls") of oil and 171 thousand cubic feet ("Mcf")
of natural gas per day. In addition to the producing wells, the Jacobi-Johnson
Properties include working interests in two saltwater disposal wells. As of
December 31, 1997, the Jacobi-Johnson Properties are estimated to contain proved
reserves of 234,985 Bbls of oil and 597,880 Mcf of natural gas. Approximately
100% of the estimated proved reserves of the Jacobi-Johnson Properties are
classified as developed.
The aggregate purchase price paid for the stock was $1,476,451. The Sellers have
agreed to indemnify EXCO for amounts arising from any breach by the Sellers,
including environmental damages, to the extent such amount exceeds $20,000. EXCO
has agreed to indemnify the Sellers for amounts arising from any breach by EXCO,
to the extent such amount exceeds $20,000. The acquisition was effective January
1, 1998. The amount of consideration was determined through arm's length
negotiations taking into account estimates of recoverable reserves, current oil
and natural gas prices, the fair market value of other property and equipment,
the amount of cash and cash equivalents on hand, the collectibility and
estimated payment timing of accounts receivable and the amount of current and
long-term liabilities. The consideration consists of $703,035 cash, 85,436
shares of EXCO common stock and the assumption by EXCO of approximately $260,800
of Jacobi-Johnson's indebtedness. EXCO obtained the cash for the purchase price
under the Credit Facility with NationsBank. The Jacobi-Johnson Properties have
been mortgaged under the Credit Facility.
8
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Gladstone Merger. EXCO entered into an Agreement and Plan of Merger (the "Merger
Agreement") on May 1, 1998 with Gladstone Resources, Inc. ("Gladstone").
Gladstone is a Dallas, Texas based oil and natural gas production company with
properties in Kent, Stonewall, Schleicher, Pecos and Madison Counties, Texas,
and San Juan County, New Mexico. Under terms of the Merger Agreement, Gladstone
stockholders will receive approximately $1.4 million, or $.33 per share, in
cash. It is currently anticipated that the transaction will close in the third
quarter of 1998, with EXCO being the surviving corporation. The transaction is
subject to customary conditions of closing including review by the Securities
and Exchange Commission of Gladstone's proxy materials, approval by Gladstone's
board of directors and stockholders, approval by EXCO's board of directors and
due diligence inspection by EXCO.
In addition to the Merger Agreement, on May 1, 1998, EXCO entered into a Stock
Option Agreement with one Gladstone stockholder, E.B. Brooks, Jr. ("Mr.
Brooks"), to acquire 1,910,000 shares, or approximately 44.8%, of Gladstone's
issued and outstanding common stock at a price of $.33 per share. Mr. Brooks is
Chairman and President of Gladstone. On May 1, 1998, EXCO also entered into a
Stockholder Agreement whereby three Gladstone stockholders, Deborah Brooks
Garrett, Rebecca B. Feldt and Carol Brady, have agreed to vote their shares in
favor of the merger with EXCO. These stockholders own 351,000 shares or
approximately 8.3% each of Gladstone's common stock.
Dawson County Acquisition. On June 30, 1998, EXCO completed the acquisition of
certain properties from J.M. Hill, J.M. Hill, Trustee, Walter O. Hill, Steven J.
Devos, Humphrey Oil Interests, L.P. and other working interest owners, in Dawson
and Brazos Counties, Texas (the "Dawson County Properties").
The Dawson County Properties include 11 gross (5.3 net) producing wells and 4
gross (1.5 net) salt water disposal and non-producing wells which may require
recompletions, workovers or abandonment. The Dawson County Properties include
645 gross (327 net) developed acres and 627 gross (279 net) undeveloped acres.
The purchase price was approximately $3.5 million cash.
The following pro forma data presents the results of EXCO for the six months
ended June 30, 1997 and 1998, as if the Maverick County Acquisition, the
Jacobi-Johnson Acquisition, the Gladstone Merger and the Dawson County
Acquisition had occurred on January 1, 1997. The pro forma results of operations
are presented for comparative purposes only and are not necessarily indicative
of the results which would have been obtained had the acquisitions been
consummated as presented. The following data reflect pro forma adjustments for
oil and gas revenues, production costs, depreciation and depletion related to
the properties and businesses acquired, interest on borrowed funds and related
income tax effects (in thousands, except per share amounts).
9
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EXCO RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1997 1998
-------------- -------------
<S> <C> <C>
Total Revenues.................................................................. 1,596 1,258
Income (loss)................................................................... 86 (448)
Basic and diluted earnings per share............................................ .18 (.75)
</TABLE>
8. SUBSEQUENT EVENTS
RIGHTS OFFERING
On July 16, 1998, EXCO's registration statement was declared effective by the
Securities and Exchange Commission authorizing the commencement of a rights
offering to its existing stockholders. Each stockholder received 10 rights for
each share of EXCO's common stock held. Each right entitled the stockholder to
purchase one share of EXCO common stock for $6.00 per share. The rights offering
expired on August 12, 1998. EXCO received net proceeds of approximately $35.5
million. The exercise of the rights by some existing stockholders or their
assignees has resulted in the dilution of the shares of common stock held by
those stockholders who did not exercise their rights. EXCO intends to use the
proceeds for future acquisitions, development drilling and recompletions, the
repayment of its current bank indebtedness, working capital and general
corporate purposes.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which can be identified by the use of
forward-looking terminology such as, "may," "believe," "expect," "intend,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. All statements other than
statements of historical fact included in this Form 10-Q, are forward-looking
statements. Although EXCO believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors with respect to
any such forward- looking statements, including certain risks and uncertainties
that could cause actual results to differ materially from EXCO's expectations
("Cautionary Statements") are disclosed in this Form 10-Q, including, without
limitation, in conjunction with the forward-looking statements included in this
Form 10-Q, and in EXCO's Annual Report on Form 10-K for the year ended December
31, 1997. Important factors that could cause actual results to differ materially
from those in the forward-looking statements herein include, but are not limited
to, the timing and extent of changes in commodity prices for oil and natural
gas, the need to develop and replace reserves, environmental risks, drilling and
operating risks, risks related to exploitation and development, uncertainties
about the estimates of reserves, competition, government regulation and the
ability of EXCO to meet its stated business goals. All subsequent written and
oral forward-looking statements attributable to EXCO or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
The following discussion of the results of operations and financial condition
should be read in conjunction with the Financial Statements and related Notes
thereto included herein.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1997 and 1998
Revenues. EXCO's total revenues for the three month period ended June
30, 1998 increased $101,000, or 59%, to $272,000 versus $171,000 for the
corresponding period of 1997. The increase in revenues was primarily due to the
Maverick County Acquisition and the Jacobi- Johnson Acquisition.
EXCO sold 4,904 Bbls of crude oil during the three months ended June
30, 1998 versus 4,960 Bbls in the corresponding three months of 1997, a 1%
decrease. EXCO sold 99,714 Mcf of natural gas during the current three months
versus 43,480 Mcf in the second quarter of 1997, a 129% increase. The nominal
decrease in oil volume was attributable to the sale in mid-1997 of several
non-strategic oil properties which was offset by volumes from the Jacobi-Johnson
Acquisition in May 1998. The increase in gas volume was due to the acquisition
of the Maverick County properties effective January 1, 1998.
11
<PAGE> 13
The average oil price received during the three months ended June 30,
1998 was $12.34 versus $18.59 for the three months ended June 30, 1997, a $6.25
per barrel or 34% decrease. The average gas price received during the current
three months was $1.95 versus $1.66 for the corresponding three months of the
prior year, a $0.29 per Mcf or 17% increase.
Costs and Expenses. Costs and expenses for the three month period ended
June 30, 1998 increased by $297,000, or 111%, to $564,000 as compared to
$267,000 for the corresponding period of 1997. This was primarily due to a
$189,000 increase in general and administrative costs in the current three
months. This increase reflects EXCO's increased staffing and new focus on
reserve acquisitions. Other variances between the costs and expenses for the
second quarter of 1998 and 1997 are minimal.
Net Loss. EXCO had a net loss for the three months ended June 30, 1998
of $292,000 compared to a net loss of $96,000 for the corresponding three months
of 1997, representing $.52 and $.24 per share, respectively. Earnings per share
figures are based on restated weighted average shares outstanding after the
retroactive effect of the one-for-two reverse stock split approved at EXCO's
shareholders' meeting held on March 31, 1998.
Comparison of Six Months Ended June 30, 1997 and 1998
Revenues. EXCO's total revenues for the six month period ended June 30,
1998 increased $54,000, or 13%, to $455,000 versus $401,000 for the
corresponding period of 1997. The increase in revenues was primarily due to the
Maverick County Acquisition and the Jacobi-- Johnson Acquisition.
EXCO sold 7,720 Bbls of crude oil during the six months ended June 30,
1998 versus 9,932 Bbls in the corresponding six months of 1997, a 22% decrease.
EXCO sold 172,239 Mcf of natural gas during the current six months versus 86,600
Mcf in the first six months of 1997, a 99% increase. The decrease in oil volume
was attributable to the sale in mid-1997 of several non-strategic oil
properties. The increase in gas volume was due to the acquisition of the
Maverick County properties effective January 1, 1998.
The average oil price received during the six months ended June 30,
1998 was $12.82 versus $20.04 for the six months ended June 30, 1997, a $7.22
per barrel or 36% decrease. The average gas price received during the current
six months was $1.91 versus $2.13 for the corresponding six months of the prior
year, a $0.22 per Mcf or 10% decrease.
Costs and Expenses. Costs and expenses for the six month period ended
June 30, 1998 increased by $436,000, or 86%, to $941,000 as compared to $505,000
for the corresponding period of 1997. This was primarily due to a $322,000
increase in general and administrative costs in the current six months. This
increase reflects EXCO's increased staffing and new focus on reserve
acquisitions. The increase was also due to a $43,000 increase in oil and natural
gas production expenses and a $52,000 increase in depreciation, depletion and
amortization expense both due to the Maverick County Acquisition and
Jacobi-Johnson Acquisition.
Net Loss. EXCO had a net loss for the six months ended June 30, 1998 of
$486,000 compared to a net loss of $104,000 for the corresponding six months of
1997, representing $0.91
12
<PAGE> 14
and $0.26 per share, respectively. Earnings per share figures are based on
restated weighted average shares outstanding after the retroactive effect of the
one-for-two reverse stock split approved at EXCO's shareholders' meeting held on
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
General
EXCO's general financial strategy is to use cash from operations to
service interest on EXCO's indebtedness, to pay ongoing operating expenses, and
to contribute limited amounts toward further development of EXCO's existing
proved reserves as well as additional acquisitions. There can be no assurance
that cash from operations will be sufficient in the future to cover all of those
purposes.
EXCO will continue to be dependent on external funding sources to carry
out its planned development and acquisition program. If such additional funds
are not available, EXCO will be required to delay or reduce substantially both
of such activities.
Credit Facility
On February 11, 1998, EXCO entered into the Credit Facility with
NationsBank. The Credit Facility provides for borrowings up to $50 million,
subject to borrowing base limitations.
The Credit Facility consists of a regular revolver which on August 14,
1998, had a borrowing base of approximately $6.7 million. On August 14, 1998,
approximately $6.4 million was available to be borrowed under the Credit
Facility. A portion of the borrowing base is available for the issuance of
letters of credit. All borrowings under the Credit Facility are secured by a
first lien deed of trust providing a security interest in tangible and
intangible assets representing at least 90% of the assessed present value of
EXCO's oil and natural gas properties.
The Credit Facility provides that if EXCO's aggregate outstanding
indebtedness is less than $5,000,000, advances will bear interest at 1.5% over
the appropriate LIBOR rate. If the aggregate outstanding indebtedness is greater
than $5,000,000, then advances will bear interest at 1.0% over LIBOR if the
borrowing base usage is less than 50%, 1.25% over LIBOR if the borrowing base
usage is between 50-70%, 1.5% over LIBOR if the borrowing base usage is between
70-90%, and 1.75% over LIBOR if the borrowing base usage exceeds 90%. The Credit
Facility also permits EXCO to repay and reborrow amounts under the Credit
Facility without any penalty, thereby allowing EXCO the flexibility to utilize
any available cash to reduce its outstanding indebtedness and thus, its costs of
borrowed funds.
Under the terms of the Credit Facility, EXCO must not permit its
Current Ratio (as defined) of Consolidated Current Assets (as defined) to its
Consolidated Current Liabilities (as defined) to be less than 1.0 to 1.0 at any
time. Furthermore, EXCO must not permit its Consolidated Tangible Net Worth (as
defined) to be less than $500,000 at any time between February 11, 1998 and
March 31, 1999. In addition, by March 31, 1999, EXCO's Consolidated Tangible Net
Worth must increase by 50% of EXCO's Consolidated Net Income (as defined) for
the fiscal quarter then ended and for every fiscal quarter thereafter must
increase by 50% of
13
<PAGE> 15
EXCO's Consolidated Net Income for the fiscal quarter then ended. On June 30,
1998, EXCO was in compliance with both the Consolidated Tangible Net Worth
covenant and the Current Ratio covenant.
The Rights Offering
On July 16, 1998, EXCO's registration statement was declared effective
by the Securities and Exchange Commission authorizing the commencement of a
rights offering to its existing stockholders. Each stockholder received 10
rights for each share of EXCO's common stock held. Each right entitled the
stockholder to purchase one share of EXCO common stock for $6.00 per share. The
rights offering expired on August 12, 1998. EXCO received net proceeds of
approximately $35.5 million. The exercise of the rights by some existing
stockholders or their assignees has resulted in the dilution of the shares of
common stock held by those stockholders who did not exercise their rights. EXCO
intends to use the proceeds for future acquisitions, development drilling and
recompletions, the repayment of its current bank indebtedness, working capital
and general corporate purposes.
YEAR 2000 COMPLIANCE
EXCO's management has conducted a review of its information systems and
related data-processing activities to assess its exposure to the Year 2000
issue. As a result, EXCO purchased an oil and gas based software system which is
Year 2000 compliant. The Year 2000 compliant version of this software is in use
at other oil and gas companies currently. This software to now being used by
EXCO.
EXCO currently uses Year 2000 compliant engineering evaluation software
for acquisition analysis, as well as internal engineering applications. EXCO's
spreadsheet and word processing software is also Year 2000 compliant.
EXCO has potential Year 2000 exposure with regard to its third party
relationships and services including its bank and bank accounts, payroll
processing which is outsourced, and other vendor and/or service providers who
utilize computers. Though EXCO has no control over Year 2000 compliance
implementation by these parties, EXCO has inquired and been assured that all of
EXCO's service providers are currently or will be Year 2000 compliant.
EXCO does not currently anticipate that it will incur material
expenditures, if any at all, to complete modifications for the year 2000.
14
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
15
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
27 Financial Data Schedule.
(b) Current Reports on Form 8-K:
1. Current Report on Form 8-K dated May 8, 1998 pursuant to
Item 2.
2. Current Report on Form 8-K dated May 1, 1998 pursuant to
Item 5.
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<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
EXCO RESOURCES, INC.
(Registrant)
Date: August 14, 1998 By: /s/ J. DOUGLAS RAMSEY
------------------------------------------
J. Douglas Ramsey
Chief Financial Officer and Vice President
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION OF EXHIBIT
--- ----------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 595,000
<SECURITIES> 0
<RECEIVABLES> 291,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,016,000
<PP&E> 10,352,000
<DEPRECIATION> 3,913,000
<TOTAL-ASSETS> 7,813,000
<CURRENT-LIABILITIES> 755,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 979,000
<TOTAL-LIABILITY-AND-EQUITY> 7,813,000
<SALES> 428,000
<TOTAL-REVENUES> 455,000
<CGS> 0
<TOTAL-COSTS> 941,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,000
<INCOME-PRETAX> (486,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (486,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (486,000)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
</TABLE>
