<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
------------------------------
For the quarter ended June 30, 1994 Commission file number 1-10008
A S S O C I A T E D N A T U R A L G A S C O R P O R A T I O N
(Exact name of registrant as specified in its charter)
Delaware 84-1006841
- - ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
370 17th Street, Suite 900
Denver, Colorado 80202
- - ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 595-3331
- - --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if changed since last
report)
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the close of the period covered by this report.
Class Outstanding at June 30, 1994
- - --------------------------------- ---------------------------------
Common Stock, $.05 par value 15,111,425 shares
================================================================================
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
FORM 10-Q/A
INDEX
-----
<TABLE>
<CAPTION>
Part Item Page
- - ---- ---- ----
<S> <C> <C>
I. FINANCIAL INFORMATION:
1. Financial Statements:
Consolidated Balance Sheets, June 30, 1994
and September 30, 1993 (Unaudited)......................................................... 2
Consolidated Statements of Operations, Three and Nine Months Ended June 30, 1994
and 1993 (Unaudited)....................................................................... 4
Consolidated Statements of Stockholders' Equity, Nine Months Ended June 30, 1994 and
Year Ended September 30, 1993 (Unaudited).................................................. 5
Consolidated Statements of Cash Flows, Nine Months Ended June 30, 1994
and 1993 (Unaudited)....................................................................... 6
Notes to Consolidated Financial Statements..................................................... 8
2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 13
II. OTHER INFORMATION - Items 1 through 6............................................................. 21
</TABLE>
1
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
Assets 1994 1993
------ ---- ----
(Restated Note 3)
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted
cash in margin accounts of $12,492,308 and
$4,441,301 $ 70,106,396 63,586,968
Accounts receivable, net of allowance 187,531,730 185,844,633
Natural gas, crude oil and petroleum product
inventories 22,638,414 26,994,076
Notes receivable 1,667,491 4,227,258
Income taxes receivable 1,515,774 2,138,511
Other 3,721,229 719,601
------------ -----------
Total current assets 287,181,034 283,511,047
------------ -----------
Property, plant, and equipment, at cost:
Natural gas processing facilities 103,347,025 88,046,503
Natural gas and crude oil pipelines 423,056,305 324,031,220
Construction in progress 13,889,665 17,335,314
Other equipment 23,264,523 17,791,890
------------ -----------
563,557,518 447,204,927
Less accumulated depreciation 114,529,213 93,772,409
------------ -----------
Total property, plant and equipment, net 449,028,305 353,432,518
Other assets:
Goodwill, net of applicable amortization of
$7,337,818 and $5,542,244, respectively 27,990,852 29,786,426
Gas contracts and other intangibles, net of
applicable amortization of $882,002 and
$156,250, respectively 8,758,309 1,118,750
Other 6,662,613 7,732,568
------------ -----------
Total other assets 43,411,774 38,637,744
------------ -----------
$779,621,113 675,581,309
============ ===========
</TABLE>
(Continued)
2
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Unaudited)
<TABLE>
<CAPTION>
June 30, September 30,
Liabilities and Stockholders' Equity 1994 1993
------------------------------------ ---- ----
(Restated Note 3)
<S> <C> <C>
Current liabilities:
Accounts payable:
Trade $194,808,864 220,759,278
Other 4,534,129 4,180,579
------------ -----------
199,342,993 224,939,857
Outstanding checks in excess of bank balances 50,310,188 26,697,341
Accrued interest expense 2,774,767 4,802,292
Dividends payable 404,219 394,607
Current portion of long-term debt (note 6) 4,133,000 4,000,000
------------ -----------
Total current liabilities 256,965,167 260,834,097
------------ -----------
Deferred income taxes 42,292,327 37,941,306
Long-term debt (note 6) 239,130,000 163,000,000
Other long-term liabilities 1,022,724 ---
------------ -----------
Total liabilities 539,410,218 461,775,403
------------ -----------
Stockholders' equity (note 5):
Common stock, $.05 par value. Authorized
40,000,000 shares; issued
and outstanding 15,111,425 and 14,723,406
shares, respectively 755,572 1,472,340
Additional paid-in capital 168,896,463 155,083,952
Unamortized restricted stock compensation
award (1,186,740) (1,193,149)
Retained earnings 71,745,600 58,442,763
------------ -----------
Total stockholders' equity 240,210,895 213,805,906
------------ -----------
$779,621,113 675,581,309
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
(Restated Note 3) (Restated Note 3)
<S> <C> <C> <C> <C>
Operating revenue:
Natural gas and petroleum products sales $535,563,717 442,212,379 1,583,378,746 1,299,505,262
Transportation 7,165,354 3,303,727 19,117,090 10,747,921
Other 2,210,288 2,074,287 9,586,210 6,128,735
------------ ------------ ------------- -------------
544,939,359 447,590,393 1,612,082,046 1,316,381,918
------------ ------------ ------------- -------------
Operating expenses:
Natural gas and petroleum products purchases 509,667,541 416,465,748 1,496,154,971 1,216,251,018
Operations 11,160,758 8,943,297 33,030,125 25,925,693
General and administrative 8,355,648 5,504,737 22,345,456 16,516,768
Depreciation and amortization 7,973,911 6,018,215 22,792,937 17,424,918
------------ ------------ ------------- -------------
537,157,858 436,931,997 1,574,323,489 1,276,118,397
------------ ------------ ------------- -------------
Income from operations 7,781,501 10,658,396 37,758,557 40,263,521
Other income (expense):
Interest expense (4,390,352) (3,314,165) (12,212,522) (10,061,019)
Interest income 361,983 344,543 887,442 909,034
Other, net 41,164 (43,964) 59,903 (141,750)
------------ ------------ ------------- -------------
(3,987,205) (3,013,586) (11,265,177) (9,293,735)
------------ ------------ ------------- -------------
Earnings before income taxes 3,794,296 7,644,810 26,493,380 30,969,786
Provision for income taxes expense:
Current 1,392,682 1,959,073 7,143,365 8,573,831
Deferred 828,226 1,007,277 4,537,611 3,723,980
------------ ------------ ------------- -------------
2,220,908 2,966,350 11,680,976 12,297,811
------------ ------------ ------------- -------------
Net earnings $ 1,573,388 4,678,460 14,812,404 18,671,975
============ ============ ============= =============
Net earnings per common share $ .10 $.32 .99 1.28
====== ======= ======= =======
Weighted average common shares
outstanding (note 7) 15,078,857 14,615,658 15,014,860 14,594,943
============ ============ ============= =============
Common stock dividends (note 5) $ .03 .03 .08 .08
====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Restated - Note 3)
<TABLE>
<CAPTION>
Unamortized
Additional restricted stock Total
Common paid-in Retained compensation stockholders'
stock capital earnings award equity
--------- ----------- ---------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1992 1,458,753 150,373,739 36,461,562 (2,008,379) 186,285,675
Grant of 462 shares of compensatory
stock 46 17,029 --- --- 17,075
Issuance of 16,980 shares of restricted
common stock, net of forfeitures 1,698 522,064 --- (523,762) ---
Amortization of restricted stock awards --- --- --- 1,338,992 1,338,992
Exercise of stock options to purchase
177,205 shares of common stock 17,720 3,571,949 --- --- 3,589,669
Purchase and retirement of 58,775
shares of common stock (5,877) (2,112,843) --- --- (2,118,720)
Tax benefit from nonqualified stock
options (Note 5) --- 2,712,014 --- --- 2,712,014
Dividends declared on common stock --- --- (1,566,298) --- (1,566,298)
Net earnings --- --- 23,547,499 --- 23,547,499
---------- ----------- ---------- ---------- -----------
Balance, September 30, 1993 $1,472,340 155,083,952 58,442,763 (1,193,149) 213,805,906
Issuance of 264,089 shares of common
stock related to acquisition 26,409 9,987,582 --- --- 10,013,991
Issuance of 38,506 shares of restricted
common stock, net of forfeitures 1,926 1,322,867 --- (1,324,793) ---
Amortization of restricted stock awards --- --- --- 1,331,202 1,331,202
Exercise of stock options to purchase
85,424 shares of common stock 4,337 1,752,622 --- --- 1,756,959
Adjustment of par value (note 5) (749,440) 749,440 --- --- ---
Adjustment for Grand Valley Merger (note 3) --- --- (299,283) --- (299,283)
Dividends declared on common stock --- --- (1,210,284) --- (1,210,284)
Net earnings --- --- 14,812,404 --- 14,812,404
---------- ----------- ---------- ---------- -----------
Balance, June 30, 1994 $ 755,572 168,896,463 71,745,600 (1,186,740) 240,210,895
========== =========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
---- ----
(Restated Note 3)
<S> <C> <C>
Net cash provided by operating activities $ 16,639,123 53,305,488
------------ -----------
Cash flows from investing activities:
Capital expenditures for property, plant and
equipment (100,057,673) (52,793,281)
Capital expenditures for gas contracts and
other intangibles (8,365,311) ---
Notes receivable, net 1,059,766 10,214
Proceeds from disposition of assets 167,025 273,358
Increase in other assets, net (2,962,799) (2,529,396)
------------ -----------
Net cash used by investing activities (110,158,992) (55,039,105)
------------ -----------
Cash flows from financing activities:
Borrowings 130,000,000 36,482,649
Repayments of debt (54,000,000) (16,209,000)
Deferred financing costs (251,734) ---
Net proceeds from issuance of common stock 1,878,856 919,656
Purchase of treasury stock --- (2,118,720)
Dividends paid (1,200,672) (1,169,890)
Increase in outstanding checks in excess of
bank balances 23,612,847 12,869,689
------------ -----------
Net cash provided by financing
activities 100,039,297 30,774,384
------------ -----------
Net increase in cash and cash
equivalents 6,519,428 29,040,767
Cash and cash equivalents, beginning
of period 63,586,968 40,806,440
------------ -----------
Cash and cash equivalents, end of
period $ 70,106,396 $ 69,847,207
============ ===========
</TABLE>
(continued on following page)
6
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1994 and 1993
(Unaudited)
(continued from previous page)
<TABLE>
<CAPTION>
1994 1993
---- ----
(Restated Note 3)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for:
Interest, net of amount capitalized $14,240,047 12,465,405
=========== ==========
Income taxes $ 6,377,725 4,955,932
=========== ==========
Supplemental schedule of noncash investing and
financing activities:
Accrued common stock dividends $ 404,219 391,244
=========== ==========
Issuance of common stock pursuant to purchase of
assets from Endevco $10,013,991 ---
=========== ==========
Tax effect of stock option compensation $ 174,000 210,000
=========== ==========
Assumed obligations for purchases of joint venture
interests $ 894,076 ---
=========== ==========
Note payable issued for acquisition of assets $ 263,000 ---
=========== ==========
Conversion of note receivable into property, plant
and equipment $ 1,500,000 ---
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
ASSOCIATED NATURAL GAS CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1994
(Unaudited)
(1) Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements reflect all
adjustments which, in the opinion of management, are necessary to reflect a fair
presentation of the financial position and results of operations of Associated
Natural Gas Corporation and Subsidiaries (the Company) for the interim periods
presented. All adjustments, in the opinion of management, are of a normal
recurring nature.
Certain amounts have been reclassified for comparability with the 1994
presentation.
(2) Nature of Business
The Company is engaged in the business of purchasing, gathering,
transporting, processing and marketing natural gas, natural gas liquids (NGLs)
and crude oil to industrial end users, local distribution companies, liquid
petroleum gas wholesalers and retailers and refiners. The Company currently owns
and operates a significant complex of crude oil, NGLs and natural gas gathering,
processing/fractionation and transportation facilities situated in major oil and
natural gas-producing basins in the Rocky Mountain, Mid Continent and Gulf Coast
Regions of the United States.
(3) Merger with Grand Valley Gas Company
On June 30, 1994, the Company filed Articles of Merger, to be effective
July 1, 1994, in connection with the Merger between its wholly-owned subsidiary,
Associated Natural Gas, Inc. (ANGI) and Grand Valley Gas Company (Grand Valley),
with ANGI as the surviving entity. The acquisition has been accounted for under
the pooling of interests method and, accordingly, the Company's consolidated
financial statements have been restated to include the accounts of Grand Valley
for all periods presented. Grand Valley is a natural gas marketing company with
sales principally in the Pacific Northwest, Rocky Mountains, Western Canada and
California regions. Under the terms of the merger, the Company exchanged
1,637,467 shares of its common stock for 100% of Grand Valley's outstanding
common stock.
Grand Valley's consolidated financial statements reported prior to the
merger reflected a year end of May 31 as compared to the Company's fiscal year
end of September 30. As a result, the consolidated statements of operations
reflect the combination of Grand Valley's and the Company's quarterly results
through May 31, and June 30, 1994 and 1993, respectively. Consequently, Grand
Valley's separate results of operations for the month of June 1994 and for the
three months ended August 31, 1993 are not reflected in the consolidated
statements of operations and have been charged directly to retained earnings as
of June 30, 1994. Grand Valley's net revenues, operating loss, and net loss were
approximately $104,683,000, ($264,000) and ($299,000), respectively, for these
four months.
8
<PAGE>
The table below sets forth the unaudited combined net revenues and net
earnings (loss) for the pre-merger periods and combines the Company's results of
operations for the quarters ended December, March and June with Grand Valley's
results of operations for the quarters ended November, February and May for the
fiscal periods presented.
<TABLE>
<CAPTION>
Quarter Ended
-------------
December 31, March 31, June 30,
<S> <C> <C> <C>
Fiscal 1994:
Net revenues:
ANGC $425,247,330 444,745,496 439,133,167
Grand Valley 87,856,182 109,293,679 105,806,192
------------ ----------- -----------
$513,103,512 554,039,175 544,939,359
============ =========== ===========
Net earnings (loss):
ANGC $ 5,196,189 5,860,944 2,139,333
Grand Valley 855,504 1,326,379 (565,945)
------------ ----------- -----------
$ 6,051,693 7,187,323 1,573,388
============ =========== ===========
Fiscal 1993:
Net revenues:
ANGC $364,409,016 327,116,437 369,035,354
Grand Valley 93,706,427 83,559,645 78,555,039
------------ ----------- -----------
$458,115,443 410,676,082 447,590,393
============ =========== ===========
Net earnings:
ANGC $ 6,173,320 5,593,362 4,505,552
Grand Valley 1,117,607 1,109,226 172,908
------------ ----------- -----------
$ 7,290,927 6,702,588 4,678,460
============ =========== ===========
</TABLE>
(4) Acquisitions
Effective November 1, 1993, the Company purchased four natural gas
gathering/transportation pipeline systems and certain contractual gas storage
rights from the former noteholders of Endevco, Inc. (Endevco) pursuant to
Endevco's Plan of Reorganization. The total purchase price consisted of
approximately $20.5 million in cash and 264,089 shares of the Company's common
stock. The acquisition included the 465 mile Mississippi Fuels intrastate gas
transportation system; the 63 mile Ada gas gathering system in Louisiana; the 7
mile Chalybeat Springs gas transportation system in Louisiana and Arkansas; the
12 mile Leaf River gas transportation system in Mississippi and storage rights
for up to 300,000 MMBTU in the Hattiesburg gas storage facility in Mississippi.
The Company transferred the assets of the Mississippi Fuels gas transportation
system to AIM Pipeline Company, a wholly-owned subsidiary of Associated Natural
Gas Corporation.
On November 9, 1993, the Company acquired from Dynamic Energy Resources,
Inc. (Dynamic) the right, title and interest in a Gas Sale and Purchase
Agreement and related transportation rights by and between Dynamic and Oklahoma
Natural Gas Company. In addition, the Company and Dynamic entered into a gas
purchase and processing agreement whereby the Company processes Dynamic's gas,
through the Company's Milfay and/or Glenpool natural gas processing plants,
pursuant to a percentage-of-proceeds contract.
9
<PAGE>
On November 12, 1993, the Company, through its wholly-owned subsidiary
ATTCO NGL Pipeline Company, purchased for $22.5 million cash all of the
outstanding common stock of Dean Pipeline Company (Dean), an indirect wholly
owned subsidiary of Tenneco, Inc. The assets of Dean consist of approximately
264 miles of mainline NGLs transportation pipeline with approximately 54 miles
of supply laterals traversing the Gulf Coast of Texas. The pipeline has a
throughput capacity of 21,000 barrels per day and interconnects with underground
storage and fractionation facilities in Mont Belvieu, Texas. Dean has been
merged into ATTCO NGL Pipeline Company.
Effective December 1, 1993, the Company purchased JN Exploration and
Production Limited Partnership's natural gas gathering/transportation system
located in Mississippi. This system consists of approximately 49 miles of
natural gas gathering pipeline connected to approximately 19 wells and is
interconnected with the Company's AIM Pipeline gas transportation system
acquired from Endevco.
Effective February 1, 1994, the Company, through its wholly-owned
subsidiary ATTCO Pipeline Company, purchased Shell Pipeline Corporation's Hope-
Houston crude oil pipeline system in south Texas. This system consists of
approximately 165 miles of crude oil gathering and trunkline pipeline with an
interconnection to an Exxon pipeline. This pipeline moves approximately 9,000
barrels a day of crude oil through this system at its published tariff.
Effective March 1, 1994, the Company, through its wholly-owned subsidiary
Associated Louisiana Intrastate Pipeline Company, purchased from Gulf States
Pipeline Corporation the remaining outside owned 50% interest in the
Minden/Terryville natural gas pipeline system located in Louisiana. This
system is a 42 mile transmission pipeline with a throughput capacity of
approximately 75,000 MCF per day that delivers residue gas from the tailgate of
the Company's Minden, Louisiana natural gas processing plant to two interstate
and one intrastate natural gas pipelines.
(5) Stock Transactions
On November 1, 1993, the Company issued 264,089 shares of common stock (at
a price of $37.919) as partial consideration for the acquisition of four natural
gas gathering/transportation systems from the former noteholders of Endevco. On
February 15, 1994, the Company granted 28,895 shares of four-year vesting
restricted common stock to key employees. Such shares on the date of grant had a
value of $36.25 per share.
During the nine months ended June 30, 1994 and 1993, the Company received
$540,304 and $892,505 respectively, under option agreements with employees for
the acquisition of 28,024 and 43,574 shares, respectively, of common stock at
various prices. On June 7, 1994, the Company declared a $.03 per share cash
dividend on its common stock payable on July 15, 1994 to the common shareholders
of record on June 30, 1994.
At the Company's annual stockholders' meeting, held February 10, 1994, the
stockholders approved a proposal for the Company to increase the number of
authorized shares of common stock from 20 to 40 million and to reduce the par
value from $.10 to $.05 per share.
10
<PAGE>
(6) Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1994 1993
------ ------
<S> <C> <C>
9.55% senior notes (a) $ 55,000,000 55,000,000
9.90% senior notes (a) 45,000,000 45,000,000
12.75% senior notes (b) 8,000,000 12,000,000
Revolving Credit Agreement (c) 85,000,000 45,000,000
6.30% senior unsecured notes (d) 40,000,000 ---
Convertible senior subordinated notes (e) 10,000,000 10,000,000
Other 263,000 ---
----------- -----------
243,263,000 167,000,000
Less: current portion of long-term debt (4,133,000) (4,000,000)
----------- -----------
$239,130,000 163,000,000
=========== ===========
</TABLE>
(a) On May 8, 1991, the Company completed a private placement of $100
million of senior unsecured notes with institutional investors. The 9.55% notes
are payable in four annual installments of $13,750,000 commencing April 30,
1996. The 9.90% notes are payable in four annual installments of $11,250,000
commencing April 30, 2000. Interest is payable semi-annually on April 30 and
October 31 of each year.
(b) On December 31, 1985, the Company issued to The Prudential Insurance
Company of America senior notes in the aggregate principal amount of $12,000,000
bearing interest at 12.75% payable semiannually. The senior notes are unsecured
and are payable in three annual installments of $4,000,000 which commenced
December 31, 1993.
(c) On January 13, 1994 the Company closed on an amendment effective
December 31, 1993 to its Revolving Credit Agreement (Revolver) dated June 1,
1992 with certain commercial lending institutions and Continental Bank N.A., as
agent. The amendment expanded the committed amount of the Revolver from $100
million to $150 million subject to certain limitations based upon the total debt
of the Company. The Revolver will become a three-year unsecured term loan, with
quarterly principal payments equal to one twelfth of the balance outstanding on
May 1, 1996, due commencing on August 1, 1996 with a maturity date of May 1,
1999. The outstanding principal under the facility and term loan bears interest
at the Revolver's applicable margin, currently .625%, above the adjusted
Eurodollar (LIBOR) Rate or at Base (Prime) Rate. The 30 day LIBOR rate and Prime
rate were 4.5625% and 7.25% at June 30, 1994, respectively. A non-use fee,
currently 1/4 of one percent per annum, is charged on the unused portion of the
facility. The Revolver contains certain covenants, including covenants regarding
net worth; current ratio; fixed charge coverage ratio; dividends; loans,
advances and investments; permitted indebtedness; environmental provisions and
information requirements. At June 30, 1994, the Company was in compliance with
the terms of its debt agreements.
(d) On April 5, 1994, the Company closed on the sale of $40,000,000 of its
senior unsecured notes to Connecticut General Life Insurance Company. The notes
were sold at par, bear interest at the rate of 6.30% per annum and mature at
various dates beginning April 15, 1999 and ending on April 15, 2003. The notes
are unsecured and contain certain terms and conditions which are substantially
equivalent to those in the Company's existing long-term indebtedness. Proceeds
from these notes were used by the Company to reduce its outstanding indebtedness
under its Revolver.
(e) In December 1992, the ANGI's wholly-owned subsidiary, Grand Valley,
sold $10 million of convertible senior subordinated notes in a private placement
transaction. The notes as amended and assumed as part of the merger bear
interest at a rate of 9% with interest payments due semiannually. Annual
principal payments of
11
<PAGE>
$1,250,000 begin on December 15, 1997 and continue through December 15, 2004.
The notes are convertible at the option of the purchasers into an aggregate of
240,964 shares of the Company's common stock. This conversion right also
contains various antidilution provisions, including an adjustment to the
conversion price of the Company's common stock if the Company issues shares at
less than the then current market price.
On February 10, 1994 the Company entered into a $20 million Line of Credit
with Continental Bank, N.A. which expires on December 30, 1994. Interest on
borrowings is based on a quoted rate furnished by the bank for daily periods of
up to one week. The Company utilizes this facility for its intra - month
working capital needs.
The Company through its wholly-owned subsidiary, Grand Valley, has a
revolving credit agreement with First National Bank of Boston that provides for
a maximum commitment of $20 million. The line of credit provides working capital
funding capacity of $15 million and interim funding capacity for capital
expenditures of $5 million. Loans under the $15 million commitment bear interest
at the bank's base rate plus 3/4 percent. Loans under the $5 million commitment
bear interest at the bank's base rate plus one percent. The bank's base rate at
June 30, 1994 was 7.25% percent.
(7) Earnings Per Common Share
Earnings per common share is computed by dividing net earnings available to
common shares by the weighted average number of common shares outstanding. The
outstanding options to purchase common stock and the convertible senior
subordinated notes did not have a material dilutive effect on the calculation of
earnings per share for any period presented.
(8) Seasonality
The Company experiences significant seasonal changes in volumes, prices and
certain expenses; therefore, the results of operations for the three and nine
month periods ended June 30, 1994 and 1993 are not necessarily indicative of the
results to be expected for the full year.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS & RESULTS
OF OPERATIONS
The following is a discussion of the Company's consolidated financial
condition, results of operations and capital resources. This discussion and
analysis should be read in conjunction with the Company's consolidated financial
statements and the notes thereto included elsewhere in this filing.
Effective July 1, 1994, Associated Natural Gas, Inc. (ANGI), a subsidiary of
ANGC, and Grand Valley Gas Company (Grand Valley) completed their previously
announced Merger Agreement which provided for the merger of Grand Valley into
ANGI. Under the terms of the Merger Agreement, Grand Valley shareholders
received 0.25 shares of ANGC Common Stock in exchange for each of their shares
of Grand Valley Common Stock. ANGC issued 1,637,467 shares of ANGC Common Stock
in exchange for all 6,549,967 shares of Grand Valley Common Stock outstanding as
of June 30, 1994.
The merger was accounted for as a pooling of interests. Under this method of
accounting, the recorded assets and liabilities of ANGC and Grand Valley have
been carried forward to the combined company at their historical amounts, and
results of operations of the combined company reflect the combination of ANGC's
and Grand Valley's results of operations. The combined company is referred to
as the "Company" in the following discussion.
As a result, the financial information for the combined company is not
necessarily indicative of the results of operations that would have been
obtained if the merger had occurred at the beginning of the periods presented
nor are they indicative of future operating results, as the historical
information does not include any cost savings expected to occur as a result of
the merger.
Results of Operations
Three months ended June 30, 1994 and 1993:
Presented below are the percentage increase and decrease in operating revenue,
net operating margin, earnings before income taxes, net earnings, and net
earnings plus deferred taxes, depreciation and amortization as compared to the
prior period. The data has been adjusted for the merger costs incurred during
the quarter for comparability.
<TABLE>
<CAPTION>
Three months ended
June 30, Percent
------------------ Increase
1994 1993 (Decrease)
------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Operating revenue $544,939 447,590 21.8 %
Net operating margin (1) 35,272 31,125 13.3
</TABLE>
(1) Net operating margin is equal to operating revenue, less natural gas and
petroleum products purchases.
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended
June 30, Percent
------------------ Increase
1994 1993 (Decrease)
------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Earnings before income taxes:
As reported 3,794 7,645
Merger costs 1,333 ---
------- ------
Excluding merger costs 5,127 7,645 (32.9)%
Net earnings:
As reported 1,573 4,678
Merger costs 1,333 ---
------- ------
Excluding merger costs 2,906 4,678 (37.9)
Net earnings plus deferred tax
expense, depreciation and
amortization:
As reported 10,376 11,704
Merger costs 1,333 ---
------- ------
Excluding merger costs 11,709 11,704 ---
Earnings per share:
As reported $ .10 .32
Merger costs $ .09 ---
------- ------
Excluding merger costs $ .19 .32 (40.6)
</TABLE>
The $1.3 million of non-tax deductible merger costs consisted primarily of
financial advisory fees, outside legal, accounting and other professional fees.
Earnings decreased because operating expenses, general and administrative
expenses, depreciation, interest and taxes increased more than the increase in
the net operating margin. The combined historical operating and general and
administrative expenses are not indicative of the future level of these
expenses because the historical information does not include any cost savings
expected to occur as a result of the merger. Interest expense increased
partially as a result of borrowings to finance the Endevco and Dean Pipeline
acquisitions. For the three months ended June 30, 1994 and 1993, the Company's
effective cost of funds was 7.7% and 8.9%, respectively. The provision for
income taxes, as a percentage of earnings before income taxes, increased from
38.8% in 1993 to 58.5% in 1994, as a result of merger related costs which are
not tax deductible, and an increase in the corporate tax rate to 35% under the
Revenue Reconciliation Act of 1993.
14
<PAGE>
The following tables reflect operating data and average daily natural gas
volumes for the combined company:
<TABLE>
<CAPTION>
System
Supply Off-System Crude Oil Total
------ ----------- --------- -----
<S> <C> <C> <C> <C>
1994
Operating revenue $ 123,199 270,973 150,767 544,939
Net operating margin(1) 27,445 4,468 3,359 35,272
Percent 22.3% 1.7% 2.2% 6.5%
1993
Operating revenue $ 106,336 203,319 137,935 447,590
Net operating margin(1) 25,269 3,968 1,888 31,125
Percent 23.8% 2.0% 1.4% 7.0%
</TABLE>
<TABLE>
<CAPTION>
Three months ended
June 30, Percent
-------------------- Increase
1994 1993 (Decrease)
---- ---- -------
<S> <C> <C> <C>
Natural Gas Volumes (MCF Per Day):
System Supply:
Rocky Mountain Region 143,000 146,000 (2.1)%
Mid-Continent Region 254,000 250,000 1.6
Gulf Coast Region 469,000 306,000 53.3
866,000 702,000 23.4
Off-System: 1,541,000 1,031,000 49.5
2,407,000 1,733,000 38.9
</TABLE>
(1) Net operating margin is equal to operating revenue, less natural gas and
petroleum products purchases.
The increase in operating revenue is primarily attributable to higher off-
system natural gas volumes marketed, higher crude oil volumes marketed and the
Company's continued growth in volumes through its system supply facilities. The
increase in operating revenue attributable to the increase in gas volumes
company-wide was offset by lower natural gas and NGLs prices.
15
<PAGE>
The average price per MCF received by the Company for natural gas sold from
all of its system supply facilities was $1.91 and $2.18 for the three months
ended June 30, 1994 and 1993, respectively. NGLs prices were substantially
lower for the Company during this period in relation to the corresponding period
in 1993. The following reflects the Company's weighted average NGLs price per
gallon received by the Company at all its system supply facilities.
<TABLE>
<CAPTION>
Three months ended
June 30,
--------------------
1994 1993
---- ----
<S> <C> <C>
Ethane $.137 .161
Propane .261 .307
Butanes .273 .358
Gasoline .329 .417
Overall weighted average price
per gal. .244 .308
</TABLE>
Average daily system supply NGLs processed, fractionated, transported or
marketed increased 77.5% from 24,500 barrels per day for the previous year's
period to 43,500 barrels per day. This increase is attributable to the
acquisition of Dean Pipeline, an NGL transportation system in south Texas, in
November 1993 and higher NGLs recoveries through the Company's Colorado D-J
Basin processing facilities.
The Company's overall net operating margin (as a percentage of operating
revenue) decreased from 7.0% in 1993 to 6.5% in 1994 primarily due to lower
natural gas and NGLs prices. The Company continues to expand its system supply
volumes by acquiring and developing systems where the gas is being gathered and
transported, and, to a lesser extent, processed. The gathering/transportation
service generates a lower per unit margin which reduces the Company's overall
average margin on a per unit basis. System supply volumes increased
approximately 23% in 1994, due to the acquisition in November 1993 from the
Endevco noteholders of the Ada gathering and transportation system (increase of
69,000 MCF/D) and AIM Pipeline (70,000 MCF/D) systems and higher natural gas
volumes being processed/transported through the Company's Texas Wilcox (26,000
MCF/D) system.
The Company's crude oil net operating margin (as a percentage of operating
revenue) increased from 1.4% in 1993 to 2.2% in 1994 due to additional
transportation volumes as a result of the Company's acquisition of Shell's south
Texas crude oil system, the acquisition of Mobil's Hedelton gathering system and
the acquisition of a gathering system from CITGO.
Interest income represents interest earned on the Company's cash and cash
equivalents. The Company endeavors to maximize interest income by utilizing
controlled disbursement checking accounts which allow the Company to temporarily
invest funds relating to outstanding checks in highly rated liquid corporate
demand notes.
16
<PAGE>
Nine months ended June 30, 1994 versus 1993:
Presented below are the percentage increase and decrease in operating
revenue, net operating margin, earnings before income taxes, net earnings and
net earnings plus deferred taxes, depreciation and amortization as compared to
the prior period. Revenues and earnings have been adjusted for the merger costs
incurred during the quarter for comparability.
<TABLE>
<CAPTION>
Nine months ended
June 30, Percent
----------------- Increase
1994 1993 (Decrease)
------ ------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Operating revenue $1,612,082 1,316,382 22.5 %
Net operating margin (1) 115,927 100,131 15.8
</TABLE>
(1) Net operating margin is equal to operating revenue, less natural gas and
petroleum products purchases.
<TABLE>
<CAPTION>
Nine months ended
June 30, Percent
----------------- Increase
1994 1993 (Decrease)
------ ------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Earnings before income taxes:
As reported 26,493 30,970
Merger costs 1,333 ---
------- ------
Excluding merger costs 27,826 30,970 (10.2)%
Net earnings:
As reported 14,812 18,672
Merger costs 1,333 ---
------- ------
Excluding merger costs 16,145 18,672 (13.5)
Net earnings plus deferred tax
expense, depreciation and
amortization:
As reported 42,143 39,821
Merger costs 1,333 ---
------- ------
Excluding merger costs 43,476 39,821 9.2
Earnings per share:
As reported $ .98 1.27
Effect of merger costs $ .09 ---
------- ------
Excluding merger costs $ 1.07 1.27 (15.8)
</TABLE>
17
<PAGE>
The $1.3 million of non-tax deductible merger costs consisted primarily of
financial advisory fees, outside legal, accounting and other professional fees.
Earnings decreased because operating expenses, general and administrative
expenses, depreciation, interest and taxes increased more than the increase in
the net operating margin. The combined historical operating and general and
administrative expenses are not indicative of the future level of these expenses
because the historical information does not include any cost savings expected to
occur as a result of the merger. Interest expense increased partially as a
result of borrowings to finance the Endevco and Dean Pipeline acquisitions. For
the three months ended June 30, 1994 and 1993, the Company's effective cost of
funds was 7.5% and 8.7%, respectively. The provision for income taxes, as a
percentage of earnings before income taxes, increased from 39.7% in 1993 to
44.1% in 1994, as a result of merger related costs which are not tax deductible,
and an increase in the corporate tax rate to 35% under the Revenue
Reconciliation Act of 1993.
The following tables reflect operating data and average daily natural gas
volumes for the combined company.
<TABLE>
<CAPTION>
System
Supply Off-System Crude Oil Total
------ ----------- --------- -----
<S> <C> <C> <C> <C>
1994
Operating revenue $ 375,630 851,567 384,885 1,612,082
Net operating margin(1) 85,603 20,996 9,328 115,927
Percent 22.8% 2.5% 2.4% 7.2%
1993
Operating revenue $ 323,372 575,424 417,086 1,316,382
Net operating margin(1) 79,824 14,571 5,735 101,130
Percent 24.6% 2.5% 1.4% 7.7%
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
June 30, Percent
----------------------- Increase
1994 1993 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Natural Gas Volumes (MCF Per Day):
System Supply:
Rocky Mountain Region 143,000 137,000 4.4%
Mid-Continent Region 255,000 241,000 5.8
Gulf Coast Region 452,000 304,000 48.7
--------- ---------
850,000 682,000 24.6
Off-System: 1,488,000 1,023,000 45.5
--------- ---------
2,338,000 1,705,000 37.1
========= =========
</TABLE>
(1) Net operating margin is equal to operating revenue, less natural gas and
petroleum products purchases.
18
<PAGE>
The increase in operating revenue is primarily attributable to higher off-
system natural gas volumes marketed, higher crude oil volumes marketed and the
Company's continued growth in volumes through its system supply facilities. The
increase in operating revenue attributable to the increase in gas volumes
company-wide was offset by lower natural gas and NGLs values.
The average price per MCF received by the Company for natural gas sold from
all of its system supply facilities was $2.14 and $2.17 for the nine months
ended June 30, 1994 and 1993, respectively. NGLs prices were substantially
lower for the Company during this period in relation to the corresponding period
in 1993. The following reflects the Company's weighted average NGLs price per
gallon received by the Company at all its system supply facilities.
<TABLE>
<CAPTION>
Nine months ended
June 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Ethane $.134 .168
Propane .279 .330
Butanes .288 .365
Gasoline .326 .431
Overall weighted average price/gal. .254 .321
</TABLE>
Average daily system supply NGLs processed, fractionated, transported or
marketed increased 53.7% from 24,400 barrels per day for the previous year's
period to 37,500 barrels per day. This increase is attributable to the
acquisition of Dean Pipeline, an NGL transportation system in south Texas, in
November 1993 and higher NGLs recoveries through the Company's Colorado D-J
Basin processing facilities.
The Company's overall net operating margin (as a percentage of operating
revenue) decreased from 7.6% in 1993 to 7.2% in 1994 primarily due to the lower
natural gas and NGLs prices. The Company continues to expand its system supply
volumes by acquiring and developing systems where the gas is being gathered and
transported, and, to a lesser extent, processed. The gathering/transportation
service generates a lower per unit margin which reduces the Company's overall
average margin on a per unit basis. System supply volumes increased
approximately 25% in 1994, due to the acquisition in November 1993 from the
Endevco noteholders of the Ada gathering and transportation system (increase of
74,000 MCF/D) and AIM Pipeline (67,000 MCF/D) systems and higher natural gas
volumes being processed/transported through the Company's Texas Wilcox (24,000
MCF/D) system.
The Company's crude oil net operating margin (as a percentage of operating
revenue) increased from 1.4% in 1993 to 2.4% in 1994 due to additional
transportation volumes as a result of the Company's acquisition of Shell's south
Texas crude oil system, the acquisition of Mobil's Hedelton gathering system and
the acquisition of a gathering system from CITGO.
19
<PAGE>
Capital Resources and Liquidity
The Company's capital resources and liquidity historically have been provided
by net cash from operating activities, proceeds from the offerings of equity
securities, proceeds from debt securities and funds available under its
financing facilities. In the past, these sources have been sufficient to meet
the needs and finance the growth of the Company's business. Net cash provided
by operating activities has been affected primarily by natural gas and NGLs
prices, the Company's success in increasing "system supply" volumes and the
margin on crude oil and "off-system" natural gas purchased for resale. The
Company's continued growth will be dependent upon success in the areas of
additions to dedicated plant reserves, acquisitions, new project development and
marketing.
At June 30, 1994, the Company had $65 million of credit available under its
Revolving Credit Agreement and $20 million of capital available under its Line
of Credit with Continental Bank, N.A. The Revolving Credit Agreement with First
National Bank of Boston was cancelled by the Company subsequent to June 30,
1994. Additional sources of liquidity to the Company are provided by the volumes
of natural gas, crude oil and NGLs held in inventory. The Company stores volumes
of natural gas, crude oil and NGLs primarily to assure an adequate supply for
term sales contracts and for resale during periods when prices are favorable. At
June 30, 1994, the Company held in inventory approximately $12, $7.5 and $3
million of natural gas, crude oil and NGLs, respectively.
It has been the Company's practice (which it expects to continue) to secure
sources of long-term capital prior to committing to new projects. The Company
intends to borrow additional amounts under its debt agreements, as required, to
fund operations and to construct or acquire new facilities in accordance with
its asset-based business plan. The Company has negotiated its debt financings
in a manner which defers and staggers principal repayments through fiscal 2004.
Management believes the Company's current cash position, future cash provided by
operating activities, borrowing capacity under its debt agreements and its
relations with its institutional lenders and equity investors should enable it
to meet its future capital requirements, although there can be no assurance that
the Company will be able to obtain additional capital when needed on acceptable
terms.
20
<PAGE>
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
A. None.
B. A Form 8-K was filed by the Registrant on July 15, 1994 for the Company
announcing its closing of the Merger with Grand Valley Gas Company,
effective July 1, 1994.
21
<PAGE>
SIGNATURES
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
undersigned, thereunto duly authorized.
ASSOCIATED NATURAL GAS CORPORATION
----------------------------------
(Registrant)
Date October 20, 1994
---------------------------
By /s/ J. Roger Grace
--------------------------------
J. Roger Grace
Treasurer
(Principal Accounting Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended June 30, 1994
included in the Company's Quarterly Report on Form 10-Q/A for the quarter ended
June 30,1994 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1993
<PERIOD-END> JUN-30-1994
<EXCHANGE-RATE> 1
<CASH> 70,106,396
<SECURITIES> 0
<RECEIVABLES> 187,531,730
<ALLOWANCES> 0
<INVENTORY> 22,638,414
<CURRENT-ASSETS> 287,181,034
<PP&E> 563,557,518
<DEPRECIATION> 114,529,213
<TOTAL-ASSETS> 779,621,113
<CURRENT-LIABILITIES> 256,965,167
<BONDS> 239,130,000
<COMMON> 755,572
0
0
<OTHER-SE> 239,455,323
<TOTAL-LIABILITY-AND-EQUITY> 779,621,113
<SALES> 1,583,378,746
<TOTAL-REVENUES> 1,612,082,046
<CGS> 1,496,154,971
<TOTAL-COSTS> 1,574,323,489
<OTHER-EXPENSES> (59,903)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,325,080
<INCOME-PRETAX> 26,493,380
<INCOME-TAX> 11,680,976
<INCOME-CONTINUING> 14,812,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,812,404
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
