SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-8490
ALAMCO, INC.
(Exact name of registrant as specified in its charter)
Delaware 55-0615701
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
200 West Main Street, Clarksburg, WV 26301
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (304) 623-6671
- --------------------------------------------------------------------------------
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
The number of shares outstanding of each of the registrant's classes of
common stock as of May 1, 1995, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,664,685
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statement of Income . . . . . . . . . . 3
for the three months ended March 31, 1995 and 1994
Condensed Consolidated Balance Sheet as of . . . . . . . . . . . 4
March 31, 1995 and December 31, 1994
Condensed Consolidated Statement of Cash Flows . . . . . . . . 6
for the three months ended March 31, 1995 and 1994
Condensed Consolidated Statement of Stockholders' . . . . . . 7
Equity for the three months ended March 31, 1995 and 1994
Notes to the Condensed Consolidated Financial . . . . . . . . 8
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . . 10
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13
Signature Page . . . . . . . . . . . . . . . . . . . . . . . 14
Three Months Ended
March 31,
-----------------
1995 1994
---- ----
Revenues:
Gas and oil sales $ 3,011 $ 2,808
Well tending income 249 507
Other 200 55
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Total revenues 3,460 3,370
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Expenses:
Operating 1,561 1,293
General and administrative 777 650
Depreciation, depletion and
amortization 1,016 730
Interest 299 18
------- --------
Total expenses 3,653 2,691
------- --------
Income (loss) from operations (193) 679
Other nonoperating income, net 64 34
-------- -------
Income (loss) before income taxes (129) 713
Income tax (benefit) provision (27) 251
-------- -------
Net income (loss) ($ 102) $ 462
======== =======
Net income (loss) per share ($ 0.02) $0.10
======== =======
Weighted average number of
shares outstanding 4,653,678 4,636,570
========== =========
March 31, December 31,
1995 1994
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,681 $ 2,632
Accounts receivable 2,363 2,693
Due from partnerships and programs 127 140
Inventories and other current assets 395 428
------ ------
Total current assets 4,566 5,893
------ ------
Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 72,423 71,782
Other property and equipment 5,452 5,270
------ -------
77,875 77,052
Less accumulated depreciation,
depletion and amortization 29,148 28,487
------- -------
48,727 48,565
Other assets 1,570 1,600
------- -------
Total assets $54,863 $56,058
======= =======
(Continued)
March 31, December 31,
1995 1994
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 74 $ 106
Accounts payable 760 1,325
Accrued expenses and other 1,005 1,398
Due working interest and royalty owners
1,133 1,064
Deferred revenue 1,258 1,165
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Total current liabilities 4,230 5,058
------- -------
Long-term debt and capital lease obligations 13,126 12,889
Due working interest and royalty owners 548 888
Deferred revenue 111 333
Deferred taxes 8,068 8,011
Other long-term liabilities 331 404
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Total liabilities 26,414 27,583
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Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $1.00 per share;
1,000,000 shares authorized; none issued
Common stock, par value $.10 per share;
7,500,000 shares authorized; 4,716,446
and 4,712,713 shares issued and
outstanding, respectively 472 471
Additional paid-in capital 31,085 31,039
Accumulated deficit since
September 30, 1985
quasi-reorganization (2,949) (2,847)
-------- -------
28,608 28,663
Less: Treasury stock, at cost, 53,785
and 63,360 shares of common
stock, respectively 159 188
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Total stockholders' equity 28,449 28,475
-------- -------
Total liabilities and stockholders' equity $54,863 $56,058
======= =======
Three Months Ended
March 31,
-----------------
1995 1994
---- ----
Cash flows from operating activities:
Net income (loss) ($ 102) $ 462
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,016 730
Deferred taxes 57 228
Gains on asset sales (22) (21)
Issuance of stock for employee benefits and
compensation expense 70 70
Other factors, net 2 2
Increase (decrease) in cash from changes in:
Accounts receivable 330 658
Due from partnerships and programs 13 18
Due working interest and royalty owners 69 (434)
Inventories and other current assets 33 13
Accounts payable & accrued expenses (958) 52
Deferred revenue 93 (108)
-------- -------
Net cash provided by operating activities 601 1,670
-------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 233 146
Capital expenditures (1,350) (1,290)
Other assets (9) 149
-------- -------
Net cash used in investing activities (1,126) (995)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit 750 500
Payments on line of credit (500) --
Principal payments on long-term debt and
capital lease obligations (47) (60)
Acquisition of treasury stock (5) (6)
Additional costs of public offering of common
stock -- (20)
Proceeds from exercise of stock options 11 9
Other liabilities (635) (568)
------- -------
Net cash used in financing activities (426) (145)
------- -------
Net (decrease) increase in cash and cash equivalents (951) 530
Cash and cash equivalents - beginning of period 2,632 2,465
------- -------
Cash and cash equivalents - end of period $ 1,681 $ 2,995
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 303 $ 15
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Like-kind exchange of property -- $ 3,270
Accumulated
Additional Deficit
Common Paid-in Since Treasury
Stock Capital 09/30/85 Stock
------ ------ -------- ------
Balance December 31, 1993 $ 470 $30,981 ($4,493) $215
Issuance of treasury stock -- -- -- (70)
Acquisition of treasury stock -- -- -- 6
Exercise of stock options 1 8 -- --
Public stock offering additional
costs -- (20) -- --
Net income -- -- 462 --
---- ------- ------- ----
Balance March 31, 1994 $ 471 $30,969 ($4,031) $151
==== ======= ======= ====
Balance December 31, 1994 $471 $31,039 ($2,847) $188
Issuance of treasury stock -- 36 -- (34)
Acquisition of treasury stock -- -- -- 5
Exercise of stock options 1 10 -- --
Net loss -- -- (102) --
---- ------- ------- ----
Balance March 31, 1995 $472 $31,085 ($2,949) $159
==== ======= ======= ====
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 ("1994 10-K"), which includes additional
information about the Company, its operations and its consolidated financial
statements, and contains a summary of major accounting policies followed by the
Company in preparation of its consolidated financial statements. These policies
were also followed in preparing the quarterly financial statements included
herein. The year-end consolidated balance sheet data contained herein was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
The management of the Company believes that all adjustments necessary to
make a fair statement of the results in these interim periods have been made.
All adjustments reflected in the financial statements are of a normal recurring
nature except as described in the Notes to Condensed Consolidated Financial
Statements. Net results for the three month period ended March 31, 1995 are not
necessarily indicative of the results to be expected for the full year.
2. Cash and Cash Equivalents
Cash and cash equivalents totalled $1,681,000 at March 31, 1995. Of this
amount, approximately $643,000 was available for general corporate purposes and
the balance was held for third parties, including $453,000 in gas and oil sales
proceeds held for eventual distribution to outside working interest and royalty
owners, $370,000 representing the outside interest owners' estimated share of
cash prepaid by CNG Transmission Corporation ("CNG") for future gas deliveries,
and $215,000 withheld from outside working interest owners' distributions to be
utilized for future ad valorem tax payments (Note 3). The Company's cash
balance at March 31, 1995 includes $987,000 invested in commercial paper, U.S.
Government and Agency Securities and Bankers' Acceptances having an average
annualized percent of return of 5.9 percent.
3. Plugging and Ad Valorem Tax Funds
The Company retains a portion of outside investors' monthly gas and oil
production proceeds to be utilized for anticipated future well plugging and
abandonment costs and ad valorem tax payments. The funds, totalling $622,000 at
March 31, 1995, are invested in securities issued or guaranteed by the United
States Treasury at BANK ONE, Texas, N.A. ("BANK ONE") in accounts segregated
from those of the Company, of which $455,000 is included in other assets.
Interest earned on the funds accrues to the benefit of the working interest
owners. Corresponding amounts recorded in assets are included in liabilities.
4. Income Taxes
Income taxes are provided for financial reporting purposes based on
management's best estimate of the effective tax rate expected to be applicable
for the full calendar year.
5. Common Stock Held In Treasury
The Company contributed 10,370 shares of its common stock held in treasury
to the Company's 401(k) Plan on February 28, 1995 and January 19, 1994.
6. Well Swap
On March 31, 1994, the Company exchanged its interests in 141 gross wells
for outside investors' interests in 237 gross wells. The exchange was effective
March 1, 1994. The exchange has been treated as a like-kind exchange and no
gain or loss has been recognized on this transaction.
7. Section 29 Tax Credits
Effective August 11, 1994, the Company, through a series of transactions,
formed a partnership with a major East Coast financial institution (the
"Institution"). The partnership is structured such that the Institution will be
allocated IRC Section 29 tax credits as a result of production from properties
contributed by the Company to the partnership. The institution initially paid
$1.0 million (reduced by $100,000 for certain expenses incurred by the
Institution), and will pay additional amounts, up to $4.0 million, in
installments prior to December 31, 2002, upon achieving certain production
minimums and satisfying other conditions. The amounts received are being
recognized as other operating income based on production from these properties.
In the first quarter of 1995, $158,000 of such income was recognized.
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 March 31, 1995 and 1994, respectively, are
presented below.
Results of Operations
The Company recorded a net loss of $102,000 for the three months ended
March 31, 1995, compared to net income of $462,000 for the same period of 1994.
A loss from operations for the first quarter of 1995 totalled $193,000 compared
to income from operations of $679,000 for the first quarter of 1994.
Total revenues of $3,460,000 in the first three months of 1995 were $90,000
or 2.7 percent higher than total revenues of $3,370,000 in the first three
months of 1994.
Gas and oil sales totalled $3,011,000 in the first quarter of 1995 and
represented a $203,000 increase over the same period last year. Higher gas
sales volumes, higher oil sales volumes and higher oil prices contributed
$1,028,000, $141,000 and $78,000, respectively, to the increase and were
substantially offset by lower average gas prices as compared to the first
quarter of 1994 of $1,044,000. Gas and oil sales volumes totalled
1,392,400 equivalent thousand cubic feet ("EMCF"), a 43.0 percent increase
over the 973,547 EMCF sold during the three month period ending March 31,
1994. The Company received on average $2.11 per MCF and $16.05 per barrel
("BBL") for the three month period ending March 31, 1995, compared to $2.94
per MCF and $12.30 per BBL in the same period last year.
Well tending income decreased $258,000 due principally to the reduction in
the number of wells the Company operates for outside investors because of a
well swap effective March 1, 1994 (Note 6).
Other operating revenue increased $145,000 due primarily to the recognition
of income relative to the transaction in which the Company formed a
partnership with an East Coast financial institution with respect to IRC
Section 29 tax credits (Note 7).
Total expenses in the first quarter of 1995 were $3,653,000, an increase of
$962,000 or 35.7 percent from expenses in the first three months of 1994 of
$2,691,000.
Operating expenses were higher by $268,000 or 20.7 percent due primarily to
higher gas and oil lifting expenses of $126,000 and higher employee-related
expenses of $83,000 relative to additional employees and higher medical
expenses.
General and administrative expenses for the first quarter of 1995 were
higher by $127,000 or 19.5 percent as compared to last year due principally
to higher employee-related expenses of $70,000 as a result of an employee
settlement and additional employees as compared to last year, and higher
property taxes of $54,000.
Depreciation, depletion and amortization expense was higher by $286,000 in
the first quarter of 1995 due to, among other things, higher depletion
expenses related to the increased drilling activity in 1994.
Interest expense for the first three months of 1995 was $299,000, an
increase of $281,000 over the same period last year due primarily to higher
debt balances.
Non-operating income in the first quarter of 1995 totalled $64,000 as
compared to $34,000 in the same period last year.
The Company recorded an income tax benefit of $27,000 in the first quarter
of 1995 as compared to an income tax provision of $251,000 for the first quarter
of 1994.
Liquidity and Capital Resources
Working Capital. At March 31, 1995, the Company had working capital of
$336,000, as compared to $835,000 at December 31, 1994. The $499,000 reduction
in working capital is due to, among other things, lower accounts receivables
resulting from the lower price received by the Company for gas sales in the
first quarter of 1995 as compared to that received in the fourth quarter of
1994. In addition, working capital was adversely affected due to an increase in
the current portion of deferred revenues and due working interest owners
relative to the Company's decision to make additional volumes available for
delivery to fulfill a production commitment for which the Company was prepaid.
Because the Bank One credit facility agreement, as amended, calls for the
payment of interest only until July 1, 1996, current liabilities on the
Company's March 31, 1995, balance sheet do not include any principal payments
relative to the Bank One credit facility.
Cash and cash equivalents totalled $1,681,000 at March 31, 1995. Of this
amount, approximately $643,000 was available for general corporate purposes and
the balance was held for third parties. Operating activities provided a net
$601,000 while investing activities used a net $1,126,000 including $1,375,000
in capital expenditures. Financing activities used a net $426,000.
Revolving Credit Facility. The Company has in place a $25.0 million
revolving credit facility with Bank One. Currently $12.0 million is available
for borrowing by the Company. Interest accrues and is paid monthly at a rate of
Bank One's prime rate plus three-quarters of one percent.
Capital Expenditures and Commitments. In the first quarter 1995, the
Company's capital expenditures totalled $1,350,000 including approximately
$1,056,000 spent on gas and oil investment activities.
Most of the Company's capital spending is discretionary and the ultimate
level of spending will be dependent, among other things, on the Company's
assessment of the gas and oil business environment, the number of gas and oil
prospects, and gas and oil business opportunities in general. The level of the
Company's 1995 capital expenditures will to a great extent depend upon the gas
prices received by the Company. Based on current gas futures prices, which
indicate the Company will receive lower gas prices, as compared to the average
prices received in the past 15 years, the Company's current capital budget
limits annual drilling activities to an estimated five to ten wells in order to
maintain leasehold positions, fulfill contractual commitments, defend
competitive drainage positions and explore oil prospects. Over the past five
years, the Company has averaged drilling 17 wells per year. The Company will
continue with its enhancement program on existing wells, particularly the wells
acquired in 1994 in Kentucky and where the Company has established a significant
acreage position. The Company's objective will be to maintain current
production and gas and oil reserve levels through well enhancements and limited
drilling activity while using excess cash flow, if any, to retire debt. The
Company plans to continue with its aggressive acreage acquisition strategy and
will position itself to increase both exploratory and development drilling when
gas prices recover. The Company remains committed to the acquisition of
producing properties at favorable prices.
Settlement of Columbia Litigation Claims. On June 8, 1992, the Company
settled its outstanding gas purchase contract claims against Columbia. Pursuant
to the settlement agreement, the Company, on behalf of itself and other interest
owners in the wells covered by the settlement, has an allowed claim in the
amount of $11,000,000 against Columbia, without security or priority, in
Columbia's bankruptcy reorganization proceedings. The Company's share of the
allowed claim is estimated to be approximately 55 percent, with the balance
going to the other interest owners in the wells covered by the settlement. The
Company's current financial statements do not include any benefits of the
settlement. The timing and actual amount to be received by the Company and
other interest owners will be affected by the terms of Columbia's reorganization
plan and the amount of assets available to satisfy Columbia's unsecured
creditors. On April 17, 1995, Columbia filed a proposed amended reorganization
plan that provides for an initial distribution to the Company of 68.875 percent
of the allowed claim upon confirmation of the amended plan, and a potential
additional distribution of up to 3.625 percent of the allowed claim in the
future depending upon various contingencies. The plan is subject to bankruptcy
court and creditor approval. Management believes that the ultimate payment in
respect of the Company's claim is likely to be substantial.
Well Swap. On March 31, 1994, the Company exchanged its interests in
approximately 141 gross wells for outside investors' interests in approximately
237 gross wells located in West Virginia. As a result of the like-kind
exchange, well tending income is lower because of the reduced number of wells
the Company operates for outside investors. The Company believes, however, that
this reduction in well tending income will be offset over time by the effect of
higher gas and oil revenues attributable to the Company's greater ownership
interest in the wells.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Filing
---------- ----------- ------
27 Financial Data Schedule Filed herewith
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 1995.
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.
May 12, 1995 /s/ John L. Schwager
-------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer
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