- - 15 -
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 MARCH 31, 1999.
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 No ___
The number of shares of the Registrant's common stock, par value $1.00 per
share, outstanding at March 31, 1999 was 659,528 shares.
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<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
TABLE OF CONTENTS
<S> <C>
PAGES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 (unaudited) and June 30, 1998 . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Statements of Operations
For the three and nine months ended March 31, 1999 and 1998. . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended March 31, 1999 and 1998. . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- ----------------------------------------
<S> <C> <C>
MARCH 31 JUNE 30
1999 1998
(UNAUDITED) *
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . $ 3,316 $ 21,547
Accounts receivable, net of allowance for doubtful
accounts of $1,253 and $1,281 . . . . . . . . . . . 55,261 32,827
Gas in storage, at average cost. . . . . . . . . . . . 164 13,249
Income tax receivable 4,310
Prepaid and other current assets . . . . . . . . . . . 8,455 5,840
------------ --------
Total current assets. . . . . . . . . . . . . . . . 67,196 77,773
------------ --------
Property, plant and equipment, net of accumulated
depreciation and depletion of $121,218 and $105,350. . 324,115 318,547
------------ --------
OTHER ASSETS
Deferred financing costs, net of accumulated
amortization of $1,813 and $1,046 . . . . . . . . . 8,778 9,545
Notes receivable, less allowance for doubtful accounts
of $400 . . . . . . . . . . . . . . . . . . . . . . 3,884 5,618
Deferred utility charges . . . . . . . . . . . . . . . 17,964 18,233
Other. . . . . . . . . . . . . . . . . . . . . . . . . 11,006 10,229
------------ --------
Total other assets. . . . . . . . . . . . . . . . . 41,632 43,625
------------ --------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $ 432,943 $439,945
============ ========
<FN>
* Condensed from audited financial statements.
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- ----------------------------------------
<S> <C> <C>
MARCH 31 JUNE 30
1999 1998
(UNAUDITED) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . . . . $ 29,084 $ 38,883
Current portion of long-term debt . . . . . . . . . . . 622 581
Short-term debt . . . . . . . . . . . . . . . . . . . . 30,958 19,174
Funds held for future distribution. . . . . . . . . . . 4,846 5,716
Accrued taxes, other than income. . . . . . . . . . . . 10,089 8,472
Overrecovered gas costs . . . . . . . . . . . . . . . . 4,463 6,485
Other current liabilities . . . . . . . . . . . . . . . 9,643 13,758
------------ ---------
Total current liabilities. . . . . . . . . . . . . . 89,705 93,069
LONG-TERM OBLIGATIONS
Long-term debt. . . . . . . . . . . . . . . . . . . . . 261,028 261,507
Gas delivery obligation and deferred trust revenue. . . 14,397 16,127
Deferred income tax liability . . . . . . . . . . . . . 27,082 24,551
Other long-term obligation. . . . . . . . . . . . . . . 10,033 12,838
------------ ---------
Total liabilities. . . . . . . . . . . . . . . . . . 402,245 408,092
------------ ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST. . . . . . . . . . . . . . . . . . . . . - 1,883
STOCKHOLDERS' EQUITY
Common stock, par value $1.00; 2,000,000 shares
authorized; 721,000 and 720,000 shares issued. . . . 721 720
Class A stock, no par value; 100,000 shares authorized;
26,000 and 0 shares issued . . . . . . . . . . . . . 2,941 -
Additional paid in capital. . . . . . . . . . . . . . . 4,641 4,510
Retained earnings . . . . . . . . . . . . . . . . . . . 28,290 29,132
Treasury stock and notes receivable arising from the
issuance of common stock . . . . . . . . . . . . . . (5,861) (4,082)
Other . . . . . . . . . . . . . . . . . . . . . . . . . (34) (310)
------------ ---------
Total Stockholders' equity . . . . . . . . . . . . . 30,698 29,970
------------ ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 432,943 $439,945
============ =========
<FN>
* Condensed from audited financial statements.
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
<S> <C> <C> <C> <C>
1999 1998 1999 1998
REVENUES:
Utility gas sales and transportation . . . . . . $70,640 $ 64,642 $137,674 $136,510
Gas marketing and pipeline sales . . . . . . . . 21,235 30,685 77,679 112,470
Oil and gas sales. . . . . . . . . . . . . . . . 4,594 5,870 16,250 18,732
Well operations and service revenues . . . . . . 1,636 1,501 5,226 5,087
Other revenue. . . . . . . . . . . . . . . . . . 201 11,652 1,021 13,081
-------- -------- --------- ---------
98,306 114,350 237,850 285,880
-------- -------- --------- ---------
COST AND EXPENSES:
Utility gas purchased. . . . . . . . . . . . . . 33,421 33,432 66,162 73,918
Gas marketing and pipeline cost. . . . . . . . . 20,029 29,897 74,458 113,128
Field operating expenses . . . . . . . . . . . . 2,318 2,298 7,103 7,243
Utility operations and maintenance . . . . . . . 5,853 5,530 16,431 15,717
General and administrative . . . . . . . . . . . 7,209 6,840 18,652 17,563
Taxes, other than income . . . . . . . . . . . . 5,723 5,637 12,421 13,008
Depletion and depreciation, oil and gas related. 2,079 2,000 6,399 6,123
Depreciation of pipelines and equipment. . . . . 5,024 4,564 11,012 9,434
Exploration and impairment . . . . . . . . . . . 2,326 629 5,221 2,142
-------- -------- --------- ---------
83,982 90,827 217,859 258,276
-------- -------- --------- ---------
Income from operations . . . . . . . . . . . . . 14,324 23,523 19,991 27,604
-------- -------- --------- ---------
OTHER (INCOME) EXPENSE
Interest . . . . . . . . . . . . . . . . . . . . 6,668 6,545 20,078 19,880
Gain on sale of assets . . . . . . . . . . . . . 17 1,164 (1,080) 1,144
Other. . . . . . . . . . . . . . . . . . . . . . (42) 77 (888) (841)
-------- -------- --------- ---------
Income before income taxes and
minority interest. . . . . . . . . . . . . . . . 7,681 15,737 1,881 7,421
Provision for income taxes. . . . . . . . . . . . . 3,394 5,919 2,069 2,774
-------- -------- --------- ---------
Income (loss) before minority interest. . . . . . . 4,287 9,818 (188) 4,647
Minority interest . . . . . . . . . . . . . . . . . - 366 7 398
-------- -------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 4,287 $ 9,452 $ (195) $ 4,249
======== ======== ========= =========
Net income (loss) per common share,
Basic. . . . . . . . . . . . . . . . . . . . . . $ 6.50 $ 14.19 $ (0.30) $ 6.39
Assuming dilution. . . . . . . . . . . . . . . . $ 6.44 $ 14.19 $ (0.30) $ 6.39
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
<TABLE>
<CAPTION>
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
- ----------------------------------------------------
FOR THE NINE MONTHS ENDED
MARCH 31,
<S> <C> <C>
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (195) $ 4,249
Adjustment to reconcile net loss to net cash provided
by operating activities:
Minority interest. . . . . . . . . . . . . . . . . . 7 398
Depletion, depreciation and amortization . . . . . . 18,010 16,144
Gain on sale of assets . . . . . . . . . . . . . . . (1,081) 1,144
Exploration and impairment . . . . . . . . . . . . . 4,811 1,999
Other, net . . . . . . . . . . . . . . . . . . . . . (3,895) (7,290)
--------- ---------
17,657 16,644
Changes in assets and liabilities
Accounts receivable. . . . . . . . . . . . . . . . . (19,401) (12,259)
Gas in storage . . . . . . . . . . . . . . . . . . . 13,085 7,642
Prepaid and other assets . . . . . . . . . . . . . . 3,283 11,647
Accounts payable . . . . . . . . . . . . . . . . . . (10,117) 3,335
Funds held for future distributions. . . . . . . . . (870) 286
Overrecovered gas costs. . . . . . . . . . . . . . . (2,022) (2,189)
Other. . . . . . . . . . . . . . . . . . . . . . . . (5,992) (14,139)
--------- ---------
Net cash (used) provided by operating activities. (4,377) 10,967
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment. . . . . (28,712) (24,989)
Proceeds from sale of assets. . . . . . . . . . . . . . 4,101 513
Notes receivable and other. . . . . . . . . . . . . . . 976 189
--------- ---------
Net cash used by investing activities . . . . . . (23,635) (24,287)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt. . . . . . . . . . . . . . 2,500 -
Principal payment on long-term debt . . . . . . . . . . (2,939) (37)
Short-term borrowings, net. . . . . . . . . . . . . . . 11,784 6,754
Purchase of treasury stock. . . . . . . . . . . . . . . (773) (523)
Dividends . . . . . . . . . . . . . . . . . . . . . . . (960) (512)
Other financing and equity transactions . . . . . . . . 169 (723)
--------- ---------
Net cash provided by financing activities . . . . 9,781 4,959
--------- ---------
Net decrease in cash and cash equivalents . . . . (18,231) (8,361)
Cash and cash equivalents, beginning of period. . 21,547 20,816
--------- ---------
Cash and cash equivalents, end of period . . . . . . . . . $ 3,316 $ 12,455
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
ENERGY CORPORATION OF AMERICA
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 nine months ended March 31, l999 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 nine months ended March 31, 1999 and 1998 were
nominal.
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<PAGE>
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>
<S> <C> <C> <C> <C> <C> <C>
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- ---------- ------------ ------------- -----------
For the Three Month Ended For the Nine Months Ended
March 31, 1999:
Income (loss) available to
common shareholders. . . . $ 4,287,000 683,350 $ 6.27 $ (195,000) 672,121 $ (0.29)
========== ===========
Effect of dilutive options 6,792 6,792
Eliminate antidilutive effect - - - (6,792)
------------ ------------- ------------ -------------
Income (loss) available to
common shareholders
plus assumed conversion. . $ 4,287,000 690,142 $ 6.21 $ (195,000) 672,121 $ (0.29)
============ ============= ========== ============ ============= ===========
March 31, 1998:
Income available to
common shareholders. . . . $ 9,452,000 665,897 $ 14.19 $ 4,249,000 665,064 $ 6.39
============ ============= ========== ============ ============= ===========
</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.
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<PAGE>
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 nine month periods ended March 31, 1999 and 1998, are
presented below.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND 1998
The Company's operating income decreased from a gain of $23.5 million at
March 31, 1998 to $14.3 million at March 31, 1999. The Company's utility
operating income increased $4.9 million from $12.5 million to $17.4 million for
the quarters ended March 31, 1998 and 1999, respectively. The Company's gas
marketing and pipeline operating income improved from $0.8 million at March 31,
1998 to $1.2 million at March 31, 1999. The Company's loss from oil and gas
operations, net of the Contract Settlement discussed below, increased from $1.1
million at March 31, 1998 to $3.1 million at March 31, 1999, primarily as a
result of exploratory expenditures.
NET INCOME. The Company recorded net income of $4.3 million for the three
months ended March 31, 1999, compared to net income of $9.5 million for the same
period in 1998. The decrease in net income between the periods is primarily
attributable to a $16.0 million decrease in revenue partially offset by a $6.8
million decrease in operating costs and expenses.
REVENUES. Total revenues decreased $16.0 million or 14.0% during the
periods. The decrease was due to a 30.8% decrease in gas marketing and pipeline
sales, a 21.7% decrease in oil and gas sales and a 98.3% decrease in other
revenue, partially offset by a 9.3% increase in utility gas sales and
transportation.
Revenues from gas marketing and pipeline sales decreased 30.8% from $30.7
million during the quarter ended March 31, 1998 to $21.2 million in the quarter
ended March 31, 1999. The decrease in marketing and pipeline sales was a result
of a 23.8% decline in marketed gas volumes from 10.4 Bcfe for the quarter ended
March 31, 1998 to 7.9 Bcfe for the quarter ended March 31, 1999 and a 13.2%
decline in the average sales price per mmbtu from $2.66 for the quarter ended
March 31, 1998 to $2.31 for the quarter ended March 31, 1999. 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 March 31, 1998, this contract accounted for 0.9
Bcfe of marketed volumes and $2.8 million of marketing sales. There were no
sales related to this contract for the quarter ended March 31, 1999.
Additionally, a marketing contract with the Company's utility expired on October
31, 1998 and was not renewed. For the quarter ended March 31, 1998 this
contract accounted for 0.7 Bcfe of marketed volumes and $1.6 million of
marketing sales. There were no sales related to this contract for the quarter
ended March 31, 1999.
Revenues from oil and gas sales decreased 21.7% from $5.9 million at March
31, 1998 to $4.6 million at March 31, 1999. The decrease in oil and gas sales
was primarily attributable to a 14.7% decrease in the average sales price per
barrel of oil from $13.26 for the quarter ended March 31, 1998 to $11.31 for the
quarter ended March 31, 1999, and an 18.0% decrease in the average gas sales
price from $2.52 per mcf for the three months ended March 31, 1998 to $2.07 per
mcf for the three months ended March 31, 1999. Gas volumes increased 3.4% from
2.0 million mcf to 2.1 million mcf for the three months ended March 31, 1998 to
March 31, 1999. For the same period, oil volumes decreased 31.5%, from 41,000
bbl to 28,000 bbl primarily due to a steeper decline curve on certain fields.
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<PAGE>
Revenues from utility gas sales and transportation increased 9.3% from
$64.6 million during the quarter ended March 31, 1998 to $70.6 million in the
quarter ended March 31, 1999. This increase was caused primarily by colder
weather conditions in the service areas during the period and an increase,
effective November 1, 1998, in the tariff sales rates. For the quarter ended
March 31, 1999, heating degree days were 2,557 compared to 2,221 the previous
year, an increase of approximately 15%. Total system throughput did not change
significantly between periods. Sales volumes increased 0.6 Bcf, while
transportation volumes decreased 0.8 Bcf.
Other revenue decreased 98.3% from $11.7 million to $0.2 million for the
quarters ended March 31, 1998 and 1999, respectively. This decrease relates to
the nonrecurring Contract Settlement, discussed above.
COSTS AND EXPENSES. The Company's costs and expenses decreased $6.8
million or 7.5% during this period primarily as the result of a $9.9 million
decline in gas marketing purchased gas costs, which was partially offset by a
$0.4 million increase in general and administrative expenses, a $0.5 million
increase in depreciation, depletion and amortization and a $1.7 million increase
in impairment and exploratory charges.
The 33.0% decline in gas marketing and pipeline costs was primarily
attributable to a 23.8% decline in purchased gas volumes from 10.5 Bcfe for the
quarter ended March 31, 1998 to 8.0 Bcfe for the quarter ended March 31, 1999, a
13.2% decrease in the average price paid for gas purchased from $2.60 per mmbtu
for the quarter ended March 31, 1998 to $2.26 per mmbtu for the quarter ended
March 31, 1999, 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.
The 5.4% increase in general and administrative expenses is primarily due
to increased activities at the corporate level during the current period.
The 8.2% increase in depreciation, depletion and amortization is primarily
attributable to additions in utility gas plant in service.
The 270.0% increase in impairment and exploratory costs is due to expensing
two domestic exploratory dry holes and increased lease expirations during the
current period.
INTEREST EXPENSE. Interest expense remained relatively unchanged between
the three months ended March 31, 1999 and 1998.
OTHER (INCOME) EXPENSE. Other nonoperating income increased $1.3 million
primarily due to the recognition of losses related to the sale of several wells
for contractual purposes during the prior period.
INCOME TAX. The provision for income taxes decreased $2.5 million
primarily as a result of decreased pretax income and a revised effective tax
rate.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
1998
The Company's operating income decreased from a gain of $27.6 million at
March 31, 1998 to $20.0 million at March 31, 1999. The Company's utility
operating income increased $10.9 million from $17.9 million to $28.8 million for
the nine months ended March 31, 1998 and 1999, respectively. The Company's gas
marketing and pipeline operations improved from a loss of $0.7 million at March
31, 1998 to a gain of $3.2 million at March 31, 1999. The Company's oil and gas
operating income, net of the Contract Settlement, decreased from a gain of $2.9
million at March 31, 1998 to a loss of $4.7 million at March 31, 1999, primarily
as a result of exploratory expenditures.
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<PAGE>
NET INCOME. The Company recorded a net loss of $0.2 million for the nine
months ended March 31, 1999, compared to net income of $4.2 million for the same
period in 1998. The change between the periods is primarily attributable to a
$48.0 million decrease in revenue, which is partially offset by a $40.4 million
decrease in operating costs and expenses.
REVENUES. Total revenues decreased $48.0 million or 16.8% during the
periods. The decrease was due to a 30.9% decrease in gas marketing and pipeline
sales, a 13.3% decrease in oil and gas sales and a 92.2% decrease in other
revenue.
Revenues from gas marketing and pipeline sales decreased 30.9% from $112.5
million during the nine months ended March 31, 1998 to $77.7 million for the
nine months ended March 31, 1999. The decrease in marketing and pipeline sales
was a result of a 22.6% decline in marketed gas volumes from 38.8 Bcfe for the
nine months ended March 31, 1998 to 29.9 Bcfe for the nine months ended March
31, 1999 and a 14.6% decline in the average sales price per mmbtu from $2.70 for
the nine months ended March 31, 1998 to $2.31 for the nine months ended March
31, 1999. 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 nine months ended March 31, 1998, this contract accounted for 2.9 Bcfe of
marketed volumes and $8.6 million of marketing sales. There were no sales
related to this contract for the nine months ended March 31, 1999.
Additionally, a marketing contract with the Company's utility expired on October
31, 1998 and was not renewed. For the nine months ended March 31, 1998 this
contract accounted for 4.9 Bcfe of marketed volumes and $11.0 million of
marketing sales. For the nine months ended March 31, 1999, 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 13.3% from $18.7 million at March
31, 1998 to $16.3 million at March 31, 1999. The decrease in oil and gas sales
was primarily attributable to a 34.5% decrease in the average sales price per
barrel of oil from $15.71 for the nine months ended March 31,1998 to $10.29 for
the nine months ended March 31, 1999, and an 11.3% decline in the average sales
price per mcf of gas from $2.55 for the nine months ended March 31, 1998 to
$2.26 for the nine months ended March 31, 1999. These price declines were
partially offset by an increase in oil and gas production over the nine months
ended March 31, 1998 and 1999. Oil volumes increased 4.2% from 101,000 bbl to
106,000 bbl and gas volumes increased 3.2% from 6.5 million mcf to 6.7 million
mcf.
Other revenue decreased 92.2% from $13.1 million to $1.0 million for the
nine months ended March 31, 1998 and 1999, respectively. This decrease relates
to the nonrecurring Contract Settlement, discussed above.
COSTS AND EXPENSES. The Company's costs and expenses decreased $40.4
million or 15.7% during this period primarily as the result of a $7.8 million
decline in the cost of utility gas purchased and a $38.7 million decline in gas
marketing purchased gas costs, which was partially offset by a $1.1 million
increase in general and administrative expenses, a $1.9 million increase in
depreciation, depletion and amortization expenses, and a $3.1 million increase
in impairment and exploratory charges in the current period.
The 10.5% decline in the cost of utility gas purchased was due to 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.
- 11 -
<PAGE>
The 34.2% decline in gas marketing and pipeline costs is primarily
attributable to a 22.7% decline in purchased gas volumes from 39.1 Bcfe for the
nine months ended March 31, 1998 to 30.2 Bcfe for the nine months ended March
31, 1999, a 16.0% decrease in the average price paid for gas purchased from
$2.72 per mmbtu for the nine months ended March 31, 1998 to $2.28 per mmbtu for
the nine months ended March 31, 1999, and approximately $2.2 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 an increase of $0.4 million of purchased gas
costs for the nine months ended March 31, 1999 related to the operations of the
intrastate pipeline gathering system that was purchased in March 1998.
General and administrative expenses increased 6.2% for the nine months
ended March 31, 1998 to 1999 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 11.9% primarily
due to additions to the utility gas plant in service and corporate fixed assets.
Impairment and exploratory costs increased 143.8% for the current period as
a result of two exploratory dry holes in New Zealand, four domestic exploratory
dry holes and increased lease expirations during the current period.
INTEREST EXPENSE. Interest expense remained relatively unchanged between
the nine months ended March 31, 1999 and 1998.
OTHER (INCOME) EXPENSE. Other nonoperating income increased $2.3 million
primarily due to the recognition of losses related to the sale of several wells
for contractual purposes during the prior period combined with gains on the sale
of properties during the current period.
INCOME TAX. The provision for income taxes decreased $0.7 million as a
result of decreased pretax income and a revised effective tax rate. The tax
provision is greater than pretax because of non-deductible foreign losses.
MINORITY INTEREST. Minority interest expense decreased $0.4 million
between the periods ended March 31, 1999 and 1998 due to the exchange of the
Company's Class A stock for the remaining outstanding Class A stock of its
subsidiaries thereby eliminating minority interest shareholders.
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 $4.4 million for the
nine month period ended March 31, 1999. The major cause of the decrease in cash
flow from operations was due to (i) the seasonality and warmer than expected
weather related to the Company's utility operations and (ii) low oil and gas
prices and lower than expected marketing margins. The Company invested
approximately $18.2 million in oil and gas exploration and development
activities and $7.9 million in utility plant improvements. The net cash used in
operations and capital projects was funded primarily through cash on hand and
short-term borrowings. Although no dividends were declared for the third
quarter, approximately $1 million was paid during the nine months on previously
declared dividends.
- 12 -
<PAGE>
During the nine months ended March 31, 1999, the Company had a net decrease
in cash of $18.2 million. Although the Company believes that the fourth quarter
cash flow from operations will be positive, the Company anticipates that overall
the Company will experience a net cash decrease for fiscal 1999. Moreover,
should lower oil and gas prices, marketing margins and warmer than normal
weather patterns persist, the Company believes that operations and capital
commitments may continue to generate a net cash decrease, prior to borrowings,
into the next fiscal year. Such conditions may, in future periods, negatively
impact the Company's ability to satisfy certain debt covenants of the Company's
revolving credit facility. Although the Company expects oil and gas prices and
marketing margins to improve and normal weather patterns to reoccur, in the
event of a continuance of lower than expected operating results and the
potential net cash decreases resulting therefrom, the Company may elect to
increase debt levels, sell certain assets, defer certain discretionary capital
spending and exploration projects, consolidate certain operations, restructure
revolving debt agreements, omit dividends, or take other actions in order to
mitigate any future net cash shortfalls and remedy any foreseeable or potential
debt covenant issues. Although there can be no assurance that the net cash
shortfall will not continue, or that operating results will improve or that the
Company's mitigating efforts will be sufficient, the Company believes that its
existing credit facilities and the above mitigating factors should result in the
ability of the Company to continue to fund operations and non-discretionary
capital commitments.
CREDIT FACILITIES. The Company and its operating subsidiaries have (i) a
$50 million secured, revolving credit facility under which no amounts were
outstanding at March 31, 1999 and $25 million was outstanding at May 17, 1999
and (ii) $68.0 million in unsecured, revolving bank lines of credit, under which
$30.9 million was outstanding at March 31, 1999.
The Company has no scheduled significant long-term debt repayments within
the next twelve months.
OTHER MATTERS. The Company continues to assess its computer systems to
identify 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. This project, with a budget of approximately $5
million, is nearly complete. 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.
- 13 -
<PAGE>
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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10 Incentive Stock Purchase Agreement - Michael S. Fletcher
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended March
31, 1999
- 14 -
<PAGE>
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 17th day of May, 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
- 15 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10 Incentive Stock Purchase Agreement - Michael S. Fletcher
27 Financial Data Schedule
INCENTIVE STOCK PURCHASE AGREEMENT
THIS INCENTIVE STOCK PURCHASE AGREEMENT made this 12th day of February,
1999 and effective as of January 1, 1999, between ENERGY CORPORATION OF AMERICA,
a West Virginia corporation, (hereinafter called "ECA"), and Michael S. Fletcher
(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.
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 %), 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
------------------------------
Its: President and CEO
/s/ Michael S. Fletcher
------------------------------
Michael S. Fletcher
<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
MARCH 31, 1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000032880
<NAME> ENERGY CORPORATION OF AMERICA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
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<RECEIVABLES> 56514
<ALLOWANCES> 1253
<INVENTORY> 164
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<DEPRECIATION> 121218
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<CGS> 141620
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<INCOME-PRETAX> 1881
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