<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 DECEMBER 31, 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 December 31, 1998 was 658,965 shares.
<PAGE> 2
ENERGY CORPORATION OF AMERICA
TABLE OF CONTENTS
PAGES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1998 (unaudited) and June 30, 1998......................3
Unaudited Condensed Consolidated Statements of Operations
For the three and six months ended December 31, 1998 and 1997........5
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended December 31, 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....................................................13
Item 2. Changes in Securities................................................13
Item 3. Defaults Upon Senior Securities......................................13
Item 4. Submission of Matters to a Vote of Security Holders..................13
Item 5. Other Information....................................................13
Item 6. Exhibits and Reports on Form 8-K.....................................13
Signatures...................................................................14
Exhibit Index................................................................15
<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>
DECEMBER 31 JUNE 30
1998 1998
(UNAUDITED) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,525 $ 21,547
Accounts receivable, net of allowance for doubtful
accounts of $933 and $1,281 47,843 32,827
Gas in storage, at average cost 447 13,249
Income tax receivable 1,112 4,310
Prepaid and other current assets 23,045 5,840
------------ --------
Total current assets 77,972 77,773
------------ --------
Property, plant and equipment, net of accumulated
depreciation and depletion of $114,905 and $105,350 325,815 318,547
------------ --------
OTHER ASSETS
Deferred financing costs, net of accumulated
amortization of $1,557 and $1,046 9,034 9,545
Notes receivable, less allowance for doubtful accounts
of $400 5,000 5,618
Deferred utility charges 15,819 18,233
Other 10,680 10,229
------------ --------
Total other assets 40,533 43,625
------------ --------
TOTAL $ 444,320 $439,945
============ ========
<FN>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------------
<S> <C> <C>
DECEMBER 31 JUNE 30
1998 1998
(UNAUDITED) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 24,813 $ 38,883
Current portion of long-term debt 585 581
Short-term debt 48,577 19,174
Funds held for future distribution 4,877 5,716
Accrued taxes, other than income 8,817 8,472
Overrecovered gas costs 4,999 6,485
Other current liabilities 8,937 13,758
------------- ---------
Total current liabilities 101,605 93,069
LONG-TERM OBLIGATIONS
Long-term debt 263,819 261,507
Gas delivery obligation and deferred trust revenue 14,988 16,127
Deferred income tax liability 26,894 24,552
Other long-term obligation 10,501 12,837
------------- ---------
Total liabilities 417,807 408,092
------------- ---------
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;
26 and 0 shares issued 2,753
Additional paid in capital 4,510 4,510
Retained earnings 24,004 29,132
Treasury stock and notes receivable arising from the
issuance of common stock (5,410) (4,082)
Other (64) (310)
------------- ---------
Total Stockholders' equity 26,513 29,970
------------- ---------
TOTAL $ 444,320 $439,945
============= =========
<FN>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated 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 FOR THE SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Utility gas sales and transportation $ 53,171 $ 56,801 $ 67,034 $ 71,869
Gas marketing and pipeline sales 25,400 42,475 56,445 81,785
Oil and gas sales 5,801 6,503 11,656 12,861
Well operations and service revenues 1,707 1,965 3,590 3,586
Other revenue 461 884 819 1,429
----------- ------------ ------------ ------------
86,540 108,628 139,544 171,530
----------- ------------ ------------ ------------
COST AND EXPENSES:
Utility gas purchased 25,323 30,679 32,741 40,486
Gas marketing and pipeline cost 24,326 43,591 54,430 83,231
Field operating expenses 2,286 2,576 4,785 4,945
Utility operations and maintenance 4,995 4,966 10,578 10,188
General and administrative 6,332 6,647 11,443 10,723
Taxes, other than income 4,533 4,916 6,697 7,371
Depletion and depreciation, oil and gas related 2,145 2,036 4,320 4,123
Depreciation of pipelines and equipment 4,039 3,286 5,988 4,870
Exploration and impairment 765 548 2,895 1,513
----------- ------------ ------------ -----------
74,744 99,245 133,877 167,450
----------- ------------ ------------ -----------
Income from operations 11,796 9,383 5,667 4,080
----------- ------------ ------------ -----------
OTHER (INCOME) EXPENSE
Interest 6,805 6,807 13,410 13,334
Gain on sale of assets (369) (84) (1,097) (19)
Other (413) (679) (846) (919)
------------ ----------- ------------ -----------
Income (loss) before income taxes and
minority interest 5,773 3,339 (5,800) (8,316)
Provision (benefit) for income taxes 2,425 1,258 (1,326) (3,145)
----------- ------------ ------------ -----------
Income (loss) before minority interest 3,348 2,081 (4,474) (5,171)
Minority interest - 21 8 32
----------- ------------ ------------ -----------
NET INCOME (LOSS) $ 3,348 $ 2,060 $ (4,482) $ (5,203)
=========== ============ ============ ===========
Net income (loss) per common share,
Basic and assuming dilution $ 5.08 $ 3.10 $ (6.79) $ (7.83)
=========== ============ ============ ===========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
FOR THE SIX MONTHS ENDED
DECEMBER 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,482) $ (5,203)
Adjustment to reconcile net loss to net cash provided
by operating activities:
Minority interest 8 32
Depletion, depreciation and amortization 10,708 9,380
Gain on sale of assets (1,097) (19)
Exploration and impairment 2,640 1,456
Other, net (10,264) (13,827)
---------------- -------------
(2,487) (8,181)
Changes in assets and liabilities
Accounts receivable (2,655) (6,635)
Gas in storage 12,802 (5,669)
Prepaid and other assets (14,327) 10,002
Accounts payable (14,435) 4,148
Funds held for future distributions (839) 471
Overrecovered gas costs (1,486) (1,478)
Other (5,162) (8,203)
---------------- ------------
Net cash used by operating activities (28,589) (15,545)
---------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (20,427) (15,865)
Proceeds from sale of assets 2,515 385
Notes receivable and other (133) 135
---------------- ------------
Net cash used by investing activities (18,045) (15,345)
---------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 2,500
Principal payment on long-term debt (184) (23)
Short-term borrowings, net 29,403 27,362
Purchase of treasury stock (465) (223)
Dividends (642) (255)
Other financing and equity transactions - (639)
---------------- ------------
Net cash provided by financing activities 30,612 26,222
---------------- ------------
Net decrease in cash and cash equivalents (16,022) (4,668)
Cash and cash equivalents, beginning of period 21,547 20,814
---------------- ------------
Cash and cash equivalents, end of period $ 5,525 $ 16,146
================ ===============
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE> 7
ENERGY CORPORATION OF AMERICA
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 six months ended December 31, 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 130 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 six months ended December 31, 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 reflect 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 Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
For the Three Months Ended For the Six Months Ended
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998:
Income (loss) available to
common shareholders $3,348,000 659,105 $5.08 $(4,482,000) 659,860 $(6.79)
========== ======= ===== ============ ======= =======
December 31, 1997:
Income (loss) available to
common shareholders $2,060,000 663,812 $3.10 $(5,203,000) 664,649 $(7.83)
========== ======= ===== ============ ======= =======
</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 and six month periods ended December 31, 1998 and 1997, are
presented below.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
AND 1997
The Company's operating income increased from a gain of $9.4 million at
December 31, 1997 to $11.8 million at December 31, 1998. The Company's utility
operating income increased $2.0 million from $10.2 million to $12.2 million for
the quarters ended December 31, 1997 and 1998, respectively. The Company's gas
marketing and pipeline operations improved from a loss of $1.1 million at
December 31, 1997 to a gain of $1.1 million at December 31, 1998. The Company's
oil and gas operating income decreased from a gain of $1.3 million at December
31, 1997 to a loss of $0.4 million at December 31, 1998, primarily as a result
of exploratory expenditures.
NET INCOME. The Company recorded net income of $3.3 million for the three
months ended December 31, 1998, compared to net income of $2.1 million for the
same period in 1997. The increase in net income between the periods is
primarily attributable to a $24.5 million decrease in operating costs and
expenses partially offset by a $22.1 million decrease in revenue.
REVENUES. Total revenues decreased $22.1 million or 20.3% during the
periods. The decrease was due to a 6.4% decrease in utility gas sales and
transportation, a 40.2% decrease in gas marketing and pipeline sales and a 10.8%
decrease in oil and gas sales.
Revenues from utility gas sales and transportation decreased 6.4% from
$56.8 million during the quarter ended December 31, 1997 to $53.2 million in the
quarter ended December 31, 1998. This decrease was caused primarily by lower
tariff and transportation volumes sold. Total system throughput was 16.7 Bcf
and 19.1 Bcf for the periods ended December 31, 1998 and 1997, respectively.
Tariff volumes decreased by approximately 10% from 8.6 Bcf in 1997 to 7.8 Bcf in
1998. This decline was primarily caused by warmer weather conditions in the
service areas resulting in a 15.0% decline in the number of weighted average
degree-days during the current period. Transportation volumes declined by
approximately 14% from 10.5 Bcf in 1997 to 9.0 Bcf in 1998 principally due to
lower volumes transported for a significant industrial customer. These
decreases were partially offset by an increase, effective November 1, 1998, in
the tariff sales rates.
Revenues from gas marketing and pipeline sales decreased 40.2% from $42.5
million during the quarter ended December 31, 1997 to $25.4 million in the
quarter ended December 31, 1998. The decrease in marketing and pipeline sales
was a result of a 30.9% decline in marketed gas volumes from 13.5 Bcfe for the
quarter ended December 31, 1997 to 9.3 Bcfe for the quarter ended December 31,
1998 and a 17.8% decline in the average sales price per mmbtu from $2.96 per
mmbtu for the quarter ended December 31, 1997 to $2.44 for the quarter ended
December 31, 1998. 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. For the quarter ended December 31, 1997,
this contract accounted for 1.0 Bcfe of marketed volumes and $3.0 million of
marketing sales. There were no sales related to this contract for the quarter
ended December 31, 1998. Additionally, a marketing contract with the Company's
utility expired on October 31, 1998 and was not renewed. For the quarter ended
December 31, 1997 this contract accounted for 1.5 Bcfe of marketed volumes and
$3.5 million of marketing sales. For the quarter ended December 31, 1998, which
included one month of sales under this contract, it accounted for .6 Bcfe of
marketed volumes and $1.3 million of marketing sales.
<PAGE> 10
Revenues from oil and gas sales decreased 10.8% from $6.5 million at
December 31, 1997 to $5.8 million at December 31, 1998. The decrease in oil and
gas sales was primarily attributable to a 51.0% decrease in the average sales
price per barrel of oil from $16.50 for the quarter ended December 31, 1997 to
$8.09 for the quarter ended December 31, 1998, and a 12.4% decrease in the
average gas sales price from $2.67 per mcf for the three months ended December
31, 1997 to $2.34 per mcf for the three months ended December 31, 1998. These
price declines were partially offset by an increase in oil and gas production
over the quarter ended December 31, 1997 of 21.1% and 9.5% respectively.
COSTS AND EXPENSES. The Company's costs and expenses decreased $24.5
million or 24.7% during this period primarily as the result of a $5.4 million
decline in the cost of utility gas purchased and a $19.3 million decline in gas
marketing purchased gas costs. General and administrative expenses and
impairment and exploratory charges remained relatively unchanged between the
period.
The 17.5% decline in the cost of utility gas purchased was due primarily to
a decline in tariff volumes sold from 8.6 Bcf in 1997 to 7.8 Bcf in 1998 and
reduced pipeline supplier demand charges as a result of a gas supply management
agreement with a third party, which went into effect on November 1, 1998.
The 44.2% decline in gas marketing and pipeline costs was primarily
attributable to a 30.7% decline in purchased gas volumes from 13.6 Bcfe for the
quarter ended December 31, 1997 to 9.4 Bcfe for the quarter ended December 31,
1998, a 22.1% decrease in the average price paid for gas purchased from $3.06
per mmbtu for the quarter ended December 31, 1997 to $2.38 per mmbtu for the
quarter ended December 31, 1998, and approximately $0.7 million of purchased gas
costs charged against a reserve for loss on future gas purchases primarily
relating to the "Contract Settlement" discussed above.
INTEREST EXPENSE. Interest expense remained relatively unchanged between
the three months ended December 31, 1998 and 1997.
INCOME TAX BENEFIT. The provision for income taxes increased $1.3 million
primarily as a result of increased pretax income and a revised effective tax
rate.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
AND 1997
The Company's operating income increased from a gain of $4.1 million at
December 31, 1997 to $5.7 million at December 31, 1998. The Company's utility
operating income increased $2.0 million from $5.4 million to $7.4 million for
the six months ended December 31, 1997 and 1998, respectively. The Company's
gas marketing and pipeline operations improved from a loss of $1.4 million at
December 31, 1997 to a gain of $2.0 million at December 31, 1998. The Company's
oil and gas operating income decreased from a gain of $1.7 million at December
31, 1997 to a loss of $1.6 million at December 31, 1998, primarily as a result
of exploratory expenditures.
NET INCOME. The Company recorded a net loss of $4.5 million for the six
months ended December 31, 1998, compared to a net loss of $5.2 million for the
same period in 1997. The decrease in the net loss between the periods is
primarily attributable to a $33.6 million decrease in operating costs and
expenses, which is partially offset by a $32.0 million decrease in revenue.
<PAGE> 11
REVENUES. Total revenues decreased $32.0 million or 18.7% during the
periods. The decrease was due to a 6.7% decrease in utility gas sales and
transportation, a 31.0% decrease in gas marketing and pipeline sales and a 9.4%
decrease in oil and gas sales.
Revenues from utility gas sales and transportation decreased 6.7% from
$71.9 million during the six months ended December 31, 1997 to $67.0 million for
the six months ended December 31, 1998. This decrease was caused primarily by
lower sales and transportation volumes sold. Total throughput was 26.2 Bcf and
30.0 Bcf for the periods ended December 31, 1998 and 1997, respectively. Tariff
volumes decreased by approximately 10% from 10.2 Bcf in 1997 to 9.2 Bcf in 1998.
This decline was primarily caused by warmer weather conditions in the service
areas resulting in a 17.7% decline in the number of weighted average degree-days
during the current period. Transportation volumes declined by approximately 14%
from 19.9 Bcf in 1997 to 17.0 Bcf in 1998 primarily as a result of reduced usage
by a significant industrial customer. These decreases were partially offset by
an increase, effective November 1, 1998, in the tariff sales rates.
Revenues from gas marketing and pipeline sales decreased 31.0% from $81.8
million during the six months ended December 31, 1997 to $56.4 million for the
six months ended December 31, 1998. The decrease in marketing and pipeline
sales was a result of a 22.2% decline in marketed gas volumes from 28.4 Bcfe for
the six months ended December 31, 1997 to 22.1 Bcfe for the six months ended
December 31, 1998 and a 15.1% decline in the average sales price per mmbtu from
$2.72 per mmbtu for the six months ended December 31, 1997 to $2.31 for the six
months ended December 31, 1998. 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
previously. For the six months ended December 31, 1997, this contract accounted
for 1.9 Bcfe of marketed volumes and $5.7 million of marketing sales. There
were no sales related to this contract for the six months ended December 31,
1998. Additionally, a marketing contract with the Company's utility expired on
October 31, 1998 and was not renewed. For the six months ended December 31,
1997 this contract accounted for 4.3 Bcfe of marketed volumes and $9.5 million
of marketing sales. For the six months ended December 31, 1998, which included
four months of sales under this contract, it accounted for 3.4 Bcfe of marketed
volumes and $7.1 million of marketing sales.
Revenues from oil and gas sales decreased 9.4% from $12.9 million at
December 31, 1997 to $11.7 million at December 31, 1998. The decrease in oil
and gas sales was primarily attributable to a 42.8% decrease in the average
sales price per barrel of oil from $17.36 for the six months ended December
31,1997 to $9.93 for the six months ended December 31, 1998, and an 8.3% decline
in the average sales price per mcf of gas from $2.56 for the six months ended
December 31, 1997 to $2.34 for the six months ended December 31, 1998. These
price declines were partially offset by an increase in oil and gas production
over the six months ended December 31, 1997 of 28.2% and 3.7% respectively.
COSTS AND EXPENSES. The Company's costs and expenses decreased $33.6
million or 20.1% during this period primarily as the result of a $7.7 million
decline in the cost of utility gas purchased and a $28.8 million decline in gas
marketing purchased gas costs, which was partially offset by a $0.7 million
increase in general and administrative expenses, a $1.3 million increase in
depreciation, depletion and amortization expenses, and a $1.4 million increase
in impairment and exploratory charges in the current period.
The 19.1% decline in the cost of utility gas purchased was due to a decline
in tariff volumes sold from 10.2 Bcf in 1997 to 9.2 Bcf in 1998 and reduced
pipeline supplier demand charges as a result of a gas supply management
agreement with a third party that went into effect on November 1, 1998.
<PAGE> 12
The 34.6% decline in gas marketing and pipeline costs is primarily
attributable to a 22% decline in purchased gas volumes from 28.6 Bcfe for the
six months ended December 31, 1997 to 22.3 Bcfe for the six months ended
December 31, 1998, an 18% decrease in the average price paid for gas purchased
from $2.77 per mmbtu for the six months ended December 31, 1997 to $2.28 per
mmbtu for the six months ended December 31, 1998, and approximately $1.5 million
of purchased gas costs charged against a reserve for loss on future gas
purchases primarily relating to the "Contract Settlement" discussed previously.
These decreases were partially offset by approximately $0.4 million of purchased
gas costs for the six months ended December 31, 1998 related to the operations
of the intrastate pipeline gathering system that was purchased in March 1998.
General and administrative expenses increased 6.7% for the six months ended
December 31, 1997 to 1998 primarily due to increased activities at the corporate
level, recognition of credits which reduced expenses in the prior period, and
the inclusion of MAPCOM Systems, Inc. which was acquired in November 1997.
Depreciation, depletion and amortization costs increased 14.6% primarily
due to additions to the utility gas plant in service.
Impairment and exploratory costs increased 91.3% for the current period as
a result of two exploratory dry holes in New Zealand and the expiration of
certain leases.
INTEREST EXPENSE. Interest expense remained relatively unchanged between
the six months ended December 31, 1998 and 1997.
INCOME TAX BENEFIT. The benefit for income taxes decreased $1.8 million as
a result of increased pretax income and 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 $28.6 million for
the six month period ended December 31, 1998. The major portion of the use of
cash is due to the seasonality of the Company's utility operations. The Company
invested approximately $11.7 million in oil and gas exploration and development
activities and $6.1 million in utility plant improvements. The net cash used in
operations and invested in asset additions were funded primarily through cash on
hand and 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 have (i) a
$50 million secured, revolving credit facility under which $2.5 million was
outstanding at December 31, 1998 and (ii) $66.0 million in unsecured, revolving
bank lines of credit, under which $52.1 million was outstanding at December 31,
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 as a result of
Year 2000 issues.
<PAGE> 13
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) 3 Articles of Amendment to Articles of Incorporation
10 Incentive Stock Purchase Agreement - Joseph Casabona
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended December
31, 1998
<PAGE> 14
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 February, 1999.
ENERGY CORPORATION OF AMERICA
By: /s/John Mork
----------------------------------
John Mork
Chief Executive Officer and Director
By: /s/Isobel Allan
----------------------------------
Isobel Allan
Vice President of Finance
<PAGE> 15
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3 Articles of Amendment to Articles of Incorporation
10 Incentive Stock Purchase Agreement - Joseph Casabona
27 Financial Data Schedule
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF
ENERGY CORPORATION OF AMERICA
Pursuant to the provisions of Section 31, Article 1, Chapter 31 of the West
Virginia Code, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation, FILED IN DUPLICATE:
First: The name of the corporation is Energy Corporation of
America ("ECA").
Second: The following amendment to the Articles of Incorporation was
adopted by the board of directors of the corporation on the 10th day of
December, 1998, in the manner provided by Section 107(a), Article 1, Chapter 31
of the Code of West Virginia:
Article VI of the Articles of Incorporation of ECA is hereby amended to
delete the provisions of the amendment filed on August 21, 1998 and to
substitute in its place the following:
(a) A new class of stock is created and known as "Class A Stock". ECA
is authorized to issue One Hundred Thousand (100,000) shares of said Class A
Stock; however, in no event shall Class A Stock be greater than ten percent
(10%) of the total ownership of the corporation. The newly created Class A
Stock shall be in addition to the existing authorized shares of common stock.
(b) After giving effect to the creation of said Class A Stock, the
aggregate number of shares of stock that ECA has the authority to issue is Two
Million One Hundred Thousand (2,100,000) shares, consisting of Two Million
(2,000,000) shares of voting common stock, all of such shares having a par value
of One Dollar ($1.00) per share, and One Hundred Thousand (100,000) shares of
nonvoting Class A Stock, all of such shares without par value.
(c) The present stated capital of ECA of Two Million Dollars
($2,000,000.00) shall remain unchanged by virtue of this Amendment.
(d) Shares of Class A Stock may be purchased by parties and on
terms only as specifically permitted by the Board of Directors of ECA. The
Board of Directors shall administer the Class A Stock ownership and shall
establish the terms, conditions and restrictions of ownership, which the Board
may amend or modify from time to time as necessary or convenient.
(e) Voting power for the election of directors and for all other
purposes shall be vested exclusively in the holders of the common stock and,
except as otherwise required by law, the holders of Class A Stock shall not have
any voting power or be entitled to receive any notice of meetings of
shareholders.
(f) The creation of said Class A Stock does not modify or enlarge
any employee's right to employment with ECA or its subsidiaries. The purchase
of said Class A Stock does not in any way alter the "at-will" nature of any
employee's employment with ECA or its subsidiaries.
Third: The above Amendment was adopted by the stockholders of ECA
at a special meeting of said stockholders held on December 10, 1998. At the
time of the adoption of the Amendment, ECA had six hundred fifty eight thousand
nine hundred sixty five (658,965) shares of common stock issued and outstanding,
all of which such shares were entitled to vote on the Amendment. The holders of
the common stock were entitled to vote in a class. The resolutions adopting the
Amendment received the affirmative vote of the majority of the shares entitled
to vote on such Amendment in the class. ECA also had thirteen thousand four
hundred eighty nine (13,489) shares of Class A common stock issued and
outstanding, all of which shares were entitled to vote on the amendment. The
holders of the Class A common stock were entitled to vote in a class. The
resolutions adopting the Amendment received the affirmative vote of the majority
of the shares entitled to vote on such Amendment in the class.
We, the undersigned, for the purpose of amending the Articles of
Incorporation under the laws of the State of West Virginia, do hereby file this
Amendment to the Articles of Incorporation, and we accordingly hereunto set our
hands this 10th day of December, 1998.
ENERGY CORPORATION OF AMERICA
By: /s/ John Mork
------------------------------
John Mork
Its: President and Chief Executive Officer
By: /s/ Donald C. Supcoe
------------------------------
Donald C. Supcoe
Its: Secretary
<PAGE>
STATE OF COLORADO,
COUNTY OF DENVER, To-wit:
I, Julie Ann Kitano, a Notary Public in and for the State and County
aforesaid, do hereby certify that John Mork, President of Energy Corporation of
America, whose name is signed to the writing above, has this day acknowledged
the same before me to be the act and deed of said corporation.
Given under my hand this 9th day of December, 1998.
My commission expires April 26, 2002.
/s/ Julie Ann Kitano
-----------------------
(Affix Seal) Notary Public
STATE OF COLORADO,
COUNTY OF DENVER, To-wit:
I, Julie Ann Kitano, a Notary Public in and for the State and County
aforesaid, do hereby certify that Donald C. Supcoe, Secretary of Energy
Corporation of America, whose name is signed to the writing above, has this day
acknowledged the same before me to be the act and deed of said corporation.
Given under my hand this 9th day of December, 1998.
My commission expires April 26, 2002.
/s/ Julie Ann Kitano
-----------------------
(Affix Seal) Notary Public
These Articles of Amendment Prepared By:
Tammy J. Owen
Goodwin & Goodwin, LLP
P. O. Box 2107
Charleston, West Virginia 25328
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 16th day of December,
1998 between ENERGY CORPORATION OF AMERICA, a West Virginia corporation,
(hereinafter called "ECA"), and Joseph E. Casabona (hereinafter called
"Employee").
WHEREAS, Employee is a valuable employee of ECA (or one of its
subsidiaries) and ECA considers it desirable and in its best interest that
Employee be given an added incentive to advance the interests of ECA;
NOW THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
1. Grant of Purchase Rights. ECA hereby grants to Employee the right
and privilege to purchase up to 2,500 shares of its Class A common stock (the
"stock") at $75.00 per share (the "Purchase Rights"). Employee may elect to
purchase the stock by providing notice to ECA as provided in paragraph 2 below
no later than December 31, 1998.
In order to be entitled to exercise the Purchase Rights granted
hereunder, Employee must remain in good standing in the continuous employ of ECA
through December 31, 1998. If Employee's employment with ECA is terminated for
any reason during this period, all unexercised Purchase Rights shall become null
and void.
2. Method of Exercise. The Purchase Rights shall be exercised by
written notice directed to ECA at its principal place of business accompanied by
either (a) a check for payment of the purchase price for the number of shares
specified or (b) notice of Employee's election to finance the exercise of the
Purchase Rights under one of the following alternatives:
(i) Employee will pay ten percent (10%) of the purchase price in
cash at the time of the exercise and will execute a promissory note to ECA for
the balance of the purchase price with interest at a rate of six and one-half
percent (6 1/2%), which note shall be non-recourse, secured only by the stock
to be acquired by the exercise of the Purchase Rights. Payment of principal
and interest shall be made as set forth in paragraph 3 below. Employee also
shall execute a stock pledge agreement; or
(ii) Employee will execute a promissory note to ECA for one
hundred percent (100%) of the purchase price with interest at a rate of eight
percent (8%), which note shall be secured by the stock to be acquired by the
exercise of the Purchase Rights, which note shall also be fully recourse.
Payment of principal and interest shall be made as set forth in paragraph 3
below. Employee also shall execute a stock pledge agreement.
3. Payment of Principal and Interest.
a. Payment of Principal. The principal amount due under any
note executed as provided in paragraph 2(i) or (ii) shall be paid in equal
annual installments due on December 31, 2002, December 31, 2003, December 31,
2004, and December 31, 2005 respectively. All unpaid principal and interest
shall be due in full on December 31, 2005; provided however, that such repayment
obligations shall be cancelled as follows:
(i) If Employee remains in the continuous employment, in good
standing, of the Company from the date hereof through December 31, 2002,
one-fourth of the principal balance shall be cancelled.
(ii) If Employee remains in the continuous employment, in
good standing, of the Company from the date hereof through December 31, 2003, an
additional one-fourth of the principal balance shall be cancelled.
(iii) If Employee remains in the continuous employment, in
good standing, of the Company from the date hereof through December 31, 2004, an
additional one-fourth of the principal balance shall be cancelled.
(iv) If Employee remains in the continuous employment, in
good standing, of the Company from the date hereof through December 31, 2005,
all obligations due hereunder with respect to the principal shall be cancelled.
b. Payment of Interest. Employee shall pay interest on the
outstanding principal balance, due annually beginning on December 31, 1999.
4. Limitation Upon Transfer. All rights granted in this Agreement
shall be exercisable only by Employee. The Purchase Rights granted under this
agreement shall not be transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of such Purchase Rights contrary to the
provisions in this Agreement, or upon the levy of any attachment or similar
process upon such Purchase Rights, such Purchase Rights shall immediately become
null and void.
5. Restrictions. All shares acquired by Employee shall be subject
to the terms and restrictions set forth in ECA's articles of incorporation, and
in the ECA Class A Stock Ownership Program Resolution, as the same may be
amended from time to time.
All share certificates representing shares acquired by the
exercise of the Purchase Rights shall have endorsed thereon the following
legend:
The shares represented by this
certificate are subject to the terms and
restrictions set forth in Energy
Corporation of America's articles of
incorporation, and in the ECA Class A
Stock Ownership Program Resolution, as
the same may be amended from time to
time.
6. Value. For purposes of any repurchase by ECA, the value of the
shares shall be calculated in accordance with the methodology set forth in the
ECA Stock Ownership Program Resolution, as the same may be amended from time to
time.
7. Rights as Shareholder. Employee shall not have any rights or
privileges as a shareholder of ECA in the shares of Class A common stock until
payment of the purchase price or execution and delivery of the Promissory Note
referred to in paragraph 2.
8. Holding Period. Employee agrees to hold all shares acquired by
exercising the Purchase Rights for a period of at least six (6) months from the
date of the exercise. Thereafter, the shares will remain subject to the
restrictions on transfer as set forth in paragraph 5 above.
9. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of any successor or successors of ECA.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the day and year first above written.
ENERGY CORPORATION OF AMERICA
By: /s/ John Mork
---------------------------
JOHN MORK
Its: President and CEO
/s/ Joseph E. Casabona
-------------------------
Joseph E. Casabona
<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
DECEMBER 31, 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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5525
<SECURITIES> 0
<RECEIVABLES> 48776
<ALLOWANCES> 933
<INVENTORY> 447
<CURRENT-ASSETS> 77972
<PP&E> 440720
<DEPRECIATION> 114905
<TOTAL-ASSETS> 444320
<CURRENT-LIABILITIES> 101605
<BONDS> 263819
0
0
<COMMON> 720
<OTHER-SE> 25793
<TOTAL-LIABILITY-AND-EQUITY> 444320
<SALES> 86540
<TOTAL-REVENUES> 86540
<CGS> 49649
<TOTAL-COSTS> 74744
<OTHER-EXPENSES> (782)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6805
<INCOME-PRETAX> 5773
<INCOME-TAX> 2425
<INCOME-CONTINUING> 3348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3348
<EPS-PRIMARY> 5.08
<EPS-DILUTED> 5.08
</TABLE>
