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, 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 May 1, 1997, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,774,031
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statements of Income . . . . . . . . . 3
for the three months ended March 31, 1997 and 1996
Condensed Consolidated Balance Sheets as of . . . . . . . . . 4-5
March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of Cash Flows . . . . . . . 6
for the three months ended March 31, 1997 and 1996
Condensed Consolidated Statements of Stockholders' . . . . . . 7
Equity for the three months ended March 31, 1997 and 1996
Notes to the Condensed Consolidated Financial . . . . . . . . 8-9
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . . 10-12
Financial Condition and Results of Operations
PART II. Other Information
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Three Months Ended
March 31,
-----------------
1997 1996
---- ----
Revenues:
Gas and oil sales $ 5,898 $ 6,187
Third-party services 221 179
Other revenue 203 258
------ -------
Total revenues 6,322 6,624
------ -------
Expenses:
Production expense 1,185 1,338
Production taxes 399 360
Exploration 133 92
Third-party services 118 107
General and administrative 1,082 874
Option plan compensation 757 633
Depreciation, depletion and amortization 1,075 1,078
Interest 446 341
------- --------
Total expenses 5,195 4,823
------- --------
Income from operations 1,127 1,801
Other nonoperating income, net 60 83
-------- -------
Income before income taxes 1,187 1,884
Income tax provision 274 586
-------- -------
Net income $ 913 $1,298
======== =======
Net income per share $0.18 $0.27
======== ========
Weighted average number of common and
common equivalent shares outstanding 4,966,109 4,865,865
========= =========
March 31, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,483 $ 1,744
Accounts receivable 4,759 6,253
Due from partnerships and programs 95 90
Inventories and other current assets 212 375
Deferred taxes 368 207
------ ------
Total current assets 7,917 8,669
------ ------
Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 88,374 87,991
Other property and equipment 9,102 8,621
------ -------
97,476 96,612
Less accumulated depreciation,
depletion and amortization 36,617 35,581
------- -------
60,859 61,031
Other assets 964 998
------- -------
Total assets $69,740 $70,698
======= =======
(Continued)
March 31, December 31,
1997 1996
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 18 $ 34
Accounts payable 562 853
Cash compensation under stock option plan 673 529
Accrued expenses and other 939 1,002
Accrued production and property taxes 591 636
Due working interest and royalty owners 1,882 1,746
Income tax payable 121 --
------- -------
Total current liabilities 4,786 4,800
------- -------
Long-term debt and
capital lease obligations 18,052 20,752
Due working interest and royalty owners 322 322
Deferred taxes 10,561 10,330
Other long-term liabilities 439 508
------- -------
Total liabilities 34,160 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; 4,861,697
and 4,846,697 shares issued and
outstanding, respectively; including
treasury stock 482 481
Additional paid-in capital 32,348 32,074
Common stock issuable under options 1,800 1,415
Retained earnings 1,635 722
-------- -------
36,265 34,692
Less: Treasury stock, at cost, 87,666
and 94,589 shares of common
stock, respectively 685 706
------- -------
Total stockholders' equity 35,580 33,986
------- -------
Total liabilities and stockholders' equity $ 69,740 $ 70,698
======= =======
Three Months Ended
March 31,
-----------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 913 $ 1,298
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 1,075 1,078
Deferred taxes 70 403
Provision for common stock
issuable under options 385 449
Gains on asset sales -- (26)
Issuance of stock for employee benefits and
compensation expense 87 111
Other factors, net 1 1
Increase (decrease) in cash from changes in:
Accounts receivable 1,494 (2,352)
Due from partnerships and programs (5) 15
Due working interest and royalty owners 136 (1,398)
Inventories and other current assets 163 80
Accounts payable & accrued expenses (399) (411)
Deferred revenue -- (106)
Accrued cash compensation under
stock option plan 144 162
Income tax payable 121 51
-------- -------
Net cash provided by (used in)
operating activities 4,185 (645)
-------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets -- 36
Capital expenditures (864) (2,566)
Investment in limited partnership -- (21)
Other assets (5) 59
-------- -------
Net cash used in investing activities (869) (2,492)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit -- 3,200
Payments on line of credit (2,700) --
Principal payments on long-term debt and
capital lease obligations (17) (16)
Acquisition of treasury stock -- (15)
Proceeds from exercise of stock options 209 19
Other liabilities (69) (105)
------- -------
Net cash (used in) provided
by financing activities (2,577) 3,083
------- -------
Net increase (decrease) in cash and cash equivalents 739 (54)
Cash and cash equivalents - beginning of period 1,744 3,297
------- -------
Cash and cash equivalents - end of period $2,483 $ 3,243
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 443 $ 341
Income tax 19 --
Common
Common Addit- Stock Treasury
Stock ional Issuable Stock
------------- Paid-in Retained Under --------------
Shares Dollars Capital Earnings Options Shares Dollars
------ ------- -------- -------- ------ ------- -------
Balance
December 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 -- -- -- -- -- 1,648 15
Exercise of stock
options 6,000 1 18 -- -- -- --
Stock option
compensation -- -- 15 -- 434 -- --
Net income -- -- -- 1,298 -- -- --
--------- ---- ------- ------ ---- ------ ----
Balance
March 31, 1996 4,768,898 $477 $31,355 ($651) $1,382 51,124 $205
========= ==== ======= ====== ====== ====== ====
Balance
December 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 15,000 1 208 -- (125) -- --
Stock option
compensation -- -- -- -- 510 -- --
Net income -- -- -- 913 -- -- --
--------- ---- ------- ------ ---- ------ ----
Balance
March 31, 1997 4,861,697 $482 $32,348 $1,635 $1,800 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 three month period ended March 31, 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 $2,483,000 at March 31, 1997. Of this
amount, approximately $1,481,000 was available for general corporate purposes
and the balance was held for third parties, including $570,000 in gas and oil
sales proceeds held for eventual distribution to outside working interest and
royalty owners, $293,000 representing the outside interests' estimated share of
Columbia settlement proceeds and $139,000 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, 1997 includes $2,153,000 invested
in commercial paper and U.S. Government and Agency Securities with an annualized
5.1 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
March 31, 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 $322,000 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 first quarter 1997 is
lower than for first quarter 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. 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 quarter 1996
consolidated financial statements to conform with the first quarter 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.
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, 1997 and 1996, respectively, are
presented below.
Results of Operations
The Company recorded net income of $913,000 for the three months ended
March 31, 1997, compared to net income of $1,298,000 for the same period in
1996. Income from operations for the first quarter of 1997 totalled $1,127,000
compared to income from operations of $1,801,000 for the first quarter of 1996.
Total revenues of $6,322,000 in the first three months of 1997 were $302,000
or 5 percent lower than total revenues of $6,624,000 in the first three months
of 1996.
Gas and oil sales totalled $5,898,000 in the first quarter of 1997 and
represented a $289,000 decrease from the same period last year. The
decrease was a result of lower gas prices of $432,000 and lower oil sales
volumes of $84,000, partially offset by higher gas sales volumes of $193,000
and higher oil prices of $34,000. Gas and oil sales volumes totalled
1,708,000 equivalent thousand cubic feet ("EMCF"), a 1 percent increase over
the 1,685,700 EMCF sold during the three month period ending March 31,
1996. The Company received an average of $3.47 per MCF for gas and $19.13
per barrel ("BBL") for oil for the three month period ending March 31,
1997, compared to $3.74 per MCF and $17.31 per BBL in the same period last
year.
Third-party service revenue increased $42,000 due principally to increased
salt water disposal volumes.
Other operating revenue decreased $55,000 due primarily to decreased revenue
from the Section 29 tax credit transaction.
Total expenses in the first quarter of 1997 were $5,195,000, an increase of
$372,000 or 8 percent compared to expenses in the first three months of 1996 of
$4,823,000.
Production expenses were lower by $153,000 or 11 percent due primarily to
reduced well operating expenses.
Production taxes of $399,000 in the first quarter of 1997 were higher by
$39,000 from $360,000 for the same quarter of 1996 due to adjustments in the
methodology the Company uses to accrue severance taxes.
Alamco reported exploration expense of $133,000 in the first quarter of 1997
relative to a comparable $92,000 in the first quarter of 1996. Exploration
expense for both quarters consist of certain departmental expenses incurred
for the evaluation of potential exploration prospects.
Third-party service expense increased $11,000 due principally to increased
salt water disposal volumes.
General and administrative expenses for the first quarter of 1997 were
higher by $208,000 or 24 percent as compared to the same quarter 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 Principal Financial Securities, Inc. to assist with that
evaluation.
Option plan compensation expense was $757,000 in the first quarter of 1997
and $633,000 in the first quarter of 1996. The increase of $124,000 was due
primarily to higher appreciation of Alamco's stock price in the first
quarter of 1997 versus the first quarter of 1996. Refer to Note 11 of the
Notes to the 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 $3,000 in the
first quarter of 1997 due to lower depletion expenses related to increased
gas and oil reserve levels over the first quarter of 1996.
Interest expense for the first three months of 1997 was $446,000, an
increase of $105,000 over the same period last year due primarily to higher
debt balances.
Non-operating income in the first quarter of 1997 totalled $60,000 as
compared to $83,000 in the same period last year due to the absence of gains on
asset sales.
The Company recorded an income tax provision of $274,000 in the first
quarter of 1997 as compared to an income tax provision of $586,000 for the first
quarter of 1996 due to lower taxable income.
Liquidity and Capital Resources
Working Capital. At March 31, 1997, the Company had working capital of
$3,131,000, 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 March 31, 1997 balance sheet do
not include any principal payments for this credit facility.
Cash and cash equivalents totalled $2,483,000 at March 31, 1997. Of this
amount, approximately $1,491,000 was available for general corporate purposes
and the balance was held for third parties. Operating activities provided a net
$4,185,000. Investing activities used a net $869,000, including $864,000 in
capital expenditures, and financing activities used a net $2,577,000.
Revolving Credit Facility. The Company has in place a $30.0 million
revolving credit facility with Bank One. Currently $12 million is available for
borrowing by the Company. 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. In the first quarter of 1997,
Alamco's capital investments totalled $864,000, including $812,000 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. In the future, the Company intends to continue to
use internally generated cash flows and amounts available under the credit
facility to fund the exploration and development of its gas and oil reserves and
property acquisitions.
Alamco's 1997 capital investment program will depend upon, among other
things, the market and prices received for natural gas and the success of its
exploration and development prospects. The Company currently plans to spend
approximately $6.0 million in 1997 to drill approximately 30 wells, recomplete
an additional five wells and begin a pilot secondary recovery program for oil in
the Company's Days Chapel Field in Tennessee. Approximately 16 development
wells and one exploratory well will be drilled in Tennessee. Up to seven
development wells and two exploratory wells will be drilled in Kentucky. The
Company also plans to drill four development wells at its South Burns Chapel
Field in West Virginia. The Company plans to continue with its aggressive
acreage acquisition strategy and will position itself to increase both
exploratory and development drilling. Alamco remains committed to the
acquisition of producing properties at favorable prices.
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.
Alamco, Inc. announced on January 16, 1997, that its Board of Directors had
retained Principal Financial Securities, Inc. to assist it in exploring
strategic alternatives for increasing shareholder value, including the
possibility of a sale or merger of part or all of the Company.
The Board noted that, while it had determined that these alternatives should
be explored to see if they would yield a superior value for shareholders, the
Board had not made any determination that the Company will be sold or merged or
that such a transaction would be in the best interest of shareholders.
Item 5. Other Information.
Effective April 24, 1997, the Board of Directors determined that from and
after that date, the Company would not grant any incentive or nonqualified stock
options containing a tax reimbursement feature to any officer, director or key
employee of the Company pursuant to any stock option plan including the 1992
Employees Stock Option Plan, the 1982 Employees Stock Option Plan, the 1996
Stock Option Plan for Non-Employee Directors, the 1982 Outside Directors Stock
Option Plan or any stock option granted outside of any stockholder approved
plans (or any amendments thereto), such that under any such future option
agreement the option holder would be entitled to additional compensation in the
form of tax reimbursement or other similar payments arising in connection with
the granting or exercise of such option or the disposition of the option shares.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description Filing
---------- ----------- ------
10.1 First Amendment to Gas Filed herewith
Purchase Agreement between
Citizens Gas Utility District
and Alamco, Inc.
effective November 1, 1997.
27 Financial Data Schedule Filed herewith
(b) No current reports on Form 8-K were filed during the quarter ended
March 31, 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.
May 13, 1997 /s/ John L. Schwager
-----------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer
Exhibit 10.1
FIRST AMENDMENT TO GAS PURCHASE AGREEMENT
BETWEEN CITIZENS GAS UTILITY DISTRICT AND
ALAMCO, INC.
THIS FIRST AMENDMENT TO THE AGREEMENT by and between Citizens Gas Utility
District, a Tennessee gas utility district (hereinafter the "Buyer") and Alamco,
Inc., a Delaware corporation (hereinafter the "Seller"), is effective as of
November 1, 1997.
WHEREAS, Buyer and Seller are parties to that Gas Purchase Agreement
effective as of November 1, 1996 (the "Prior Agreement"); and
WHEREAS, both parties desire to extend the term of that Prior Agreement
and to amend it as specified herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties, intending to be legally bound, hereby agree to
amend the terms of the Prior Agreement as follows:
III. TERM
1. This Agreement shall be effective from November 1, 1997 through
October 31, 1999. After the primary term, this Agreement shall continue from
month-to-month thereafter, unless earlier terminated as provided hereunder or
upon thirty (30) days written notice to the other party.
2. If Buyer fails to take and purchase the required contract quantity
specified in Section II for five (5) consecutive days for any reason, including
without limitation Force Majeure, then Seller, without waiving any other
available rights or remedies, may (i) terminate this Agreement upon written
notice to Buyer, or (ii) sell all or any portion of the gas not taken to third
parties. Without limiting the foregoing, such termination shall not waive
Seller's rights, if any, against Buyer for Buyer's breach, if any, of this
Agreement.
3. If Buyer is required by any federal, state or local agency or its
governing body to reduce the price it pays Seller from that set forth in Section
VI hereof, it may either reduce the price, subject to agreement by Seller, or
terminate this Agreement by notifying Seller thirty (30) days in advance of such
reduction or termination. Provided, however, that in the event Seller does not
agree to such price reduction or this Agreement is terminated, Buyer shall
provide transportation services on its pipeline and facilities to Seller in
accordance with Section IX hereof.
VIII. BILLING AND PAYMENT
1. Buyer will be providing Seller with a statement reflecting volumes
delivered hereunder as well as payment for those volumes on or before thirty
(30) days after the end of a given Billing Period. During the period April 1
through October 31, the volumes which are measured at the Delivery Point(s)
shall be reduced by one and six tenths percent (1.6%) for fuel and retainage and
Seller shall be paid on volumes net of this fuel. For the period November 1
through March 31, there will be no fuel and retainage charge.
2. Seller shall have the right at reasonable hours to examine the
books, records and charts of Buyer to the extent necessary to verify the
accuracy of any statement, charge, or computation made pursuant to the
provisions of any Section hereof.
3. If an overpayment or underpayment in any form whatsoever shall at
any time be found, Seller shall refund the amount of the overpayment received by
Seller and Buyer shall pay the amount of the underpayment within thirty (30)
days after final determination thereof; provided, however, that no retroactive
adjustment shall be made for any overpayment or underpayment beyond a period of
forty-eight (48) months from the date a discrepancy occurred.
All other terms and conditions of the Prior Agreement not otherwise
modified herein, shall remain in full force and effect.
WITNESS the above execution hereof as of the date first written above.
WITNESS: BUYER:
CITIZENS GAS UTILITY DISTRICT
/s/ William S. Cooper, III BY: /s/Freddy Bishop
- ---------------------------- -------------------------
Its: General Manager
----------------------
WITNESS: SELLER:
ALAMCO, INC.
/s/ Jane Merandi BY: /s/ John L. Schwager
- ----------------------------- --------------------------
Its: President/CEO
-------------------------
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This schedule contains summary financial information extracted from the
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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