<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended
JUNE 30, 1994
OR
/ / 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 1-547
_________________________
THE PHOENIX RESOURCE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1927105
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6525 North Meridian Avenue
Oklahoma City, Oklahoma 73116-1491
(Address of Principal Executive Offices) (Zip Code)
(405) 728-5100
(Registrant's Telephone Number, Including Area Code)
_________________________
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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 27, 1994 there were 4,049,679 shares of the registrant's common
stock outstanding.
<PAGE> 2
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C>
Consolidated Balance Sheet at June 30, 1994 and December 31, 1993 . . . . . . . 3
Consolidated Statement of Income -
Three Months and Six Months Ended June 30, 1994 and 1993 . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 10
</TABLE>
2
<PAGE> 3
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, December 31,
1994 1993
---- ----
<S> <C> <C>
Current Assets: (Unaudited)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $23,570 $25,248
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,205 2,211
Receivable for payment of foreign taxes . . . . . . . . . . . . . . . . . . . 4,818 9,517
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 37
------- -------
32,833 37,013
------- -------
Property and Equipment, at cost:
Oil and gas properties (using successful efforts accounting) . . . . . . . . 19,848 19,673
Other property and equipment . . . . . . . . . . . . . . . . . . . . . . . . 1,974 1,985
------- -------
21,822 21,658
Less: Accumulated depreciation, depletion and amortization . . . . . . . . . 13,327 12,590
------- -------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 8,495 9,068
Deferred Receivable for payment of foreign taxes . . . . . . . . . . . . . . 8,120 8,007
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 278
------- -------
$49,701 $54,366
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,630 $300
Accrued foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,818 9,517
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 435 574
------- -------
6,883 10,391
------- -------
Long-Term Obligations:
Deferred foreign taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,120 8,007
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973 1,269
------- -------
9,093 9,276
------- -------
Commitments and Contingencies (Note 4)
Stockholders' Equity (Deficit):
Preferred stock, par value $0.01 (authorized 5,000 shares, none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.01 (authorized 10,000 shares, 4,050
shares outstanding in 1994 and 4,235 in 1993) . . . . . . . . . . . . . . 42 42
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,426 39,408
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (689) (4,751)
Treasury stock, at cost (189 shares in 1994) . . . . . . . . . . . . . . . . (5,054) --
------- -------
33,725 34,699
------- -------
$49,701 $54,366
======= =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
3
<PAGE> 4
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenues . . . . . . . . . . . . . . . . . $5,786 $ 5,997 $10,260 $11,497
Revenues dedicated to foreign tax liability . . . . . . 2,756 2,893 4,818 5,397
------ ------ ------ -------
Operating revenues . . . . . . . . . . . . . . . . . 8,542 8,890 15,078 16,894
Supplemental purchase price payment . . . . . . . . . . -- 4,000 -- 4,000
Interest and other income . . . . . . . . . . . . . . . 245 176 486 399
------ ------ ------ -------
8,787 13,066 15,564 21,293
------ ------ ------ -------
Costs and Expenses:
Production costs . . . . . . . . . . . . . . . . . . . 1,656 1,534 2,758 2,706
Exploration, including dry holes . . . . . . . . . . . 125 77 1,028 137
Depreciation, depletion and amortization . . . . . . . 399 644 745 1,217
General and administrative . . . . . . . . . . . . . . 687 752 1,615 1,840
Interest . . . . . . . . . . . . . . . . . . . . . . . -- 43 -- 94
------ ------ ------ -------
2,867 3,050 6,146 5,994
------ ------ ------ -------
Income before income taxes and extraordinary
loss . . . . . . . . . . . . . . . . . . . . . . . . . 5,920 10,016 9,418 15,299
Provision for income taxes:
U.S. alternative minimum tax . . . . . . . . . . . . . 70 151 122 216
Foreign . . . . . . . . . . . . . . . . . . . . . . . . 2,756 2,893 4,818 5,397
------ ------ ------ -------
Income before extraordinary loss . . . . . . . . . . . . . 3,094 6,972 4,478 9,686
Extraordinary loss:
Early extinguishment of debt . . . . . . . . . . . . . -- (174) -- (174)
------ ------ ------ -------
Net income . . . . . . . . . . . . . . . . . . . . . $3,094 $ 6,798 $4,478 $ 9,512
====== ====== ====== =======
Income Per Share:
Weighted average common and common
equivalent shares outstanding . . . . . . . . . . . . 4,136 4,246 4,211 4,244
====== ====== ====== =======
Income before extraordinary loss . . . . . . . . . . . $ 0.75 $ 1.64 $ 1.06 $ 2.28
====== ====== ====== =======
Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.75 $ 1.60 $ 1.06 $ 2.24
====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1994 1993
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from purchasers . . . . . . . . . . . . . . . . . . . . $ 8,422 $ 12,154
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . (4,234) (4,357)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (105)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . (379) (362)
Interest and other cash receipts . . . . . . . . . . . . . . . . . . 323 184
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . 4,132 7,514
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . (1,415) (2,027)
Proceeds from sales of property and equipment . . . . . . . . . . . . -- 85
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . (1,415) (1,942)
-------- --------
Cash flows from financing activities:
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . (3,997) --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (416) --
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . -- (400)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . 18 139
-------- --------
Net cash used in financing activities . . . . . . . . . . . . . . . (4,395) (261)
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . (1,678) 5,311
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 25,248 11,486
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . $ 23,570 $ 16,797
======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,478 $ 9,512
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . . . . 745 1,217
Exploration expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,028 137
Supplemental purchase price payment . . . . . . . . . . . . . . . . . -- (4,000)
Decrease (increase) in accounts receivable related to operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,994) 595
Increase in accounts payable related to operating activities. . . . . 273 662
Decrease in accrued liabilities related to operating activities . . . (139) (384)
Other noncash items . . . . . . . . . . . . . . . . . . . . . . . . . (259) (225)
-------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . (346) (1,998)
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . $ 4,132 $ 7,514
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
All references herein to the "Company" mean The Phoenix Resource
Companies, Inc. and/or one or more of its wholly-owned subsidiaries. The
accompanying unaudited consolidated financial statements and notes thereto have
been prepared in accordance with accounting policies set forth in the Company's
1993 Annual Report on Form 10-K and should be read in conjunction with the
Notes to Consolidated Financial Statements therein. The financial statements
reflect all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the financial position
and the results of operations for such periods.
NOTE 2 -- CAPITAL STOCK AND OPTIONS:
Capital Stock -- On March 31 and June 30, 1994 the Company paid a
$0.05 per share dividend on its Common Stock.
Treasury Stock -- In conjunction with the secondary public offering of
30% of the Company's Common Stock completed in March 1994, on April 20, 1994
the Company purchased 128,801 shares of its Common Stock at $26.93 per share.
During the second quarter of 1994 the Company purchased 60,000 shares
of its Common Stock at $26.38 per share. At June 30, 1994 an accounts payable
of $1.1 million was recorded in connection with the purchase of 40,000 of these
shares.
Stock Options -- On April 6, 1994 stock options covering 160,000
shares of Common Stock at an exercise price of $26.38 per share were granted
pursuant to the 1990 Employee Stock Option Plan. On May 11, 1994 stock options
covering 20,000 shares of Common Stock at an exercise price of $24.50 were
granted pursuant to the 1990 Nonemployee Director Stock Option Plan.
NOTE 3 -- INCOME TAXES:
In accordance with the provisions of the Khalda Concession Agreement,
EGPC's share of Khalda revenues includes Egyptian income taxes and government
royalties attributable to the Company, which are paid directly by EGPC.
Payment of these Egyptian income taxes by EGPC creates for the Company both
U.S. taxable income and foreign tax credits (or deductions, at the option of
the Company) which can be utilized to reduce U.S. income taxes, if any, on
earnings from the Company's foreign operations.
The Company records its estimated share of the Egyptian income tax
expense of the Khalda Concession and revenue dedicated to foreign tax
liabilities for the tax payment to be made on its behalf by EGPC. An Egyptian
income tax payment will be made on the 1994 taxable income of the Khalda
Concession during 1995 and the Company has, accordingly, recorded its estimated
share of such taxes as a current liability, along with a current receivable for
the tax payment to be made on its behalf by EGPC. The Company recorded an
Egyptian deferred income tax liability, and an identical deferred receivable,
related to its share of temporary differences in reporting Egyptian taxable
income during the current and prior years. As of June 30, 1994 the Company had
a current foreign income tax liability of $4.8 million; a deferred foreign
income tax liability of $8.1 million; a current receivable of $4.8 million; and
a long-term receivable of $8.1 million.
6
<PAGE> 7
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- COMMITMENTS AND CONTINGENCIES:
The Company conducts almost all of its business in Egypt. The
business environment in foreign countries varies greatly. Relevant factors
include the laws of a country, its political stability, the political stability
of its region of the world, its attitude toward foreign investments,
availability and skill of its work force and the technological sophistication
of its business community. Adverse developments in the business environment in
Egypt would likely have a material adverse effect on the Company. The Company
does not insure against political risks.
Egypt retains the right of requisition of the Khalda Concession
production and cancellation of the Khalda Concession Agreement upon the
occurrence of specific events, including a national emergency due to war,
imminent expectation of war or internal causes, unauthorized assignment of
interests in the Khalda Concession, the Contractor being adjudicated bankrupt
by a court of competent jurisdiction and intentional extraction of any mineral
not authorized by the Khalda Concession Agreement. Requisition or cancellation
as a result of the foregoing or for any other reasons would have a material
adverse effect on the Company.
A portion of the Company's operating revenues represents the sale of
crude oil produced from the Khalda Concession and allocated to the Company for
reimbursement of operating, development and exploration costs. These costs are
subject to review and approval by EGPC. Management does not expect the amount
of costs rejected for reimbursement by EGPC to have a material adverse effect
on the Company's financial position or results of operations.
Various lawsuits are pending against the Company. Management is of
the opinion, based on advice of independent legal counsel, that the ultimate
outcome of all pending litigation is highly unlikely to have a material effect
on the financial position or results of operations of the Company.
The Company is committed, under certain circumstances, to pay
approximately $1 million pursuant to various employment contracts with certain
key employees.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the Khalda Concession operating data for the
periods shown (in thousands, except average prices and average daily gross oil
production).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Khalda Concession
Crude oil and condensate
Average Price . . . . . . . . . . . . . . . . . $ 15.91 $ 16.76 $ 15.07 $ 16.85
Gross revenue . . . . . . . . . . . . . . . . . $ 5,689 $ 5,606 $ 10,032 $ 10,791
Natural gas
Average Price . . . . . . . . . . . . . . . . . $ 2.44 $ 2.37 $ 2.30 $ 2.47
Gross revenue . . . . . . . . . . . . . . . . . $ 52 $ 81 $ 140 $ 175
Production costs . . . . . . . . . . . . . . . . . $ 1,612 $ 1,467 $ 2,671 $ 2,588
Net operating revenue . . . . . . . . . . . . . . $ 4,129 $ 4,220 $ 7,501 $ 8,378
Average daily gross oil production . . . . . . . . 32,917 32,431 32,085 32,263
</TABLE>
Second Quarter 1994 Compared to Second Quarter 1993. Net income for
the quarter ended June 30, 1994 was $3.1 million, a 54% decrease compared to
the same period of 1993. The decrease in net income was primarily due to a $4
million supplemental purchase price payment included in 1993 income and not to
be included in 1994.
Depreciation, depletion and amortization ("DD&A Expense") for the
second quarter of 1994 decreased $0.2 million, or 38%, compared to the second
quarter of 1993 primarily due to less unamortized costs and lower DD&A rate.
First Six Months of 1994 Compared to 1993. Net income for the first
six months of 1994 was $4.5 million, a 53% decrease compared to the same period
of 1993. The decrease was primarily due to a $4 million supplemental purchase
price payment included in 1993 income, as discussed above. To a lesser extent,
lower oil prices received for Khalda Concession oil contributed to the decrease
in net income.
Oil and gas revenues for the first six months of 1994 decreased $1.2
million, or 11%, compared to the same period of 1993 primarily due to lower oil
prices received for Khalda Concession oil. The average price for the first six
months of 1994 was $15.07 per barrel compared to $16.85 per barrel in the first
six months of 1993.
Exploration cost for the first six months of 1994 increased $0.9
million from $0.1 million reported in the first six months of 1993 due to
increased seismic activity in the Khalda and Qarun Concessions. During the
first quarter of 1994, 500 kilometers of seismic were shot in the Qarun
Concession and 300 kilometers of seismic were shot in the Tarek area of the
Khalda Concession.
DD&A Expense for the first six months of 1994 decreased $0.5 million,
or 39%, compared to the same period of 1993 primarily due to less unamortized
costs and lower DD&A rate.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1994 the Company's working capital (current assets less
current liabilities) was $26 million, which included cash and cash equivalents
of $23.6 million. Net cash provided by operating activities for the six months
ended June 30, 1994 was $4.1 million. Cash utilized for financing activities
for the six months ended June 30, 1994 was $4.4 million, which was primarily
used to repurchase shares of the Company's Common Stock and pay dividends on
the Company's Common Stock. The Company currently has no long-term debt. Cash
utilized in investing activities was $1.4 million, which was primarily used for
exploration costs.
The Company's short-term and long-term internal sources of liquidity
are working capital and cash flow from operations. The Company does not
currently need and, therefore, does not have any current arrangements for
short-term or long-term sources of external liquidity.
The Company believes that its current liquidity is sufficient to meet
its obligations during the next 12 months. The Company anticipates that its
capital expenditures during the next 12 months will range from approximately
$4.5 to $6.5 million, which will be funded from cash flow from operations and
working capital. These capital expenditures include the Company's share of
capital expenditures in the Khalda Concession estimated to be approximately $2
million (out of total gross capital expenditures of approximately $25 to $30
million). However, the Company and its partners may elect to accelerate the
further appraisal of Khalda's natural gas potential, in which case such capital
expenditures by the Company could be increased by approximately an additional
$2 million. The Company anticipates that its 50% share of capital expenditures
associated with the Qarun Concession will be approximately $2.5 million,
including the costs associated with drilling the exploratory well to be spudded
in August 1994.
During July the Company paid $1.1 million for 40,000 shares of its
Common Stock purchased and accrued for in late June.
Excess working capital, net cash flow from operations and any
potential external financing would be available to fund the development of any
of the Company's exploratory successes; to participate in the development of
natural gas reserves in the Khalda Concession, including the unified Western
Desert natural gas pipeline project, if such project is commenced; and to
pursue other oil and gas opportunities that may be identified by the Company.
9
<PAGE> 10
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1994 Annual Meeting of Stockholders of the Company was held on May
11, 1994 in Oklahoma City, Oklahoma. Mr. Lawrence M. Miller was elected to
serve as a director of the Company until the 1995 Annual Meeting of
Stockholders. Messrs. Joseph A. Pardo, Galal P. Doss, Francis L. Durand,
George D. Lawrence Jr. and Rex A. Sebastian will continue to serve as directors
of the Company until the 1995 Annual Meeting of Stockholders.
At the 1994 Annual Meeting of Stockholders, the stockholders approved
an amendment to the Company's 1990 Nonemployee Director Stock Option Plan, the
terms of which are fully described in the Company's Proxy Statement dated April
15, 1994.
SIGNATURE
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.
THE PHOENIX RESOURCE COMPANIES, INC.
(Registrant)
/s/CHERYL A. RICH
Cheryl A. Rich
Vice President, Chief Financial Officer and Controller
(Principal Financial Officer)
DATE: August 2, 1994
10
