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 June 30, 1997
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 August 1, 1997, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,779,031
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statement of Income . . . . . . . . . . 3
for the three and six months ended June 30, 1997 and 1996
Condensed Consolidated Balance Sheet as of . . . . . . . . . 4 - 5
June 30, 1997 and December 31, 1996
Condensed Consolidated Statement of Cash Flows . . . . . . . . 6
for the six months ended June 30, 1997 and 1996
Condensed Consolidated Statement of Stockholders' . . . . . . 7
Equity for the six months ended June 30, 1997 and 1996
Notes to the Condensed Consolidated Financial . . . . . . . 8 - 9
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . 10 - 13
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Gas and oil sales $ 4,278 $ 4,655 $10,176 $10,842
Third-party services 231 224 452 403
Other revenue 269 258 472 516
------ ------ ------ ------
Total revenues 4,778 5,137 11,100 11,761
------ ------ ------ ------
Expenses:
Production expense 1,130 1,225 2,315 2,563
Production taxes 328 380 727 740
Exploration 112 125 245 217
Third-party services 135 109 253 216
General and admin. 1,289 1,022 2,371 1,896
Option Plan Comp. 855 977 1,612 1,610
Depreciation, depletion
and amortization 1,140 1,139 2,215 2,217
Interest 360 234 806 575
------ ------ ------ ------
Total expenses 5,349 5,211 10,544 10,034
------ ------ ------ ------
Income (loss)
from operations (571) (74) 556 1,727
Other nonoperating income,
net 38 68 98 151
------ ------ ------ ------
Income (loss) before
income taxes (533) (6) 654 1,878
Income tax provision
(benefit) (155) 10 119 596
------ ------ ------ -------
Net income (loss) ($378) ($16) $535 $1,282
========= ====== ========= ======
Net income (loss) per share ($0.08) $0.00 $0.11 $0.26
===== ====== ===== ======
Weighted average number
of shares outstanding 4,985,081 4,934,523 4,979,236 4,930,973
========= ========= ========= =========
June 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,145 $1,744
Accounts receivable 4,003 6,253
Due from partnerships and programs 88 90
Inventories and other current assets 230 375
Deferred taxes 461 207
------ ------
Total current assets 7,927 8,669
------ ------
Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 89,315 87,991
Other property and equipment 9,197 8,621
------ -------
98,512 96,612
Less accumulated depreciation,
depletion and amortization 37,691 35,581
------- -------
60,821 61,031
Other assets 942 998
------- -------
Total assets $69,690 $70,698
======= =======
(Continued)
June 30, December 31,
1997 1996
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 19 $ 34
Accounts payable 856 853
Cash compensation under stock option plan 892 529
Accrued expenses and other 569 1,002
Accrued production and property taxes 550 636
Due working interest and royalty owners 1,397 1,746
Income tax payable 65 --
------- -------
Total current liabilities 4,348 4,800
------- -------
Long-term debt and capital lease obligations,
less current portion 18,052 20,752
Due working interest and royalty owners 337 322
Deferred taxes 10,555 10,330
Other long-term liabilities 539 508
------- -------
Total liabilities 33,831 36,712
------- -------
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;
15,000,000 shares authorized,
4,866,697 and 4,846,697 shares
issued and outstanding, respectively,
including treasury stock 483 481
Common stock issuable
under options (Note 7) 32,419 32,074
Additional paid-in capital 2,385 1,415
Retained earnings 1,257 722
-------- -------
36,544 34,692
Less: Treasury stock, 87,666 and
94,589 shares of common stock,
respectively 685 706
------- -------
Total stockholders' equity 35,859 33,986
------- -------
Total liabilities and stockholders' equity $69,690 $70,698
======= =======
Six Months Ended
June 30,
-----------------
1997 1996
---- ----
Net income (loss) $ 535 $ 1,282
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 2,215 2,217
Deferred taxes (29) 369
Gain on asset sales (4) 1,141
Provisions for common stock issuable under
options 970 111
Issuance of stock for employee benefits and
compensation expenses 87 (54)
Other factors, net 2 3
Increases (decreases) in cash from changes in:
Accounts receivable 2,250 (1,762)
Due from partnerships and programs 2 (16)
Due working interest and royalty owners (349) (1,923)
Inventories and other current assets 145 180
Accounts payable & accrued expenses (193) 295
Deferred revenue 0 98
Accrued cash compensation under stock option plan 40 418
Income tax payable 65 99
-------- -------
Net cash provided by operating activities 5,736 2,458
-------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 13 63
Capital expenditures (1,936) (5,257)
Other assets (22) 178
-------- -------
Net cash used in investing activities (1,945) (5,016)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit agreement 0 3,200
Payment on line of credit (2,700) (1,000)
Principal payment on long-term debt
and capital lease obligations (17) (18)
Acquisition of treasury stock 0 (30)
Proceeds from exercise of stock options 281 50
Other liabilities 46 33
------- -------
Net cash (used in) provided by
financing activities (2,390) 2,235
------- -------
Net increase (decrease) in cash and cash equiv. 1,401 (323)
Cash and cash equivalents - beginning of period 1,744 3,297
------- -------
Cash and cash equivalents - end of period $ 3,145 $ 2,974
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $802 $694
Common
Common Addit- Stock Treasury
Stock ional Retained Issuable Stock
------------ Paid-in Earn- Under -------------
Shares Dollars Capital ings Options Shares Dollars
------ ------- -------- -------- ------ ------- -------
Balance
Dec. 31, 1995 4,762,898 $476 $31,245 ($1,949) $948 62,405 $224
Issuance of treasury
stock -- -- 77 -- -- (12,929) (34)
Acquisition of
treasury stock -- -- -- -- -- 3,044 30
Exercise of stock
options 12,892 2 48 -- -- -- --
Stock option
compensation -- -- 21 -- 1,120 -- --
Net income -- -- -- 1,282 -- -- --
--------- ---- ------- ------ ------ ------ ----
Balance
June 30, 1996 4,775,790 $478 $31,391 ($667) $2,068 52,520 $220
========= ===== ======= ====== ====== ====== ====
Balance
Dec. 31, 1996 4,846,697 $481 $32,074 $722 $1,415 94,589 $706
Issuance of treasury
stock -- -- 66 -- -- (6,923) (21)
Acquisition of
treasury stock -- -- -- -- -- -- --
Exercise of stock
options 20,000 2 279 -- (157) -- --
Stock option
compensation -- -- -- -- 1,127 -- --
Net income -- -- -- 535 -- -- --
--------- ----- ------- -------- ---- -------- ----
Balance
June 30, 1997 4,866,697 $483 $32,419 $1,257 $2,385 87,666 $685
========= ===== ======= ======== ===== ====== ====
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 ("1996 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 six month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. Cash and Cash Equivalents
Cash and cash equivalents totalled $3,145,000 at June 30, 1997. Of this
amount, approximately $2,672,000 was available for general corporate purposes
and the balance was held for third parties, including $349,000 in gas and oil
sales proceeds held for eventual distribution to outside working interest and
royalty owners, and $124,000 withheld from outside working interest owners'
distributions to be utilized for future ad valorem tax payments (Note 3). The
Company's cash balance at June 30, 1997 includes $2,814,000 invested in
commercial paper and U.S. Government and Agency Securities with an annualized
5.2 percent return.
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 $461,000 at
June 30, 1997, 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 $337,000 is included in other assets.
Interest earned on the funds accrues to the benefit of the working interest
owners. Amounts corresponding to these assets are recorded 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. The effective tax rate for the first half of 1997
is lower than first half of 1996, due to the increased effect of percentage
depletion deductions.
5. Common Stock Held In Treasury
The Company contributed 6,667 shares, 256 shares and 8,750 shares of its
common stock held in treasury to the Company's 401(k) Plan on January 13, 1997,
March 26, 1997 and January 16, 1996, respectively.
6. Earnings Per Share
Primary earnings per share is based on the weighted average number of
common and common equivalent shares outstanding. They were not significant in
previous years. Primary and fully diluted earnings per share are the same.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS
128 specifies the computation, presentation, and disclosure requirements for
earnings per share. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods. The Company
plans to adopt the new standard at year-end 1997 and the impact of this standard
is not expected to have a material impact on the Company's consolidated earnings
per share calculations.
7. Reclassifications
Certain amounts have been reclassified in the first half and second quarter
of 1996 consolidated financial statements to conform with the first half and
second quarter of 1997 presentation. These amounts have been reclassified to
reflect the change in the Company's focus from a drilling fund operator to a
company which drills and operates wells primarily for its own account.
8. Merger of the Company
The Company announced on May 27, 1997, that the Company had entered into a
definitive Agreement and Plan of Merger dated as of May 27, 1997 with Columbia
Natural Resources, Inc. ("CNR"), a wholly owned subsidiary of The Columbia Gas
System, Inc., pursuant to which the stockholders of the Company would receive in
cash $15.75 per share of Common Stock on a fully diluted basis (approximately
5.2 million shares). The total purchase price, including the assumption of
outstanding bank debt, was approximately $101 million. The merger was subject
to obtaining the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock and other customary closing
conditions. The favorable vote of approximately 72% of the Company's
stockholders was obtained at a special meeting of the stockholders of the
Company held on August 7, 1997, and the merger became effective August 7, 1997.
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 June 30, 1997 and 1996,
respectively, are presented below.
Results of Operations
The Company recorded net income of $535,000 for the six months ended
June 30, 1997, compared to a net income of $1,282,000 for the same period in
1996. Income from operations for the first six months of 1997 totalled $556,000
compared to income from operations of $1,727,000 for the first six months of
1996.
Total revenues of $11,100,000 in the first six months of 1997 were $661,000
or 6 percent lower than total revenues of $11,761,000 in the first six months of
1996.
Gas and oil sales totalled $10,176,000 in the first six months of 1997 and
represented a $666,000 decrease over the same period last year. Revenues
decreased by $783,000 due to by lower gas and oil prices as compared to the
first six months of 1996. Higher gas sales volumes of $285,000 partially
offset the decrease. Gas and oil sales volumes totalled 3,393,673
equivalent thousand cubic feet ("EMCF"), a 1 percent increase over the
3,360,802 EMCF sold during the six month period ended June 30, 1996. The
Company received on average $3.00 per MCF and $17.98 per barrel ("BBL") for
the six month period ended June 30, 1997, compared to $3.24 per MCF and
$18.21 per BBL in the same period last year.
Third-party service revenue increased $49,000 due principally to increased
salt water disposal for outside parties.
Other operating revenue decreased $44,000 due primarily to decreased
marketing revenue as a result of lower gas and oil sales.
Total expenses in the first six months of 1997 were $10,544,000, an
increase of $510,000 or 5 percent from expenses in the first six months of 1996
of $10,034,000.
Production expenses were lower by $248,000 or 10 percent due primarily to
reduced well operating expenses.
Production taxes of $727,000 in the first half of 1997 were lower by
$13,000 from $740,000 for the same period of 1996.
Alamco reported exploration expense of $245,000 in the first half of 1997
compared to $217,000 in the first half of 1996. Exploration expense for
both years consist of certain departmental expenses incurred for the
evaluation of potential exploration prospects.
Third-party service expense increased $37,000 due primarily to increased
salt water disposal volumes.
General and administrative expenses for the first half of 1997 were higher
by $475,000 or 25 percent as compared to the same period last year mainly
because of higher employee-related expenses and expenses associated with
the evaluation of strategic alternatives for the Company, including the
retention of a financial advisor to assist with that evaluation.
Option plan compensation expense was $1,612,000 in the first half of 1997
and $1,610,000 in the first half of 1996. Refer to Note 11 of the Notes to
Consolidated Financial Statements contained in the Company's 1996 Annual
Report on Form 10-K for a discussion of stock option accounting
adjustments.
Depreciation, depletion and amortization expense was lower by $2,000 in the
first half of 1997 compared to the first half of 1996.
Interest expense for the first six months of 1997 was $806,000, an increase
of $231,000 over the same period last year due to the lack of interest
capitalization resulting from decreased drilling in 1997.
Non-operating income in the first six months of 1997 totalled $98,000 as
compared to $151,000 in the same period last year.
The Company recorded an income tax provision of $119,000 for the six month
period ended June 30, 1997, as compared to an income tax provision of $596,000
last year.
The Company reported a net loss of $378,000 for the three months ended June
30, 1997, compared to a net loss of $16,000 for the three months ended June 30,
1996. Loss from operations totalled $571,000 for the second quarter of 1997,
compared to a loss from operations of $74,000 for the same period last year.
Second quarter 1997 revenues of $4,778,000 were lower by $359,000 or
7 percent compared to total revenues of $5,137,000 for the same period last
year.
Gas and oil sales decreased by $377,000 to $4,278,000 over second quarter
1996 gas and oil sales of $4,655,000 due primarily to lower average gas and
oil prices of $350,000 and $44,000, respectively. Higher gas volumes of
$99,000 were largely offset by lower oil volumes of $82,000. Gas and oil
sales volumes totalled 1,685,610 EMCF and 1,675,144 EMCF for the second
quarters of 1997 and 1996, respectively. The Company received an average
$2.52 per MCF and $16.83 per BBL for the second quarter of 1997 compared to
$2.74 per MCF and $19.12 per BBL last year.
Third-party service revenue of $231,000 for the three months ended June
30, 1997, was higher by $7,000.
Other revenue increased $11,000 due principally to increased transportation
revenue.
Expenses for the three months ended June 30, 1997 totalled $5,349,000 and
were $138,000 or 3 percent higher than the three months ended June 30, 1996,
when expenses totalled $5,211,000.
Production expenses of $1,130,000 for the quarter were $95,000 or 8
percent lower than the second quarter last year for the same reasons stated
in the six months results.
Production taxes of $328,000 in the second quarter of 1997 were lower by
$52,000 from $380,000 in the second quarter of 1996.
Alamco reported exploration expense of $112,000 in the second quarter of
1997 compared to $125,000 in the second quarter of 1996.
General and administrative expenses were $1,289,000 or 26 percent higher
than the same period last year for the same reasons as stated in the six
months results.
Option plan compensation expense of $855,000 was recorded in the second
quarter of 1997 and $977,000 for the same period in 1996.
Depreciation, depletion and amortization expense was $1,000 higher in the
second quarter of 1997 than the second quarter of 1996. Interest expense
was higher by $126,000 due to lower interest capitalization.
Non-operating income in the second quarter of 1997 totalled $38,000 or a
decrease of $30,000 from the second quarter of 1996 due to higher gains on asset
sales.
The Company recorded an income tax benefit of $155,000 in the second
quarter of 1997 as compared to an income tax provision of $10,000 for the
second quarter of 1996.
Liquidity and Capital Resources
Working Capital. At June 30, 1997, the Company had working capital of
$3,579,000, as compared to $3,869,000 at December 31, 1996. Because the Bank
One credit facility agreement requires the payment of interest only until July
1, 1998, current liabilities on the Company's June 30, 1997 balance sheet do not
include any principal payments for this credit facility.
Cash and cash equivalents totalled $3,145,000 at June 30, 1997. Of this
amount, approximately $2,672,000 was available for general corporate purposes
and the balance was held for third parties. Operating activities provided a net
$5,736,000. Investing activities used a net $1,945,000 including $1,936,000 in
capital expenditures. Financing activities used a net $2,390,000.
Revolving Credit Facility. The Company has in place a $30.0 million
revolving credit facility with Bank One, under which $24 million was outstanding
at August 7, 1997. In connection with the merger of the Company described
herein, Columbia Natural Resource, Inc. paid the outstanding borrowings under
the facility. Interest accrues and is paid monthly. Effective February 1,
1997, the Company has the option of paying interest at either Bank One's prime
rate or LIBOR-based rates.
Capital Expenditures and Commitments. Alamco's 1997 capital investment
program to date has depended upon, among other things, the market and prices
received for natural gas and the success of its exploration and development
prospects. In the first half of 1997, Alamco's capital expenditures totalled
$1,936,000 including $1,842,000 for the construction of the Company's 23-mile
pipeline in Tennessee and drilling of new wells. These activities were funded
from internal sources and the Bank One revolving credit facility.
The Company announced on May 27, 1997, that the Company had entered into a
definitive Agreement and Plan of Merger dated as of May 27, 1997 with Columbia
Natural Resources, Inc. ("CNR"), a wholly owned subsidiary of The Columbia Gas
System, Inc., pursuant to which the stockholders of the Company would receive in
cash $15.75 per share of Common Stock on a fully diluted basis (approximately
5.2 million shares). The total purchase price, including the assumption of
outstanding bank debt, was approximately $101 million. The merger was subject
to obtaining the affirmative vote of the holders of a majority of the
outstanding shares of the Company's Common Stock and other customary closing
conditions. The favorable vote of approximately 72% of the Company's
stockholders was obtained at a special meeting of the stockholders of the
Company held on August 7, 1997, and the merger became effective August 7, 1997.
Other. Some of the statements contained in this Form 10-Q may be "forward-
looking" statements. Reference is hereby made to the Company's 1996 Annual
Report on Form 10-K for a discussion of factors that may affect forward-looking
statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Filing
---------- ----------- ------
27 Financial Data Schedule. Filed herewith
(b) A current report on Form 8-K under Item 5 was filed during the quarter
ended June 30, 1997 to report an event dated May 27, 1997.
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.
August 7, 1997 /s/ John L. Schwager
-------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer
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