SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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, 1996
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, 1996, is set forth below:
Class of Stock Number of Shares Outstanding
Common Stock, $.10 par value 4,749,782
PART I. Financial Information Pages
Item 1. Financial Statements
Condensed Consolidated Statement of Income . . . . . . . . . . 3
for the three and six months ended June 30, 1996 and 1995
Condensed Consolidated Balance Sheet as of . . . . . . . . . 4 - 5
June 30, 1996 and December 31, 1995
Condensed Consolidated Statement of Cash Flows . . . . . . . . 6
for the six months ended June 30, 1996 and 1995
Condensed Consolidated Statement of Stockholders' . . . . . . 7
Equity for the six months ended June 30, 1996 and 1995
Notes to the Condensed Consolidated Financial . . . . . . . 8 - 9
Statements
Item 2. Management's Discussion and Analysis of . . . . . . . . . . 10 - 14
Financial Condition and Results of Operations
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 15
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Gas and oil sales $4,655 $3,048 $10,842 $6,059
Well tending income 224 287 403 536
Other revenue 258 195 516 395
------ ------ ------ ------
Total revenues 5,137 3,530 11,761 6,990
------ ------ ------ ------
Expenses:
Operating 2,010 1,609 4,083 3,170
General & administrative 851 704 1,549 1,476
Option plan compensation 977 630 1,610 601
Depreciation, depletion &
amortization 1,139 1,029 2,217 2,045
Interest 234 332 575 631
------ ------ ------ ------
Total expenses 5,211 4,304 10,034 7,923
------ ------ ------ ------
Income (loss)
from operations (74) (774) 1,727 (933)
Other nonoperating income,
net 68 50 151 114
------ ------ ------ ------
Income (loss) before
income taxes (6) (724) 1,878 (819)
Income tax provision
(benefit) 10 (312) 596 (326)
------ ------ ------ -------
Net income (loss) ($16) ($412) $1,282 ($493)
====== ====== ====== ======
Net income (loss) per share $0.00 ($0.09) $0.26 ($0.11)
===== ====== ===== ======
Weighted average number of
shares outstanding 4,934,523 4,677,257 4,930,973 4,665,385
========= ========= ========= =========
June 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $2,974 $3,297
Accounts receivable 4,878 3,116
Due from partnerships and programs 88 72
Inventories and other current assets 188 368
Deferred taxes 302 138
------ ------
Total current assets 8,430 6,991
------ ------
Property and equipment:
Gas and oil producing properties
(Successful Efforts Method) 81,905 78,076
Other property and equipment 6,456 5,740
------ -------
88,361 83,816
Less accumulated depreciation,
depletion and amortization 33,637 32,201
------- -------
54,724 51,615
Other assets 1,038 1,294
------- -------
Total assets $64,192 $59,900
======= =======
(Continued)
June 30, December 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital lease obligations $ 35 $ 33
Accounts payable 1,456 1,026
Accrued expenses and other 1,410 1,545
Due working interest and royalty owners 1,386 3,309
Deferred revenue 211 113
Cash compensation under stock
option plan (Note 7) 773 355
Income tax payable 99 0
------- -------
Total current liabilities 5,370 6,381
------- -------
Long-term debt and capital lease obligations,
less current portion 15,857 13,674
Due working interest and royalty owners 317 325
Deferred revenue 0 29
Deferred taxes 9,099 8,566
Other long-term liabilities 499 429
------- -------
Total liabilities 31,142 29,404
------- -------
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,
4,775,790 and 4,762,898 shares
issued and outstanding, respectively,
including treasury stock 478 476
Common stock issuable
under options (Note 7) 2,068 948
Additional paid-in capital 31,391 31,245
Accumulated deficit (667) (1,949)
-------- -------
33,270 30,720
Less: Treasury stock, 52,520 and
62,405 shares of common stock,
respectively 220 224
------- -------
Total stockholders' equity 33,050 30,496
------- -------
Total liabilities and stockholders' equity $64,192 $59,900
======= =======
Six Months Ended
June 30,
-----------------
1996 1995
---- ----
Net income (loss) $ 1,282 ($493)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 2,217 2,045
Change in deferred tax liability 369 (298)
Provision for common stock
issuable under options 1,141 369
Issuance of stock for employee benefits and
compensation expense 111 70
Gains on asset sales (54) (22)
Other factors, net 3 2
Increases (decreases) in cash from changes in:
Accounts receivable (1,762) 57
Due from partnerships and programs (16) (32)
Due working interest and royalty owners (1,923) 133
Inventories and other current assets 180 9
Accounts payable & accrued expenses 295 (1,055)
Deferred revenue 98 (261)
Accrued cash compensation under stock option plan 418 122
Income tax payable 99 0
-------- -------
Net cash provided by operating activities 2,458 646
-------- -------
Cash flows from investing activities:
Proceeds from disposal of fixed assets 63 237
Capital expenditures (5,257) (2,356)
Other assets 178 (8)
-------- -------
Net cash used in investing activities (5,016) (2,127)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit agreement 3,200 1,800
Payments on line of credit (1,000) (500)
Additions to long-term debt 0 32
Principal payments on long-term debt and
capital lease obligations (18) (63)
Acquisition of treasury stock (30) (46)
Proceeds from exercise of stock options 50 106
Other liabilities 33 (545)
------- -------
Net cash provided by financing activities 2,235 784
------- -------
Net decrease in cash and temporary investments (323) (697)
Cash and cash equivalents - beginning of period 3,297 2,632
------- -------
Cash and cash equivalents - end of period $ 2,974 $ 1,935
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $694 $628
Common
Common Addit- Stock
Treasury
Stock ional Accumu- Issuable Stock
------------- Paid-in lated Under
--------------
Shares Dollars Capital Deficit Options Shares Dollars
------ ------- -------- -------- ------ ------- -------
Balance
December 31, 1994 4,712,713 $471 $30,995 ($3,228) $507 63,360 $188
Issuance of treasury
stock -- -- 36 -- -- (10,370) (34)
Acquisition of
treasury stock -- -- -- -- -- 6,402 46
Exercise of stock
options 32,700 4 102 -- -- -- --
Stock option
compensation -- -- 43 -- 326 -- --
Net loss -- -- -- (493) -- -- --
-------------- ------- -------- ---- -------- ----
Balance
June 30, 1995 4,745,413 $475 $31,176 ($3,721) $833 59,392 $200
============== ======= ======== ==== ====== ====
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 -- -- -- -- -- 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
============== ======= ====== ====== ====== ====
1. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 ("1995 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, 1996 are not
necessarily indicative of the results to be expected for the full year.
The disclosure provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" will be adopted by the
Company in its 1996 annual financial statements.
2. Cash and Cash Equivalents
Cash and cash equivalents totalled $2,974,000 at June 30, 1996. Of this
amount, approximately $2,539,000 was available for general corporate purposes
and the balance was held for third parties, including $317,000 in gas and oil
sales proceeds held for eventual distribution to outside working interest and
royalty owners, and $118,000 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, 1996 includes $2,698,000 invested in
commercial paper and U.S. Government and Agency Securities with an annualized
5.05 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 $435,000 at
June 30, 1996, 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 $317,000 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 1996
is higher than first half of 1995, due to the decreased effect of percentage
depletion deductions.
5. Common Stock Held In Treasury
The Company contributed 8,750 and 10,370 shares of its common stock held in
treasury to the Company's 401(k) Plan on January 16, 1996 and February 28,
1995.
6. Earnings Per Share
Primary earnings per share is based on the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares are
included in the calculation beginning in 1996. They were not significant in
previous years. Primary and fully diluted earnings per share are the same.
7. Option Plan Compensation
As a result of exercises of nonqualified stock options in 1996, Alamco
reviewed its accounting for stock options and concluded that certain options
should have been treated as variable awards rather than fixed awards. An
employee tax reimbursement feature included in the option agreements requires
that variable award accounting be followed. Under variable award accounting,
periodic changes in difference between the market price of the Company's common
stock and the exercise prices of outstanding nonqualified stock options should
be recognized as non-cash compensation expense. As a result, option plan
compensation expense of $1,610,000 was recorded in the first six months of 1996
and option plan compensation expense of $601,000 was recorded in the same period
of 1995.
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, 1996 and 1995,
respectively, are presented below.
Results of Operations
The Company recorded net income of $1,282,000 for the six months ended
June 30, 1996, compared to a net loss of $493,000 for the same period of 1995.
Income from operations for the first six months of 1996 totalled $1,727,000
compared to a loss from operations of $933,000 for the first six months of 1995.
Total revenues of $11,761,000 in the first six months of 1996 were
$4,771,000 or 68 percent higher than total revenues of $6,990,000 in the first
six months of 1995.
Gas and oil sales totalled $10,842,000 in the first six months of 1996 and
represented a $4,783,000 increase over the same period last year. Revenues
were increased $3,678,000 by substantially higher gas prices as compared to
the first six months of 1995. Higher gas sales volumes, higher oil sales
volumes and higher oil prices contributed $936,000, $78,000 and $91,000,
respectively, to the increase. Gas and oil sales volumes totalled
3,360,802 equivalent thousand cubic feet ("EMCF"), a 17 percent increase
over the 2,875,445 EMCF sold during the six month period ended June 30,
1995. The Company received on average $3.24 per MCF and $18.21 per barrel
("BBL") for the six month period ended June 30, 1996, compared to $2.05 per
MCF and $16.28 per BBL in the same period last year.
Well tending income decreased $133,000 due principally to the reduction in
the number of wells the Company operates for outside investors.
Other operating revenue increased $121,000 due primarily to increased
marketing revenue as a result of higher gas and oil sales.
Total expenses in the first six months of 1996 were $10,034,000, an
increase of $2,111,000 or 2.7 percent from expenses in the first six months of
1995 of $7,923,000.
Operating expenses were higher by $913,000 or 29 percent due primarily to
increased production taxes as a result of increased revenues and the
accrual of a three year state severance tax audit settlement.
General and administrative expenses for the first six months of 1996 were
higher by $73,000 or 5 percent as compared to last year.
As a result of exercises of nonqualified stock options in 1996, Alamco
reviewed its accounting for stock options and concluded that certain
options should have been treated as variable awards rather than fixed
awards. An employee tax reimbursement feature included in the option
agreements requires that variable award accounting be followed. Under
variable award accounting, periodic changes in the difference between the
market price of the Company's common stock and the exercise prices of
outstanding nonqualified stock options should be recognized as non-cash
compensation expense. As a result, option plan compensation expense of
$1,610,000 was recorded in the first six months of 1996 and option plan
compensation expense of $601,000 was recorded in the same period of 1995.
Depreciation, depletion and amortization expense was higher by $172,000 in
the first six months of 1996 due to higher production and property and
equipment levels, partially offset by higher oil and gas reserve levels.
Interest expense for the first six months of 1996 was $575,000, a decrease
of $56,000 over the same period last year due to more interest
capitalization resulting from increased drilling in 1996.
Non-operating income in the first six months of 1996 totalled $151,000 as
compared to $114,000 in the same period last year.
The Company recorded an income tax provision of $596,000 for the six month
period ended June 30, 1996, as compared to an income tax benefit of $326,000
last year.
The Company reported a net loss of $16,000 for the three months ended June
30, 1996, compared to a net loss of $412,000 for the three months ended June 30,
1995. Loss from operations totalled $74,000 for the second quarter of 1996,
compared to a loss from operations of $774,000 for the same period last year.
Second quarter 1996 revenues of $5,137,000 were higher by $1,607,000 or
46 percent compared to total revenues of $3,530,000 for the same period last
year.
Gas and oil sales increased by $1,607,000 to $4,655,000 over second quarter
1995 gas and oil sales of $3,048,000 due primarily to higher average gas
and oil prices of $1,155,000 and $61,000, respectively. Higher gas and oil
volumes of $361,000 and $30,000, respectively, also contributed to the
increase. Gas and oil sales volumes totalled 1,675,144 EMCF and 1,483,025
EMCF for the second quarters of 1996 and 1995, respectively. The Company
received an average $2.74 per MCF and $19.12 per BBL for the second quarter
of 1996 compared to $1.99 per MCF and $16.50 per BBL last year.
Well tending income of $224,000 for the three months ended June 30, 1996,
was lower by $63,000.
Other revenue increased $63,000 due principally to increased marketing
revenue from higher gas and oil sales.
Expenses in the three months ended June 30, 1996 totalled $5,211,000 and
were $907,000 or 21 percent higher than the three months ended June 30, 1995,
when expenses totalled $4,304,000.
Operating expenses of $2,010,000 for the quarter were $401,000 or 25
percent higher than the second quarter last year due principally to higher
production taxes and the accrual of a three year state severance tax audit
settlement.
General and administrative expenses were $147,000 or 21 percent higher than
the same period last year due to higher employee-related expenses.
Option plan compensation expense of $977,000 was recorded in the second
quarter of 1996 and $630,000 for the same period in 1995.
Depreciation, depletion and amortization expense was higher by $110,000 for
the same reason stated in the six-months results. Interest expense was
lower by $98,000 due to higher interest capitalization.
Non-operating income in the second quarter of 1996 totalled $68,000 or an
increase of $18,000 from the second quarter of 1995 due to higher gains on asset
sales.
The Company recorded an income tax provision of $10,000 in the second
quarter of 1996 as compared to an income tax benefit of $312,000 for the second
quarter of 1995.
Liquidity and Capital Resources
Working Capital. At June 30, 1996, the Company had working capital of
$3,060,000, as compared to $610,000 at December 31, 1995. The $2,450,000
increase in working capital is primarily due to higher accounts receivables
resulting from the higher price received by the Company for gas sales in the
first six months of 1996 as compared to that received in the fourth quarter of
1995. Because the Bank One credit facility agreement, as amended, calls for the
payment of interest only until July 1, 1998, current liabilities on the
Company's June 30, 1996, balance sheet do not include any principal payments for
this credit facility.
Cash and cash equivalents totalled $2,974,000 at June 30, 1996. Of this
amount, approximately $2,539,000 was available for general corporate purposes
and the balance was held for third parties. Operating activities provided a net
$2,458,000 which was negatively impacted by $1.9 million due to the payment of
proceeds to outside owners from the Columbia settlement. Investment activities
used a net $5,016,000 including $5,257,000 in capital expenditures. Financing
activities provided a net $2,235,000.
Revolving Credit Facility. The Company has in place a $30.0 million
revolving credit facility with Bank One. Currently $14.2 million is available
for borrowing by the Company. Interest accrues and is paid monthly at a rate of
Bank One's prime rate plus one-fourth of one percent.
Capital Expenditures and Commitments. In the first six months of 1996, the
Company's capital expenditures totalled $5,257,000 including approximately
$3,970,000 spent on gas and oil exploration, development and acquisition
activities. The Company's executive offices, approximately 20,000 square feet,
were purchased on January 5, and February 7, 1996 for $568,000 using funds
borrowed from the Bank One credit facility. The remaining capital expenditures
were spent on other property and equipment.
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 available to the Company, and gas and oil business opportunities in
general. As of August 2, the Company has drilled 19 wells this year, 16 of
which have been successful, 2 dry holes and 1 well is still being evaluated.
Alamco currently plans to spend $13,100,000 on 1996 gas and oil investments and
has expanded its original 1996 drilling program from 30 wells to 39 wells. As
part of its 1996 capital program, Alamco will be installing a 6-inch, 20 mile
pipeline in Tennessee to interconnect a substantial portion of its Tennessee and
Kentucky production and improve its gas marketing opportunities. Alamco will
continue with its enhancement program on existing wells. The Company plans to
continue with its acreage acquisition strategy and will position itself to
increase both exploratory and development drilling. The Company remains
committed to the acquisition of producing properties at favorable prices.
On July 11, 1996, the Company entered into a contract to sell 6,000 MMBtus
of gas per day on the CNG Transmission Corporation pipeline for the period
October 1, 1996 through March 31, 1997 at a price of $3.22 per MMBtu. The price
was based on the gas futures price on the New York Mercantile & Exchange, plus a
premium as consideration for Appalachian gas. The sale was made through
Phoenix-Alamco Ventures, a limited liability company, of which Alamco is a 50
percent owner. As a result of this contract and prior contracts, the Company
will sell approximately 47 percent of its gas during the winter season at an
average price of $3.02 per MCF.
Shut-in of Gas Volumes. Effective August 1, 1996, the Company will be
required to shut-in the majority of its gas volumes on the CNG Transmission
Corporation ("CNG") pipeline due to maintenance on the system. CNG estimates
that the shut-in will last approximately three (3) weeks, which will mean a
reduction of approximately 128,000 MMBtus net to the Company. Assuming the
volumes are curtailed for the period projected, the Company will experience a
reduction in revenues in excess of $300,000. The Company has experienced these
shut-ins in previous years.
On April 18, 1996, the Company agreed with the United States Environmental
Protection Agency ("EPA") to settle its outstanding administrative complaint
issued by the EPA for an amount significantly less than the initial proposed
penalty of nearly $124,000. The Company has previously recorded the agreed-upon
amount in prior years and will, therefore, not realize any expense in its 1996
financial statements. The EPA issued the complaint on May 23, 1994 for alleged
violations of the Clean Water Act resulting from an oil discharge at Alamco's
Days Chapel Field in Claiborne County, Tennessee. The incident occurred in
December 1993 when vandals severed locks securing the valves on the Alamco
storage tanks and discharged approximately 174 barrels of oil into a local
creek. The Company expects that the consent decree finalizing this matter will
be completed and signed before year-end.
Other. Some of the statements contained in this Form 10-Q, including
without limitation projections of capital expenditure and percentages of lock-in
volumes, may be "forward-looking" statements. Reference is hereby made to the
Company's 1995 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) No current reports on Form 8-K were filed during the quarter ended June 30,
1996.
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.
January 15, 1997 /s/ John L. Schwager
-------------------------------
John L. Schwager, President,
Chief Executive Officer, and
Principal Financial Officer
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This schedule contains summary financial information extracted from the
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