<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO ______________
COMMISSION FILE NUMBER 1-8717
AMERICAN OIL AND GAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-1967662
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
333 CLAY STREET
SUITE 2000
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 739-2900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
$.04 Par Value Common Stock New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 and
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
-----
As of March 17, 1994, the number of shares held by non-affiliates
of the Registrant was 15,157,165 and the aggregate market value of the
Registrant's Common Stock held by non-affiliates was $161,044,878 (based upon
New York Stock Exchange closing price of $10.625 per share on such date).
As of the close of business on March 17, 1994, the number of
shares of Common Stock outstanding was 25,894,395.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is incorporated from
the Company's definitive Proxy Statement for its 1994 Annual Meeting of
Stockholders, which will be filed with the Commission on or before April 30,
1994.
<PAGE> 2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements of the Company included
elsewhere herein.
RESULTS OF OPERATIONS
1993 COMPARED WITH 1992. Earnings for 1993 of $6.6 million were
56 percent lower than 1992 earnings of $14.8 million. This decrease was
primarily due to (i) a $4.5 million non-cash write down in 1993 of the
Company's investment in WellTech, Inc. ("WellTech"), (ii) a $7.8 million gross
margin contribution in 1992 ($1.0 million in 1993) from non-recurring
transactions which were settlements of obligations or recovery of payments
covered by the Basket Agreement and (iii) a decline in operating income of the
natural gas processing business acquired in April 1992. The decline in
operating income from processing activities resulted from the significant drop
in average sales prices of natural gas liquids ("NGL") during the second half
of 1993, as well as higher operating and administrative expenses.
Selected financial and operating data for the years ended
December 31, 1993 and 1992 follow (in thousands, except per unit data):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
FINANCIAL DATA:
Revenues $ 539,345 $ 430,098
Operating Income $ 21,494 $ 31,626
Net Income Applicable to Common Stock $ 6,551 $ 14,762
Earnings Per Share $ 0.25 $ 0.68
Average Sales Prices--
Natural gas, per MMBtu $ 2.23 $ 1.91
NGL, per gallon $ 0.31 $ 0.34
Condensate, per barrel $ 15.19 $ 16.71
Average Cost of Sales--
Natural gas, per MMBtu $ 1.99 $ 1.65
NGL, per gallon $ 0.20 $ 0.21
OPERATING DATA:
Natural Gas Sales (in MMBtu) 208,797 189,931
NGL Sales (in gallons) 174,981 143,987
Condensate Sales (in barrels) 540 451
Transportation Volumes (in MMBtu) 114,020 102,027
Average Daily Throughput (in MMBtu) 957 859
Average Daily Gas Volumes Processed (in MMBtu)--
Company-owned plants 197 163
Third party 11 37
</TABLE>
Note: Volumes approximate 1.025 MMBtu per 1.0 Mcf.
NATURAL GAS SALES. Natural gas sales volumes for 1993 were
approximately 19 Bcf (10 percent) higher than 1992, primarily due to increased
sales to on-system customers. Off-system sales,
19
<PAGE> 3
particularly to West Coast utilities, declined as a result of the highly
competitive market for those sales. Gross margin on natural gas sales for 1993
was approximately $0.8 million (2 percent) lower than 1992.
Excluding the non-recurring margin contributions of $7.8 million
and $1.0 million in 1993 and 1992, respectively, previously described, gross
margin and average unit margins for 1993 increased approximately $6.0 million
and 5 percent, respectively, over 1992. These increases were due to higher
sales volumes to on-system, premium-service customers, principally agricultural
and utility. Average unit margins on premium-service sales under certain
fixed-price contracts for 1993 were lower due to the effects of volatile
natural gas purchase costs, which were only partially offset by hedging
positions. During 1993, the Company took steps to increase the margins on
these sales, which included the improvement of the Company's price risk
management activities and the reformation of certain contracts to reflect the
value of the services provided. These steps resulted in improved margins on
premium-service sales during the second half of 1993.
NGL SALES. NGL sales volumes and gross margin for 1993 were
approximately 22 percent and $1.8 million, respectively, higher than 1992, due
to inclusion of a full year's operating results of the processing business
acquired in April 1992. Operating results for 1992 included operations of the
acquired business for the last nine months of 1992. Average unit margin on NGL
sales for 1993 was approximately 15 percent lower than 1992 because of the
significant decrease in average NGL sales prices during the last half of 1993,
which was only partially offset by lower average unit cost of sales. The
average unit cost of sales was approximately 5 percent lower than 1992 due to
effective hedging of plant fuel and shrinkage.
The Company is taking steps to improve profitability of its
processing operations. Effective December 1, 1993, the Company purchased a
natural gas processing plant and related gas gathering systems near two of its
existing processing plants. The Company is currently consolidating the
operations of these three plants. The Company also sold in December one of its
non-strategic processing plants while continuing to purchase the residue gas
behind the plant under a term agreement.
TRANSPORTATION. Transportation revenues for 1993 were higher
primarily due to a 12 percent increase in transportation volumes. Most of the
increase related to volumes transported on the Company's 51 percent owned
Webb/Duval Gatherers ("Webb/Duval") pipeline system. This pipeline system has
benefitted from increased drilling and production activity in South Texas, as
well as the capital improvements made to the system in 1992.
Operation and maintenance expenses increased approximately 26
percent primarily due to higher operating costs of the natural gas processing
plants. General and administrative expenses increased approximately 23 percent
primarily due to (i) non-cash executive stock compensation of $1.2 million
related primarily to the Company's new president and (ii) personnel additions
and other costs primarily related to the acquired natural gas processing
business.
Other income (expense) included gains of $1.0 million and $0.8
million for 1993 and 1992, respectively, on non-hedging natural gas financial
instruments. As of December 31, 1993, the Company's open non-hedging positions
consisted of approximately 300 option contracts which expired in early 1994
with minimal impact on earnings. Other income (expense) for 1993 also included
(i) a non-cash charge of $4.5 million related to the write down of the
Company's investment in WellTech and (ii) gains of approximately $0.9 million
on the sale of certain assets. The $4.5 million write down followed WellTech's
recently completed recapitalization which diluted the Company's ownership
interest from approximately 17 percent to 1.5 percent.
20
<PAGE> 4
The Company's effective income tax rate for 1993 was 39 percent
compared with 33 percent for 1992 (see note 5 of Notes to Consolidated
Financial Statements). The higher rate for 1993 reflects (i) an increase in
deferred income taxes of $0.8 million related to the increase in the corporate
tax rate to 35 percent and (ii) a valuation allowance of $1.3 million related
to the uncertain future utilization of deductions of the Company's tax basis in
WellTech stock. These adjustments were partially offset by capital loss
carryforwards utilized in 1993.
The reduction in preferred stock dividends was due to conversion
in January 1993 of all outstanding shares of the Company's 9% cumulative
convertible preferred stock into 2.4 million shares of the Company's common
stock. The increase in the number of common shares used in computing earnings
per share was due to (i) 6.3 million shares issued in connection with the
public stock offering in May 1992 and (ii) the common shares issued upon
conversion of the Company's preferred stock in January 1993.
1992 COMPARED WITH 1991. Selected financial and operating data
for the years ended December 31, 1992 and 1991 follow (in thousands, except per
unit data):
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
FINANCIAL DATA :
Revenues $ 430,098 $ 380,717
Operating Income $ 31,626 $ 30,064
Net Income Applicable to Common Stock $ 14,762 $ 12,048
Primary Earnings Per Share $ 0.68 $ 0.72
Average Sales Prices--
Natural gas, per MMBtu $ 1.91 $ 1.80
NGL, per gallon $ 0.34 $ 0.38
Condensate, per barrel $ 16.71 $ 19.88
Average Cost of Gas Sold or Processed, per MMBtu $ 1.63 $ 1.50
OPERATING DATA:
Natural Gas Sales (in MMBtu) 189,931 201,705
NGL Sales (in gallons) 143,987 17,086
Condensate Sales (in barrels) 451 42
Transportation Volumes (in MMBtu) 102,027 94,809
Average Daily Throughput (in MMBtu) 859 829
Average Daily Gas Volumes Processed (in MMBtu)--
Company-owned plants 163 --
Third party 37 58
</TABLE>
Note: Volumes approximate 1.025 MMBtu per 1.0 Mcf.
Revenues increased in 1992 approximately 13 percent due to sales
of natural gas liquids generated from the natural gas processing business.
Operating income increased approximately five percent in 1992 primarily due to
(i) the inclusion of the operating results of the acquired natural gas
processing business, (ii) the favorable resolution of certain contractual
obligations, and (iii) the increase in transportation volumes on the Company's
pipeline system in South Texas. These factors offset the decrease in the
contribution of gas sales to operating income.
21
<PAGE> 5
Primary earnings per common share for 1992 were approximately
six percent lower than 1991 due to the increase in common shares outstanding
and the decrease in earnings in the fourth quarter of 1992 compared with the
fourth quarter of 1991. Earnings for the fourth quarter of 1992 decreased
approximately 44 percent from the fourth quarter of 1991, due to the reduction
in margins on sales of NGL and a decrease in natural gas sales volumes. Unit
margins on sales of NGL were more favorable during the second and third
quarters than the fourth quarter. The margin deterioration in the fourth
quarter was primarily due to the effects of declining sales prices for NGL and
increasing natural gas purchase costs.
Natural gas sales volumes for 1992 were down approximately six
percent compared with 1991. Almost one-half of this decline was due to lower
gas sales to irrigation customers as a result of the wet weather in West Texas
and the Texas Panhandle. The remaining decline in gas sales volumes was
principally due to a reduction in sales to off-system West Coast utilities.
Unit margins on natural gas sales were down slightly in 1992 due to the effects
of (i) lower irrigation sales volumes and (ii) rising gas purchase costs on
sales under fixed-price sales contracts.
Operating income for 1992 included approximately $7.8 million
from the favorable determination of several contractual obligations as compared
with approximately $3.5 million in 1991. During 1992, the Company
renegotiated the provisions of several agreements that will enhance the
recovery of various settlement costs, including prepaid gas, as well as change
term and payment alternatives. The Company utilized its increased storage
capacity, new facility interconnects, improved transportation arrangements and
various supply choices to resolve efficiently commitments to its suppliers and
customers.
Transportation volumes increased in 1992 approximately eight
percent due to increased throughput on the Company's 51 percent owned
Webb/Duval system. During 1992, the Company completed a two-phase expansion
and upgrading of this system to meet the increased demand for gathering and
transportation services in South Texas. This area has experienced a
significant increase in drilling and production activity due to tax incentives
available for gas production.
Other income (expense) included approximately $0.8 million in
realized gains on natural gas futures contracts that were not designated as
hedging positions. Interest expense, net of interest income increased $1.6
million primarily due to the indebtedness assumed or incurred in connection
with the acquired natural gas processing business.
The effective income tax rate for both 1992 and 1991 was
approximately 33 percent. The effective tax rate for 1992 was slightly lower
than the statutory rate primarily due to the effects of certain non-recurring
permanent differences between book and tax, partially offset by the
income-based portion of Texas franchise taxes. The effective tax rate for 1991
was below the statutory rate primarily due to the utilization of remaining
investment tax credit carryforwards.
The reduction in preferred stock dividends was primarily due to
the redemption in November 1991 of the Company's Redeemable Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
During 1993, the Company's liquidity and capital resources
improved as a result of (i) strong net cash flows from operating activities,
(ii) conversion of the Company's convertible preferred stock into common stock
and (iii) the refinancing of Red River Pipeline's indebtedness. As of December
31, 1993, the Company had cash and cash equivalents of $9.2 million and unused
borrowing capacity of $17 million under its $75 million revolving credit
facility.
22
<PAGE> 6
Net cash provided by operating activities was $22.7 million for
the year ended December 31, 1993, compared with $16.0 million for 1992.
Significant investing expenditures for 1993 included (i) capital expenditures
of $37.6 million primarily related to expansion of the Company's gas storage
facilities and construction of a pipeline connecting its storage facility with
Red River Pipeline and (ii) payments of $20.0 million related to the purchase
of a processing plant and related gathering systems and the purchase of an
additional 25 percent interest in Red River Pipeline.
Effective January 20, 1993, all outstanding shares of the
Company's 9% cumulative convertible preferred stock were converted by their
holders into 2,429,265 shares of the Company's common stock. The conversion
eliminated the annual preferred dividend requirement of $1.7 million.
Consistent with the Company's policy to reduce its interest
costs without significantly increasing its exposure to changes in interest
rates, the Company entered into two interest-rate swap agreements during 1993 to
benefit from the (i) disparity between short-term variable rates and long-term
fixed rates and (ii) improvement in the Company's credit rating subsequent to
incurring its fixed-rate debt obligations. Under terms of these swap
agreements, the Company agreed to pay over a three-year period variable
interest rates on $35 million of notional principal in exchange for fixed
rates, which effectively converted a portion of its fixed-rate debt to variable
interest rates. The term and notional principal amount of these agreements are
less than the term and principal of the underlying fixed-rate debt obligations
as a result of management's assessment of the risks inherent in these swap
agreements. The Company currently has no plans to enter into any additional
interest-rate swap agreements and upon termination of the existing agreements
will determine if extension or replacement can be made on terms favorable to
the Company.
In February 1993, the Company entered into its first
interest-rate swap, which is a three-year agreement covering $25 million of
notional principal whereby it pays LIBOR, which is reset every six months in
arrears, in exchange for a fixed rate of 5.07 percent. In September 1993, the
Company entered into a second three-year, interest-rate swap agreement covering
$10 million of notional principal, whereby it pays LIBOR, which is reset every
twelve months in arrears, in exchange for a fixed rate of 5.27 percent.
Differences between estimated variable-rate amounts paid by the Company under
these agreements and the fixed-rate amounts received by the counterparties are
included in interest expense. During 1993, estimated amounts to be received
from counterparties exceeded amounts expected to be paid by the Company by
approximately $0.2 million.
In March 1993, the Company refinanced the 12 5/8% notes of Red
River Pipeline, a partnership 75 percent owned by the Company. The new notes
bear interest at 8 1/2% and are payable in five equal annual installments
beginning March 1994.
The Company's projected non-operating cash requirements for 1994
are primarily for capital projects and debt service. Management of the Company
believes that future cash flows from operating activities, together with the
available borrowings under its $75 million revolving credit facility, will be
sufficient to meet these requirements. The Company intends to seek
opportunities to construct or acquire additional gas gathering, processing or
transportation facilities, which may require additional financing and the
approval of its lenders. The Company is also considering replacing certain
borrowings under its revolving credit facility with long-term financing that
will better match its long-term operating assets.
23
<PAGE> 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
------
<S> <C>
Statement of Responsibilities for Financial Reporting F- 2
Report of Independent Public Accountants F- 3
Consolidated Balance Sheets as of December 31, 1993 and 1992 F- 4
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992 and 1991 F- 5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1993, 1992 and 1991 F- 6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991 F- 7
Notes to Consolidated Financial Statements F- 8
Schedule V - Property and Equipment F-20
Schedule VI - Accumulated Depreciation and Amortization of
Property and Equipment F-21
</TABLE>
F-1
<PAGE> 8
STATEMENT OF RESPONSIBILITIES FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of American Oil
and Gas Corporation and subsidiaries (the "Company") were prepared by
management which is responsible for their fairness and integrity. These
financial statements have been prepared in conformity with generally accepted
accounting principles and necessarily include some amounts that are based on
the best estimates and judgments of management.
The Company maintains an internal control structure that is
designed to provide reasonable assurance as to the reliability of financial
records and the protection of assets. Management is responsible for the
effectiveness of the internal control structure which is accomplished through
established codes of conduct, policies and procedures, employee selection and
training, appropriate delegation of authority and segregation of
responsibilities.
Arthur Andersen & Co., independent public accountants, was engaged
to audit the consolidated financial statements of the Company and issue a
report thereon. Their audits included an evaluation of the Company's
accounting systems, procedures and internal controls, and tests and other
auditing procedures sufficient to provide reasonable assurance that the
financial statements are fairly presented. The report of Arthur Andersen & Co.
appears on page F-3.
The adequacy of financial controls and the accounting principles
employed in financial reporting are under the general oversight of the Audit
Committee of the Board of Directors. No member of this Committee is an officer
or employee of the Company. The independent public accountants have direct
access to the Audit Committee and meet with the Committee from time to time to
discuss the results of their audits, the internal control structure, financial
reporting, accounting and auditing matters.
Thomas H. Fanning
Senior Vice President and
Chief Financial Officer
F-2
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Oil and Gas Corporation:
We have audited the accompanying consolidated balance sheets of
American Oil and Gas Corporation (a Delaware corporation) and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements and the
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Oil and Gas Corporation and subsidiaries as of December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in the Index
to Financial Statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
Houston, Texas
March 7, 1994
F-3
<PAGE> 10
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
---- ----
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,207 $ 14,165
Accounts receivable 90,850 84,178
Inventories 17,779 13,966
Amount due from Cabot Corporation 5,724 --
Deferred income tax benefits 3,493 667
Prepaid expenses and other 1,442 782
------------- ---------------
Total current assets 128,495 113,758
------------- ---------------
Property and Equipment, at cost:
Gas gathering, processing and transmission 332,037 276,821
Other 12,090 9,945
------------- ---------------
344,127 286,766
Less--Accumulated depreciation and amortization (52,367) (36,852)
------------- ---------------
Property and equipment, net 291,760 249,914
------------- ---------------
Investment in WellTech, Inc. -- 4,513
------------- ---------------
Amount Due From Cabot Corporation -- 5,239
------------- ---------------
Other 1,773 3,614
------------- ---------------
Total Assets $ 422,028 $ 377,038
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 22,568 $ 8,042
Accounts payable 73,506 67,717
Other 2,679 2,818
------------- ---------------
Total current liabilities 98,753 78,577
------------- ---------------
Long-term Debt, Net of Current Maturities 100,232 89,946
------------- ---------------
Deferred Income Taxes and Other 33,137 26,336
------------- ---------------
Commitments and Contingencies
Stockholders' Equity:
9% cumulative convertible preferred stock, $10 par value,
$1,000 per share liquidation value, 19,310 issued and
outstanding at December 31, 1992 -- 193
Common stock, $.04 par value, 50,000,000 shares authorized,
25,884,395 and 23,245,130 issued and outstanding, respectively 1,035 930
Capital in excess of par value 195,313 192,892
Accumulated deficit (5,285) (11,836)
Deferred compensation (1,157) --
------------- ---------------
Total stockholders' equity 189,906 182,179
------------- ---------------
Total Liabilities and Stockholders' Equity $ 422,028 $ 377,038
============= ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 11
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues:
Natural gas sales $ 464,991 $ 362,990 $ 363,968
Natural gas liquids sales 62,509 55,956 8,401
Transportation 10,968 9,767 7,279
Other 877 1,385 1,069
-------------- -------------- --------------
539,345 430,098 380,717
-------------- -------------- --------------
Operating Costs and Expenses:
Cost of sales 453,737 346,073 311,275
Operation and maintenance 22,947 18,158 10,678
General and administrative 20,615 16,731 15,473
Depreciation and amortization 17,229 14,358 10,285
Taxes--other than income taxes 3,323 3,152 2,942
-------------- -------------- --------------
517,851 398,472 350,653
-------------- -------------- --------------
Operating Income 21,494 31,626 30,064
-------------- -------------- --------------
Other Income (Expense):
Interest income 568 740 1,620
Interest expense (8,927) (8,372) (7,671)
Equity in loss of WellTech, Inc. -- -- (1,108)
Other, net (2,321) 1,020 169
-------------- -------------- --------------
(10,680) (6,612) (6,990)
-------------- -------------- --------------
Income Before Income Taxes 10,814 25,014 23,074
Provision for Income Taxes 4,220 8,265 7,600
-------------- -------------- --------------
Net Income 6,594 16,749 15,474
Preferred Stock Dividends 43 1,987 3,426
-------------- -------------- --------------
Net Income Applicable to Common Stock $ 6,551 $ 14,762 $ 12,048
============== ============== ==============
Earnings Per Common Share:
Primary $ 0.25 $ 0.68 $ 0.72
============== ============== ==============
Fully diluted $ 0.70
==============
Number of Shares Used in Computing
Earnings Per Common Share:
Primary 26,619 21,803 16,725
============== ============== ==============
Fully diluted 20,310
==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 12
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
9% CUMULATIVE
CONVERTIBLE CAPITAL TOTAL
PREFERRED STOCK COMMON STOCK IN EXCESS ACCUMU- DEFERRED STOCK-
-------------------- ------------------- OF PAR LATED COMPEN- HOLDERS'
SHARES AMOUNT SHARES AMOUNT VALUE DEFICIT SATION EQUITY
------- ------- -------- -------- ----- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 24 $ 244 16,227 $ 649 $ 129,891 $ (37,031) $ -- $ 93,753
------- -------- -------- ---------- --------- ----------- ------------ -----------
Net income -- -- -- -- -- 15,474 -- 15,474
Preferred stock dividends -- -- -- -- -- (3,426) -- (3,426)
------- -------- -------- ---------- --------- ----------- ------------ -----------
Balance, December 31, 1991 24 244 16,227 649 129,891 (24,983) -- 105,801
------- -------- -------- ---------- --------- ----------- ------------ -----------
Sale of 6,325,000 shares
of common stock -- -- 6,325 253 62,754 -- -- 63,007
Conversion of 5,050 shares of
9% cumulative convertible
preferred stock into
660,922 common shares (5) (51) 661 27 24 -- -- --
Other issuances -- -- 32 1 223 -- -- 224
Buyback of 200,000 warrants -- -- -- -- -- (1,615) -- (1,615)
Net income -- -- -- -- -- 16,749 -- 16,749
Preferred stock dividends -- -- -- -- -- (1,987) -- (1,987)
------- -------- -------- ---------- --------- ----------- ------------ -----------
Balance, December 31, 1992 19 193 23,245 930 192,892 (11,836) -- 182,179
------- -------- -------- ---------- --------- ----------- ------------ -----------
Conversion of 19,310 shares
of 9% cumulative convertible
preferred stock into
2,429,265 common shares (19) (193) 2,429 97 96 -- -- --
Issuance of 75,000 shares
as executive compensation -- -- 75 3 911 -- -- 914
Issuance of 125,000 shares
of restricted stock as
executive compensation -- -- 125 5 1,418 -- (1,420) 3
Amortization of deferred
compensation -- -- -- -- -- -- 263 263
Other issuances -- -- 10 -- 54 -- -- 54
Other -- -- -- -- (58) -- -- (58)
Net income -- -- -- -- -- 6,594 -- 6,594
Preferred stock dividends -- -- -- -- -- (43) -- (43)
------- -------- -------- ---------- --------- ----------- ------------ -----------
Balance, December 31, 1993 -- $ -- 25,884 $ 1,035 $ 195,313 $ (5,285) $ (1,157) $ 189,906
======= ======== ======== ========== ========= =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 13
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash and Cash Equivalents at Beginning of Year $ 14,165 $ 12,470 $ 15,379
------------ ------------ -------------
Cash Flows From Operating Activities:
Net income 6,594 16,749 15,474
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization 17,229 14,358 10,285
Equity in loss of WellTech, Inc. -- -- 1,108
Write down of investment in WellTech, Inc. 4,513 -- --
Deferred income taxes 2,142 6,871 3,540
Resolution of contractual obligations (1,020) (7,780) (1,122)
(Gain) loss on sale of assets (902) 125 (13)
Executive stock compensation 1,174 -- --
Provision for doubtful accounts 322 -- 200
Change in assets and liabilities net of effects from
acquisitions--
(Increase) decrease in accounts receivable (7,556) (12,695) 10,271
Increase in inventories (3,778) (650) (4,105)
(Increase) decrease in prepaid expenses and other (657) 173 (610)
Increase (decrease) in accounts payable 5,765 6,953 (8,019)
Increase (decrease) in other current liabilities 48 (6,546) (2,346)
Other, net (1,201) (1,561) (410)
------------ ------------ -------------
Net Cash Provided by Operating Activities 22,673 15,997 24,253
------------ ------------ -------------
Cash Flows From Investing Activities:
Payments for acquisitions, net of cash acquired (19,970) (11,891) --
Proceeds from sale of assets 6,186 826 325
Capital expenditures (37,568) (14,182) (9,010)
(Payments) collections under Basket Agreement 1,760 908 (8,499)
Other 1,362 (911) (123)
------------ ------------ -------------
Net Cash Used in Investing Activities (48,230) (25,250) (17,307)
------------ ------------ -------------
Cash Flows From Financing Activities:
Principal payments on long-term debt (38,535) (99,474) (7,241)
Proceeds from issuance of long-term debt 59,500 51,000 12,000
Preferred stock dividends paid (407) (2,099) (4,614)
Proceeds from issuance of common stock 41 63,136 --
Redemption of redeemable preferred stock -- -- (10,000)
Payment for buyback of common stock warrants -- (1,615) --
------------ ------------ -------------
Net Cash Provided by (Used in) Financing Activities 20,599 10,948 (9,855)
------------ ------------ -------------
Net Increase (Decrease) in Cash and Cash Equivalents (4,958) 1,695 (2,909)
------------ ------------ -------------
Cash and Cash Equivalents at End of Year $ 9,207 $ 14,165 $ 12,470
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 14
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of American Oil and Gas Corporation and its
wholly-owned subsidiaries (the "Company"), after elimination of all significant
intercompany balances and transactions. The Company's interests in certain
jointly-owned gas pipeline systems are accounted for using the proportionate
consolidation method.
Cash equivalents - All highly liquid short-term investments with
maturities of three months or less are considered cash equivalents.
Inventories - Inventories, which consist primarily of natural gas in
storage, are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
Property and equipment - Property and equipment is recorded at cost,
and depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. Estimated useful lives are 10-20 years for gas gathering,
processing and transmission equipment, 5-10 years for furniture and fixtures
and 5 years for information systems. Additions, renewals and betterments that
add materially to productive capacity or extend the life of an asset are
capitalized. Expenditures for maintenance and repairs are expensed as
incurred.
Income taxes - Effective January 1, 1992, the Company adopted the
liability method of accounting for income taxes as prescribed by Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). Under this method,
deferred income taxes are provided on differences between the financial and
income tax bases of assets and liabilities using enacted tax rates that will be
in effect when the differences are expected to be reported in the Company's
income tax return. Prior to adoption of SFAS 109, the Company followed the
deferral method whereby deferred income taxes were provided on income and
expense items reported for financial and income tax purposes in different
periods using tax rates in effect when the differences originated.
Earnings per common share - Primary earnings per common share were
calculated using the weighted average number of shares of common stock
outstanding during the years and the assumed exercise of dilutive common stock
equivalents (stock options and warrants), using the treasury stock method.
Fully diluted earnings per share were calculated in the same manner, except for
the assumed conversion of the 9% cumulative convertible preferred stock and
adjustment of earnings for preferred stock dividends.
Natural gas financial instruments - Natural gas financial instruments,
primarily futures contracts, options and swaps, are primarily entered into as a
hedge against price risk associated with fluctuating natural gas prices. Gains
and losses on hedging positions are deferred and included in income as part of
the hedged transactions. Gains and losses on non-hedging positions are
included in other income (expense) as incurred.
F-8
<PAGE> 15
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Reclassifications - Certain reclassifications have been made to the
prior years' consolidated financial statements to conform with the presentation
used in the 1993 consolidated financial statements.
(2) ACQUISITION OF NATURAL GAS PROCESSING BUSINESS
Effective April 1, 1992, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of The Maple Gas
Corporation ("Maple"). The assets consisted of ten natural gas processing
plants and approximately 1,056 miles of related gas gathering pipelines. The
purchase price was approximately $86 million, consisting of $5.5 million cash,
a $5.5 million note payable and the assumption of substantially all of Maple's
liabilities. The acquisition was accounted for as a purchase.
The results of operations of the acquired business are included in the
consolidated statements of operations of the Company from the date of the
acquisition. The following unaudited results of operations for the years ended
December 31, 1992 and 1991, have been prepared assuming the acquisition had
occurred as of the beginning of the years presented. Those results are not
necessarily indicative of the results of future operations nor of results that
would have occurred had the acquisition been consummated as of the beginning of
the years presented.
<TABLE>
<CAPTION>
1992 1991
---- ----
(in thousands, except
per share amounts)
<S> <C> <C>
Revenues $446,523 $ 452,374
======== =========
Net income applicable to common stock $ 15,188 $ 15,472
======== =========
Earnings per common share:
Primary $ 0.70 $ 0.93
======== =========
Fully diluted $ 0.87
=========
</TABLE>
F-9
<PAGE> 16
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------------- -------------
(in thousands)
<S> <C> <C>
11.846% senior notes, unsecured, due in quarterly
installments of $1,696,429 through
September 30, 1999 $ 39,018 $ 43,929
$75 million senior revolving credit and term note
facility, unsecured, interest at a bank's base rate or
Eurodollar rates plus .875% (4.125% and
4.375%, respectively), due September 30, 1997 58,000 30,000
$25 million subordinated revolving credit note
with Cabot Corporation, unsecured, interest at
the London Interbank Offered Rate ("LIBOR")
plus .925% and .8% at December 31, 1993 and 1992,
respectively (4.4875% and 5.05%, respectively),
due in 1994 13,282 14,197
Company's proportionate share of 8.5% (12-5/8% at
December 31, 1992) note payable of Red River
Pipeline, guaranteed by partners, payable in annual
installments of $2,500,000 through March 18, 1998 12,500 8,654
Other -- 1,208
------------ ------------
122,800 97,988
Less--Current maturities (22,568) (8,042)
------------ ------------
$ 100,232 $ 89,946
============ ============
</TABLE>
Scheduled maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1994 $ 22,568
1995 16,536
1996 38,286
1997 31,036
1998 9,286
Thereafter 5,088
-----------
$ 122,800
===========
</TABLE>
F-10
<PAGE> 17
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company also has available for general corporate purposes a
private shelf financing of $50 million with the fixed rate and term to be
negotiated at the time of draw.
In March 1993, the Company refinanced the 12-5/8% notes of Red River
Pipeline partnership ("Red River"), a partnership 75%- owned by the Company.
The new notes bear interest at 8.5% and are payable in five equal annual
installments.
As discussed more fully in Note (4), the Company entered into two
interest-rate swap agreements in 1993 covering $35 million of notional
principal. These agreements effectively converted $35 million of the Company's
fixed-rate debt into variable-rate debt. Differences between the estimated
variable-rate amounts paid by the Company and the fixed-rate amounts received
from the counterparties are included in interest expense. During 1993, these
interest-rate swaps reduced interest expense by approximately $0.2 million,
which did not materially impact interest expense or the effective interest
rates of the underlying debt obligations.
Under terms of the $75 million senior revolving credit and term note
facility, the Company may borrow up to $75 million for general corporate
purposes through September 30, 1995. A commitment fee of .375% to .5% is
payable on the unused portion of the facility. On September 30, 1995, the
facility converts to a term loan that is payable in eight equal quarterly
installments. Interest on the facility is computed, at the Company's option,
at either a bank's base rate or Eurodollar rates plus .875%. These rates can
be increased by the banks for changes in the Company's credit rating or debt to
capitalization ratio.
Under terms of the senior indebtedness, the Company is required, among
other things, to maintain (i) a current ratio of at least 1.1 to 1.0, (ii)
consolidated tangible net worth of at least $155 million, increased for 50% of
net income after December 31, 1993, (iii) a debt to capitalization ratio below
50% and (iv) minimum interest cost coverages. The Company also has certain
restrictions relating to (i) incurring additional debt, except under certain
conditions, (ii) payment of dividends on common stock over specified amounts
and (iii) making capital expenditures or asset purchases outside the mid-stream
segment of the natural gas industry.
(4) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, properties and equipment
under operating leases. Rental expense of approximately $3,045,000, $2,686,000
and $2,161,000 has been charged to operations during 1993, 1992 and 1991
respectively. Aggregate minimum rental payments required under non-cancelable
leases having lease terms greater than one year were as follows as of December
31, 1993 (in thousands):
<TABLE>
<S> <C>
1994 $2,356
1995 1,937
1996 1,696
1997 1,030
1998 77
Thereafter --
------
$7,096
======
</TABLE>
Under terms of the Basket Agreement, the Company and Cabot Corporation
("Cabot"), the Company's largest stockholder, equally share net payments made
in settlement of certain liabilities related to operations prior to November 1,
1989 of the companies acquired from
F-11
<PAGE> 18
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cabot. The Company expects to settle during 1994 all significant matters
covered by the Basket Agreement, including settlement with Cabot. As of
December 31, 1993, the Company's estimated liability was approximately $6.5
million, and the Company had made net payments of approximately $13.2 million.
The difference between net payments made by the Company and its estimated
liability is reflected in current assets and consists of (i) the present value
of Cabot's share of net payments and (ii) future recoveries from customers.
The Company also may have take-or-pay exposure related to gas purchase
contracts or operations not covered by the Basket Agreement with Cabot.
Management believes the resolution of any claims which may arise will not have
a material impact on the Company's financial position or results of operations.
The Company is involved in various litigation arising in the normal
course of business. Management believes it has adequate defenses or insurance
coverage, or both, against such issues and the outcome of these proceedings,
individually and in the aggregate, will not have a material effect on the
Company's financial position or results of operations. Additionally, certain
of the Company's pipeline operations are subject to rate-making regulations and
procedures. The Company anticipates no material adverse effects as a result of
issues pertaining to such regulations and procedures.
The Company is a co-obligor, together with WellTech, Inc. ("WellTech")
on a reimbursement agreement supporting a $1.7 million letter of credit issued
to WellTech's insurers. This reimbursement agreement is secured by a first
lien on WellTech's trade receivables. The Company also has a minimal ownership
interest in WellTech. The Company believes that its co-obligation will be
terminated in 1994.
Other income (expense) included net gains of approximately $1.0
million and $0.8 million during 1993 and 1992, respectively, related to natural
gas futures contracts and options that were not designated as hedging positions
for accounting purposes. As of December 31, 1993, the Company's open
non-hedging positions consisted of approximately 300 natural gas option
contracts covering notional volumes of approximately 3 Bcf, all of which
expired in early 1994 with minimal impact on operating results. As of December
31, 1993, the unrealized gains/losses on these contracts were not material.
In February 1993, the Company entered into a three-year interest-rate
swap agreement covering $25 million of notional principal whereby it pays
LIBOR, which is reset every six months in arrears, in exchange for a fixed rate
of 5.07 percent. In September 1993, the Company entered into a second
three-year interest-rate swap agreement covering $10 million of notional
principal whereby it pays LIBOR, which is reset every twelve months in arrears,
in exchange for a fixed rate of 5.27 percent.
F-12
<PAGE> 19
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) INCOME TAXES
Effective January 1, 1992, the Company changed from the deferral to
the liability method of accounting for income taxes (See Note 1). The income
tax provisions for years prior to adoption of the liability method have not
been restated.
The provision for income taxes for the years ended December 31, 1993,
1992 and 1991 consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---------------- --------------- ----------------
(in thousands)
<S> <C> <C> <C>
Current $ 2,078 $ 1,394 $ 4,060
Deferred 2,142 6,871 3,540
--------------- -------------- ---------------
$ 4,220 $ 8,265 $ 7,600
=============== ============== ===============
</TABLE>
The differences between income taxes computed using the statutory
federal income tax rate and the provision for income taxes for the years ended
December 31, 1993, 1992 and 1991, follow:
<TABLE>
<CAPTION>
1993 1992 1991
---------------- --------------- ----------------
(in thousands)
<S> <C> <C> <C>
Income taxes computed using statutory
federal income tax rate $ 3,677 $ 8,505 $ 7,845
Increase (decrease) in taxes resulting
from:
Utilization of capital loss carryforwards (781) -- --
Valuation allowance for write down of
investment in WellTech 1,328 -- --
Payment of indemnified liabilities
of merger companies (567) (390) --
Increase in federal tax rate 840 -- --
State income taxes, net (87) 345 --
Equity in loss of WellTech -- -- 377
Amortization of excess financial over tax
basis of acquired companies -- -- 408
Investment tax credit ("ITC") -- -- (1,113)
Other, net (190) (195) 83
--------------- -------------- ---------------
Provision for income taxes $ 4,220 $ 8,265 $ 7,600
=============== ============== ===============
</TABLE>
F-13
<PAGE> 20
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred tax liabilities and assets for the years ended December 31,
1993 and 1992 were comprised of the following:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Excess financial over tax basis
in property and equipment $ 39,052 $ 31,865
Other 249 300
-------------- --------------
$ 39,301 $ 32,165
-------------- ==============
Deferred tax assets:
Bad debt allowances $ 333 $ 214
Inventory capitalization 124 266
Contingency accruals 288 187
Investment in WellTech 1,328 --
Net operating loss ("NOL") carryforwards 1,500 1,354
Alternative minimum tax ("AMT") credits 6,381 4,436
ITC carryforwards 1,247 1,247
Other 40 269
-------------- --------------
11,241 7,973
Valuation allowance (1,328) --
-------------- --------------
$ 9,913 $ 7,973
============== ==============
</TABLE>
The deferred tax provision for the year ended December 31, 1991
consisted of the following (in thousands):
<TABLE>
<S> <C>
Excess of tax over financial depreciation $ 3,366
Differences in gain or loss on disposition
of assets for financial and tax purposes 1,532
Utilization of NOL carryforwards 896
AMT credits (2,372)
Bad debt allowances (245)
Net payments under Basket Agreement 2,145
ITC (1,213)
Other, net (569)
--------------
$ 3,540
==============
</TABLE>
F-14
<PAGE> 21
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 1993, the Company had for tax purposes: (i)
estimated NOL carryforwards of $4.2 million, (ii) capital loss carryforwards of
$0.5 million and (iii) ITC carryforwards of $1.2 million. The NOL
carryforwards will expire in 1998 through 2004 and the ITC carryforwards will
expire in 1996 through 2000. The capital loss carryforwards, which are
available to reduce future capital gains, expire in 1996. The Company also has
AMT credits of approximately $6.4 million available to reduce its regular
future tax liability in excess of the AMT otherwise due in any year.
(6) STOCKHOLDERS' EQUITY
Preferred stock - In November 1992, the Company called all outstanding
shares of its 9% cumulative convertible preferred stock for redemption. Prior
to the redemption date, all holders elected to convert their shares into the
Company's common stock. Effective January 20, 1993, the Company issued
2,429,265 common shares in connection with the conversion. In an earlier
transaction, holders converted 5,050 preferred shares into 660,922 common
shares. As of December 31, 1993, the Company had 5,000,000 shares of preferred
stock authorized, none of which were issued and outstanding.
Common stock reserved - At December 31, 1993, shares of the Company's
common stock reserved for issuance were as follows:
<TABLE>
<S> <C>
Common stock warrants 2,567,052
Stock incentive plan 1,279,049
-------------
3,846,101
=============
</TABLE>
Common stock warrants - At December 31, 1993, warrants to purchase
2,567,052 shares of the Company's common stock were outstanding. Warrants to
purchase 40,600 shares are exercisable at $3.53 per warrant and expire on March
9, 1997. Warrants to purchase 2,526,452 shares are exercisable at $8.25 per
warrant and expire on September 30, 1999.
Stock incentive plan - The Company maintains a Stock Incentive Plan
("Stock Plan") for key employees and directors. Awards under the Stock Plan
are made by the Compensation Committee ("Committee") of the board of directors.
An aggregate of 1,500,000 shares of common stock may be issued under the Stock
Plan. Stock options are granted at a price, to be set by the Committee, to be
not less than the fair market value of a share of common stock at the date of
grant. The Committee may establish the terms and conditions of exercisability.
The stock options granted generally become exercisable at a rate of 33 percent
per year on a cumulative basis beginning one year from the date of grant and
lapse ten years from the date of grant. At the Committee's discretion, stock
appreciation rights and restricted stock may be issued pursuant to the Stock
Plan. As of December 31, 1993, no stock appreciation rights had been issued.
F-15
<PAGE> 22
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During 1993, the Company issued to its chief executive officer 50,000
shares of restricted common stock which vest 50 percent per year. The Company
also sold 150,000 shares of common stock to its president and chief operating
officer for $0.04 per share. One-half of these shares was fully vested and
nonforfeitable upon issuance, and the remainder becomes fully vested on October
28, 1994, unless accelerated due to a change in control of the Company. In the
event of an officer's termination prior to vesting, his rights to any
non-vested shares will terminate without payment of any consideration and the
shares will be canceled.
The market value of the shares issued was approximately $2.3 million
based on the average market price per share on the date of issuance. The
market value of the restricted shares was reflected as deferred compensation
and is being amortized over the vesting period. Compensation expense for 1993
included approximately $1.2 million related to these issuances.
Activity with respect to the stock options pursuant to the Stock Plan
follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Shares under option, beginning of year 785,000 770,000 879,700
Granted 400,000 30,000 --
Exercised -- (15,000) --
Canceled or expired -- -- (109,700)
------------- ------------- -------------
Shares under option, end of year 1,185,000 785,000 770,000
============= ============= =============
Options available for grant
at end of year 94,049 694,049 724,049
============= ============= =============
Options exercisable at end
of year 1,010,833 689,167 630,833
============= ============= =============
Per share prices of options:
Exercised during year $ -- $ 7.125 to $ --
$ 7.875
Outstanding at end of year $ 5.50 to $ 5.50 to $ 5.50 to
$ 13.625 $ 13.625 $ 8.125
</TABLE>
F-16
<PAGE> 23
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest (net of amounts capitalized) and income taxes
for the years ended December 31, 1993, 1992 and 1991 follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Interest, net of amounts capitalized $ 8,866 $ 8,067 $ 7,408
Income taxes $ 355 $ 2,406 $ 5,419
</TABLE>
On December 31, 1992, the Company acquired a partner's 25 percent
interest in Red River by assuming that partner's share of Red River's
liabilities. In January 1993, the Company acquired an additional 25 percent
interest in Red River for cash and the assumption of liabilities. In April
1992, the Company acquired the assets of Maple for $5.5 million cash, a $5.5
million note payable and the assumption of certain of Maple's liabilities.
The liabilities assumed in conjunction with these acquisitions for the years
ended December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(in thousands)
<S> <C> <C>
Fair value of assets acquired $ 9,194 $ 97,242
Cash paid for assets, including
direct acquisition costs 2,093 12,452
------------- ------------
Liabilities assumed $ 7,101 $ 84,790
============= ============
</TABLE>
(8) MAJOR CUSTOMERS
Customers comprising 10 percent or more of consolidated revenues for
the years ended December 31, 1993, 1992 and 1991, follow:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Energas Company and affiliates 24% 24% 30%
Southwestern Public Service Company 15% 13% 11%
</TABLE>
(9) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
F-17
<PAGE> 24
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cash and cash equivalents - The carrying amount approximates fair
value because of the short maturity of those instruments.
Long-term debt - The fair value of long-term debt is based on
management's estimate of current rates available to the Company for debt of the
same remaining maturities.
Interest-rate swap agreements - The fair value of interest-rate swaps
is the estimated amount the Company would receive or pay to terminate the swap
agreements as of the reporting date based on valuations made by the financial
intermediary.
Natural gas price swaps (used for hedging purposes) - The fair value
of natural gas price swaps is based on quoted market values as of the reporting
date.
The estimated fair values of the Company's financial instruments as of
December 31, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
1993 1992
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- ------------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 9,207 $ 9,207 $ 14,165 $ 14,165
Long-term debt (122,800) (126,865) (97,988) (104,562)
Interest-rate swaps:
In a net receivable position 190 190 -- --
In a net payable position (140) (140) -- --
Natural gas price swaps 2,545 2,545 -- --
</TABLE>
(10) CREDIT RISK
A substantial portion of the Company's sales is to gas and electrical
utilities and customers in its primary service area of West Texas and the Texas
Panhandle. This could impact the Company's overall exposure to credit risk
inasmuch as these customers could be affected by similar economic or other
conditions. The Company believes its portfolio of accounts receivable is well
diversified and as a result its credit risks are minimal. Historically, the
Company's uncollectible accounts receivable have been immaterial and typically
the Company does not require collateral for its receivables.
Certain of the natural gas futures contracts, options and swaps and
interest-rate swaps entered into by the Company contain an element of risk that
the counterparties may be unable to meet the terms of the agreements. The
Company minimizes this risk by limiting the
F-18
<PAGE> 25
AMERICAN OIL AND GAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
counterparties to major financial institutions and natural gas companies.
Management does not believe the Company's exposure to counterparty default is
significant.
(11) RELATED PARTY TRANSACTIONS
In connection with the acquisition of Maple, the Company acquired
Cabot's investment in Maple in exchange for a $5.5 million note. This note was
repaid in 1992.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1993 and 1992
follow:
<TABLE>
<CAPTION>
Quarter Ended
-------------
March 31 June 30 Sept. 30 Dec. 31
--------------- --------------- --------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
1993
----------------
Revenues $ 134,147 $ 123,899 $ 142,501 $ 138,798
Operating income 6,840 4,270 5,538 4,846
Net income (loss) 3,359 2,020 2,173 (958)
Preferred stock dividends 43 -- -- --
Net income (loss) applicable
to common stock 3,316 2,020 2,173 (958)
Earnings (loss) per common share 0.13 0.08 0.08 (0.04)
1992
----------------
Revenues $ 93,045 $ 92,437 $ 112,934 $ 131,682
Operating income 6,965 8,699 11,337 4,625
Net income 3,847 4,319 6,571 2,012
Preferred stock dividends 548 548 467 424
Net income applicable to
common stock 3,299 3,771 6,104 1,588
Earnings per common share:
Primary 0.19 0.18 0.25 0.06
Fully diluted -- -- 0.24 --
</TABLE>
F-19
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment to the
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICAN OIL AND GAS CORPORATION
By: /s/ William P. Conner
William P. Conner
Executive Vice President
Date: June 9, 1994
