<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SEPTEMBER 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: 333-29001-01
ENERGY CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 84-1235822
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
4643 SOUTH ULSTER STREET, SUITE 1100
DENVER, COLORADO 80237
(Address of principal executive offices and zip code)
(303) 694-2667
(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[ ]
The number of shares of the Registrant's common stock, par value $1.00 per
share, outstanding at September 30, 1998 was 659,965 shares.
<PAGE> 2
ENERGY CORPORATION OF AMERICA
TABLE OF CONTENTS
PAGES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 (unaudited) and June 30, 1998.....................3
Unaudited Condensed Consolidated Statements of Operations
For the three months ended September 30, 1998 and 1997...............5
Unaudited Condensed Consolidated Statements of Cash Flows
For the three months ended September 30, 1998 and 1997...............6
Notes to Unaudited Condensed Consolidated Financial Statements........7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation..................................................9
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................11
Item 2. Changes in Securities................................................11
Item 3. Defaults Upon Senior Securities......................................11
Item 4. Submission of Matters to a Vote of Security Holders..................11
Item 5. Other Information....................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................11
Signatures...................................................................12
Exhibit Index................................................................13
<PAGE> 3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
SEPTEMBER 30 JUNE 30
1998 1998
(UNAUDITED) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,377 $ 21,547
Accounts receivable, net of allowance for doubtful
accounts of $701 and $1,281 25,010 32,827
Gas in storage, at average cost 26,331 13,249
Income tax receivable 5,222 4,310
Prepaid and other current assets 6,472 5,840
------------- -------------
Total current assets 78,412 77,773
------------- -------------
Property, plant and equipment, net of accumulated
depreciation and depletion of $109,222 and $105,350 322,071 318,547
------------- -------------
OTHER ASSETS
Deferred financing costs, net of accumulated
amortization of $1,301 and $1,046 9,290 9,545
Notes receivable, less allowance for doubtful accounts
of $400 4,846 5,618
Deferred utility charges 19,081 18,233
Other 10,345 10,229
------------- -------------
Total other assets 43,562 43,625
------------- -------------
TOTAL $ 444,045 $ 439,945
============= =============
<FN>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
SEPTEMBER 30 JUNE 30
1998 1998
(UNAUDITED) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,380 $ 38,883
Current portion of long-term debt 584 581
Short-term debt 38,407 19,174
Funds held for future distribution 4,817 5,716
Accrued taxes, other than income 6,941 8,472
Overrecovered gas costs 5,626 6,485
Other current liabilities 12,546 13,758
------------- -------------
Total current liabilities 106,301 93,069
LONG-TERM OBLIGATIONS
Long-term debt 261,360 261,507
Gas delivery obligation and deferred trust revenue 15,549 16,127
Deferred income tax liability 24,509 24,552
Other long-term obligation 12,758 12,837
------------- -------------
Total liabilities 420,477 408,092
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST - 1,883
STOCKHOLDERS' EQUITY
Common stock, par value $1.00; 2,000 shares authorized;
720 shares issued 720 720
Class A stock, no par value; 100 shares authorized;
14 and 0 shares issued 1,890
Additional paid in capital 4,510 4,510
Retained earnings 20,980 29,132
Treasury stock and notes receivable arising from the
issuance of common stock (4,471) (4,082)
Other (61) (310)
------------- -------------
Total Stockholders' equity 23,568 29,970
------------- -------------
TOTAL $ 444,045 $ 439,945
============= =============
<FN>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
REVENUES:
Utility gas sales and transportation $ 13,863 $ 15,068
Gas marketing and pipeline sales 31,045 39,310
Oil and gas sales 5,855 6,359
Well operations and service revenues 1,883 1,621
Other revenue 358 545
---------- ---------
53,004 62,903
---------- ---------
COST AND EXPENSES:
Utility gas purchased 7,418 9,808
Gas marketing and pipeline cost 30,104 39,640
Field operating expenses 2,499 2,369
Utility operations and maintenance 5,584 5,222
General and administrative 5,111 4,076
Taxes, other than income 2,163 2,455
Depletion and depreciation, oil and gas related 2,175 2,087
Depreciation of pipelines and equipment 1,948 1,584
Exploration and impairment 2,130 965
---------- ---------
59,132 68,206
---------- ---------
Income from operations (6,128) (5,303)
---------- ---------
OTHER (INCOME) EXPENSE
Interest 6,604 6,528
Loss (gain) on sale of assets (727) 65
Other (433) (240)
---------- ---------
Income before income taxes and minority interest (11,572) (11,656)
Provision for income taxes (3,750) (4,403)
---------- ---------
Income before minority interest (7,822) (7,253)
Minority interest 8 10
---------- ---------
NET INCOME $ (7,830) $ (7,263)
========== =========
Net income per common share,
Basic $ (11.85) $ (10.93)
Assuming dilution $ (11.85) $ (10.90)
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
- ---------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,830) $ (7,263)
Adjustment to reconcile net loss to net cash provided
by operating activities:
Minority interest 8 10
Depletion, depreciation and amortization 4,323 3,860
Loss (gain) on sale of assets (727) 65
Exploration and impairment 1,992 965
Other, net (1,291) (5,701)
--------- ---------
(3,525) (8,064)
Changes in assets and liabilities
Accounts receivable 8,647 8,654
Gas in storage (13,082) (13,870)
Prepaid and other assets (1,993) 4,799
Accounts payable (1,955) 11,800
Funds held for future distributions (898) (304)
Overrecovered gas costs (860) (741)
Other (2,798) (10,621)
--------- ---------
Net cash used by operating activities (16,464) (8,347)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (9,353) (5,910)
Proceeds from sale of assets 1,257 65
Notes receivable and other 13 149
--------- ---------
Net cash used by investing activities (8,083) (5,696)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payment on long-term debt (145) (10)
Short-term borrowings, net 19,233 19,041
Purchase of treasury stock (389) (223)
Dividends (322)
Other equity transactions - (404)
--------- ---------
Net cash provided by financing activities 18,377 18,404
--------- ---------
Net decrease in cash and cash equivalents (6,170) 4,361
Cash and cash equivalents, beginning of period 21,547 20,816
--------- ---------
Cash and cash equivalents, end of period $ 15,377 $ 25,177
========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 7
ENERGY CORPORATION OF AMERICA
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 1998
1. Nature of Organization
Energy Corporation of America (the "Company) was formed in June 1993 through an
exchange of shares with the common stockholders of Eastern American Energy
Corporation. The Company is an independent integrated energy company that,
through its subsidiaries, is primarily engaged in operating a natural gas
distribution system in the Mid-Atlantic area and oil and gas operations in the
Rocky Mountain and Appalachian Basins. The Company also is engaged in the
exploration and production of oil and natural gas in other parts of the United
States and New Zealand. All references to the "Company" include Energy
Corporation of America and its consolidated subsidiaries.
2. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for 1998,
which contains a summary of major accounting policies followed in preparation of
its consolidated financial statements. These policies were also followed in
preparing the quarterly report included herein.
Management of the Company believes that all adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation of the results of
such interim periods, included herein, have been made. The results of
operations for the three months ended September 30, l998 are not necessarily
indicative of the results to be expected for the full year.
3. Issuance of Class A Stock
In August 1998, the Company amended its articles of incorporation authorizing
the issuance of up to 100,000 shares of Class A non-voting common stock. The
Company then offered to exchange its new Class A common stock for the remaining
outstanding Class A stock of its subsidiaries, owned by certain employees,
officers and directors. The minority interest carrying value prior to exchange
(reflecting the subsidiaries Class A shares) was utilized to record the issuance
of the Company's new Class A common shares.
4. Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
adopted SFAS 130 on July 1, 1998. The Company's components of other
comprehensive income for the three months ended September 30, 1998 and 1997 were
nominal.
<PAGE> 8
5. Earnings per Share
Basic earnings per share is computed by dividing net earnings available for
common stockholders by the weighted average number of common shares outstanding
for the year. Diluted earnings per share reflects the potential dilution that
could occur if options to issue common stock were exercised. Dilutive earnings
per share are computed based upon the weighted average number of common shares
and dilutive common equivalent shares outstanding.
A reconciliation of the numerators and denominators of the basic and diluted
per share computations for income from continuing operations is as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -----------
<S> <C> <C> <C>
For the Three Months Ended September 30, 1998:
Income available to common
shareholders $(7,830,000) 660,623 $ (11.85)
============ ============= ===========
For the Three Months Ended September 30, 1997:
Income available to common
shareholders $(7,263,485) 664,720 $ (10.93)
Effect of dilutive options 1,493
------------
Income available to common
shareholders plus assumed
conversions $(7,263,485) 666,213 $ (10.90)
============ ============= ===========
</TABLE>
6. Contingencies
The Company is involved in various legal actions and claims arising in the
ordinary course of business. Management does not expect these matters to have a
material adverse effect on the Company's financial position.
<PAGE> 9
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis of changes in the Company's financial
condition, including results of operations and liquidity and capital resources
during the three-month periods ended September 30, 1998 and 1997, are presented
below. The Company's operating loss from operations increased from a loss of
$5.3 million at September 30, 1997 to a loss of $6.1 million at September 30,
1998. The Company's utility operating loss decreased $0.1 million from $5.0
million to $4.9 million for the quarters ended September 30, 1997 and 1998,
respectively. The Company's gas marketing and pipeline operations improved from
a loss of $0.3 million at September 30, 1997 to a gain of $0.9 million at
September 30, 1998. The Company's oil and gas operations loss increased from
$5.3 million at September 30, 1997 to $6.2 million at September 30, 1998.
Comparison of Results of Operations for the Three Months Ended September 30,
1998 and 1997
NET INCOME. The Company recorded a net loss of $7.8 million for the three
months ended September 30, 1998, compared to a net loss of $7.3 million for the
same period in 1997. The increase in net loss between the periods is primarily
attributable to a $9.9 million decrease in revenue partially offset by a $9.1
million decrease in costs and expenses.
REVENUES. Total revenues decreased $9.9 million or 15.7% during the
periods. The decrease was due to an 8.0% decrease in utility gas sales and
transportation, a 21.0% decrease in gas marketing and pipeline sales and a 7.9%
decrease in oil and gas sales.
Revenues from utility gas sales and transportation decreased 8.0% from
$15.1 million during the quarter ended September 30, 1997 to $13.9 million in
the quarter ended September 30, 1998. The decrease resulted from reduced
tariff sales and transportation volumes. Total throughput was 9.5 Bcf and 10.9
Bcf for the periods ended September 30, 1998 and 1997, respectively. Tariff
volumes sold decreased 10% and transportation volumes decreased 14%. A factor
contributing to the decrease in volumes was a 60.5% decline in the number of
weighted average degree-days.
Revenues from gas marketing and pipeline sales decreased 21.0% from $39.3
million during the quarter ended September 30, 1997 to $31.0 million in the
quarter ended September 30, 1998. The decrease in revenue is primarily
attributable to a 14.9% decline in marketed volumes from 12.7 Bcfe at September
30, 1997 to 10.8 Bcfe at September 30, 1998 and an 11.2% decline in the average
sales price per mmbtu from $2.50 to $2.21 for the same periods. The decline in
volumes and average sales price was partially attributable to the termination of
a long-term supply contract effective June 30, 1998 as a result of the "Contract
Settlement", as discussed in Note 17 to the Company's audited Consolidated
Financial Statements for the year ended June 30, 1998 filed with the Securities
and Exchange Commission on September 28, 1998 as a part of the Company's Form
10-K, which Note 17 is hereby incorporated by reference herein.
Revenues from oil and gas sales decreased 7.9% from $6.4 million at
September 30, 1997 to $5.9 million at September 30, 1998. The decrease in
revenue is primarily attributable to an 8.6% decline in average unit sales price
from $2.56 per Mcfe to $2.34 per Mcfe for the respective periods. The units
sold during the two periods were relatively unchanged at 2.5 Bcfe.
COSTS AND EXPENSES. The Company's costs and expenses decreased $9.1
million or 13.3% during this period primarily as the result of a $2.4 million
decline in the cost of utility gas purchased and a $9.5 million decline in gas
marketing purchased gas costs, which was partially offset by a $1.0 million
increase in general and administrative expenses and a $1.2 million increase in
impairment and exploratory charges in the current period.
<PAGE> 10
The 24.4% decline in the cost of utility gas purchased was due to a decline
in tariff volumes sold from 1.6 Bcf in 1997 to 1.4 Bcf in 1998, reduced pipeline
supplier demand charges of approximately $0.4 million and lower average
commodity gas purchase costs due to market conditions.
The 24.1% decline in gas marketing and pipeline costs is attributable to a
15.6% decline in purchase gas volumes from 12.8 Bcf to 10.8 Bcf for the quarters
ended September 30, 1997 to 1998, respectively and a 12.3% decrease in the
average price per mmbtu paid for gas purchased from $2.51 to $2.20 for the same
periods.
General and administrative expenses increased 25.4% for the quarters ended
September 30, 1997 to 1998, primarily due to increased activities at the
corporate level, increased labor and benefits cost at the utility operations and
the inclusion of MAPCOM Systems, Inc. which was acquired in November 1997.
Impairment and exploratory costs increased $1.2 million for the current
period as a result of two exploratory dry holes in New Zealand.
INTEREST EXPENSE. Interest expense remained relatively unchanged between
the three months ended September 30, 1998 and 1997.
INCOME TAX BENEFIT. The benefit for income taxes decreased $0.7 million as
a result of a revised effective tax rate.
Liquidity and Capital Resources
CASH FLOWS. Net cash provided by operating activities is primarily
affected by oil and gas prices, seasonality, heating degree-days, utility rate
regulation, marketing margins and the Company's success in drilling activities.
The Company's net decrease in cash flow from operations was approximately $16.5
million for the three month period ended September 30, 1998. The major portion
of the use of cash is due to the seasonality of the Company's utility
operations. In addition, the Company invested approximately $6.6 million in oil
and gas exploration and development activities and $2.7 million in utility plant
improvements. The net cash used in operations and invested in asset additions
were funded primarily through short-term borrowings. The Company plans to
continue to pursue capital investment opportunities both domestically and
internationally. Management believes that the Company has adequate capital
resource to meet its operating requirements and to pursue capital investment
opportunities.
CREDIT FACILITIES. The Company and its operating subsidiaries of the
Company have (i) a $50 million secured, revolving credit facility under which no
amounts were outstanding a September 30, 1998 and (ii) $73 million in unsecured,
revolving bank lines of credit, under which approximately $38.4 million was
drawn at September 30, 1998.
OTHER MATTERS. The Company is currently assessing its computer systems to
determine any issues it may have regarding the year 2000. The Company has
determined that the majority of the existing systems will be replaced, through a
capital project, with new technology. The remaining legacy systems are
projected to be in compliance with Year 2000 issues prior to the end of this
fiscal year. The Company does not expect there to be a material impact on the
Company's business, operations, cash flows or financial condition.
<PAGE> 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not a party to any legal actions that would materially affect the
Company's operations or financial statements.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a vote of Security Holders
On August 10, 1998 a special meeting of the Company's common shareholders was
held. There was a majority vote to adopt the proposal by the Board of
Directors to amend the Company's articles of incorporation to issue nonvoting
Class A stock. The Company has been authorized to issue 100,000 shares, without
par value, of Class A stock providing the issuance of said stock does not exceed
10% of the total ownership of the corporation.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1998
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under
signed thereunto, duly authorized, in the City of Denver, State of Colorado, on
the 16th day of November, 1998.
ENERGY CORPORATION OF AMERICA
By: /s/John Mork
----------------------------------
John Mork
Chief Executive Officer and Director
By: /s/Joseph E. Casabona
----------------------------------
Joseph E. Casabona
Executive Vice President and Director
By: /s/J. Michael Forbes
----------------------------------
J. Michael Forbes
Vice President and Treasurer
<PAGE> 13
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND STATEMENTS OF OPERATIONS ON PAGES 3 - 8 OF THE COMPANY'S
SEPTEMBER 30, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,377
<SECURITIES> 0
<RECEIVABLES> 25,711
<ALLOWANCES> 701
<INVENTORY> 26,331
<CURRENT-ASSETS> 78,412
<PP&E> 431,293
<DEPRECIATION> 109,222
<TOTAL-ASSETS> 444,045
<CURRENT-LIABILITIES> 106,301
<BONDS> 261,360
0
0
<COMMON> 720
<OTHER-SE> 22,848
<TOTAL-LIABILITY-AND-EQUITY> 444,045
<SALES> 53,004
<TOTAL-REVENUES> 53,004
<CGS> 37,522
<TOTAL-COSTS> 59,132
<OTHER-EXPENSES> (1,160)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,604
<INCOME-PRETAX> (11,572)
<INCOME-TAX> (3,750)
<INCOME-CONTINUING> (7,822)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,822)
<EPS-PRIMARY> (11.85)
<EPS-DILUTED> (11.85)
</TABLE>
