<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
SEPTEMBER 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 October 25, 1994 there were 3,947,049 shares of the registrant's
common stock outstanding.
<PAGE> 2
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 1994 and December 31, 1993 . . . . . . . . . . . 3
Consolidated Statement of Income -
Three Months and Nine Months Ended September 30, 1994 and 1993 . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 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
</TABLE>
2
<PAGE> 3
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share amounts)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 23,636 $ 25,248
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 2,953 2,211
Receivable for payment of foreign taxes . . . . . . . . . . . . . 7,725 9,517
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 283 37
--------- ---------
34,597 37,013
--------- ---------
Property and Equipment, at cost:
Oil and gas properties (using successful efforts accounting) . . . 19,196 19,673
Other property and equipment . . . . . . . . . . . . . . . . . . . 1,919 1,985
--------- ---------
21,115 21,658
Less: Accumulated depreciation, depletion and amortization . . . . . 12,434 12,590
--------- ---------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . 8,681 9,068
Deferred Receivable for payment of foreign taxes . . . . . . . . . . 8,120 8,007
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253 278
--------- ---------
$ 51,651 $ 54,366
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 211 $ 300
Accrued foreign taxes . . . . . . . . . . . . . . . . . . . . . . 7,725 9,517
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . 671 574
--------- ---------
8,607 10,391
--------- ---------
Long-Term Obligations:
Deferred foreign taxes . . . . . . . . . . . . . . . . . . . . . . 8,120 8,007
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 972 1,269
--------- ---------
9,092 9,276
--------- ---------
Commitments and Contingencies (Note 4)
Stockholders' Equity:
Preferred stock, par value $0.01 (authorized 5,000 shares, none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.01 (authorized 10,000 shares, 3,945
shares outstanding in 1994 and 4,235 in 1993) . . . . . . . . . 42 42
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 39,426 39,408
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . 2,555 (4,751)
Treasury stock, at cost (293 shares in 1994) . . . . . . . . . . . (8,071) --
--------- ---------
33,952 34,699
--------- ---------
$ 51,651 $ 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1994 1993 1994 1993
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas revenues . . . . . . . . . . . . . $ 5,925 $ 5,800 $ 16,185 $ 17,297
Revenues dedicated to foreign tax liability . 2,907 2,533 7,725 7,930
--------- -------- -------- ---------
Operating revenues . . . . . . . . . . . . . 8,832 8,333 23,910 25,227
Supplemental purchase price payment . . . . . -- -- -- 4,000
Interest and other income . . . . . . . . . . 287 181 773 580
--------- -------- -------- ---------
9,119 8,514 24,683 29,807
--------- -------- -------- ---------
Costs and Expenses:
Production costs . . . . . . . . . . . . . . . 1,519 1,613 4,277 4,319
Exploration, including dry holes . . . . . . . 132 45 1,160 182
Depreciation, depletion and amortization . . . 433 625 1,178 1,842
General and administrative . . . . . . . . . . 617 586 2,232 2,426
Interest . . . . . . . . . . . . . . . . . . . -- 26 -- 120
--------- -------- -------- ---------
2,701 2,895 8,847 8,889
--------- -------- -------- ---------
Income before income taxes and extraordinary
loss . . . . . . . . . . . . . . . . . . . . . 6,418 5,619 15,836 20,918
Provision for income taxes:
U.S. alternative minimum tax . . . . . . . . . 70 74 192 290
Foreign . . . . . . . . . . . . . . . . . . . 2,907 2,533 7,725 7,930
--------- -------- -------- ---------
Income before extraordinary loss . . . . . . . . 3,441 3,012 7,919 12,698
Extraordinary loss:
Early extinguishment of debt . . . . . . . . . -- -- -- (174)
--------- -------- -------- ---------
Net income . . . . . . . . . . . . . . . . . $ 3,441 $ 3,012 $ 7,919 $ 12,524
========= ======== ======== =========
Income Per Share:
Weighted average common and common
equivalent shares outstanding . . . . . . . 4,013 4,246 4,144 4,244
========= ======== ======== =========
Income before extraordinary loss . . . . . . . $ 0.86 $ 0.71 $ 1.91 $ 2.99
========= ======== ======== =========
Net income . . . . . . . . . . . . . . . . . $ 0.86 $ 0.71 $ 1.91 $ 2.95
========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of this statement.
4
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THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1994 1993
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from purchasers . . . . . . . . . . . . . . . . . . . . $ 15,697 $ 17,929
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . (6,843) (7,439)
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (140)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . (411) (517)
Interest and other cash receipts . . . . . . . . . . . . . . . . . . . 564 330
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . 9,007 10,163
--------- ---------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (1,989) (2,437)
Proceeds from sales of property and equipment . . . . . . . . . . . . 36 85
Supplemental purchase price payment . . . . . . . . . . . . . . . . . -- 4,000
--------- ---------
Net cash provided by (used in) investing activities . . . . . . . . (1,953) 1,648
--------- ---------
Cash flows from financing activities:
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . (8,071) --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (613) --
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . -- (1,304)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . 18 139
--------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . (8,666) (1,165)
--------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . (1,612) 10,646
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 25,248 11,486
--------- ---------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . $ 23,636 $ 22,132
========= =========
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,919 $ 12,524
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . . . . 1,178 1,842
Exploration expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,160 182
Supplemental purchase price payment . . . . . . . . . . . . . . . . -- (4,000)
(Increase) decrease in accounts receivable related to operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (742) 475
Increase (decrease) in accounts payable related to operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (127) 19
Increase (decrease) in accrued liabilities related to operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 (484)
Other noncash items . . . . . . . . . . . . . . . . . . . . . . . . (478) (395)
--------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . 1,088 (2,361)
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . $ 9,007 $ 10,163
========= =========
</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, June 30 and September 30, 1994 the
Company paid a $0.05 per share dividend on its Common Stock.
Treasury Stock -- In conjunction with the March 1994 secondary public
offering of 30% of the Company's Common Stock, 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 an additional 60,000 shares of its
Common Stock at $26.38 per share. During the third quarter of 1994 the Company
purchased 64,630 shares and 40,000 shares of its Common Stock at $28.50 and
$29.25 per share, respectively. Through the third quarter of 1994, shares
purchased by the Company totaled 293,431 at an average price of $27.51 per
share. Pursuant to the stock repurchase plan, the Company may purchase up to
an additional 85,370 shares through May 1995.
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, as
amended.
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 September 30, 1994 the
Company had a current foreign income tax liability of $7.7
6
<PAGE> 7
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million; a deferred foreign income tax liability of $8.1 million; a current
receivable of $7.7 million; and a long-term receivable of $8.1 million.
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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1994 1993 1994 1993
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Khalda Concession
Crude oil and condensate
Average price (per bbl) . . . . . . . . . . $ 16.24 $ 15.57 $ 15.47 $ 16.39
Gross revenue . . . . . . . . . . . . . . . $ 5,737 $ 5,495 $ 15,769 $ 16,286
Natural gas
Average price (per mcf) . . . . . . . . . . $ 2.64 $ 2.21 $ 2.47 $ 2.37
Gross revenue . . . . . . . . . . . . . . . $ 170 $ 95 $ 310 $ 270
Production costs . . . . . . . . . . . . . . . $ 1,497 $ 1,551 $ 4,168 $ 4,139
Net operating revenue . . . . . . . . . . . . $ 4,410 $ 4,039 $ 11,911 $ 12,417
Average daily gross oil production (bbls) . . 34,008 32,682 32,733 32,404
</TABLE>
Third Quarter 1994 Compared to Third Quarter 1993. Net income for the
quarter ended September 30, 1994 was $3.4 million, an increase of $0.4 million
compared to the same period of 1993.
Depreciation, depletion and amortization ("DD&A Expense") for the
third quarter of 1994 decreased $0.2 million, or 31%, compared to the third
quarter of 1993 primarily due to less unamortized costs and lower DD&A rate.
First Nine Months of 1994 Compared to 1993. Net income for the first
nine months of 1994 was $7.9 million, a $4.6 million 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 and not included in
1994 income.
Oil and gas revenues for the first nine months of 1994 decreased $1.1
million, or 6%, compared to the same period of 1993 primarily due to lower oil
prices received for Khalda Concession oil. The average price for the first
nine months of 1994 was $15.47 per barrel compared to $16.39 per barrel in the
first nine months of 1993.
Exploration cost for the first nine months of 1994 increased $1
million from $0.2 million reported in the first nine 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 nine months of 1994 decreased $0.7 million,
or 36%, compared to the same period of 1993 primarily due to less unamortized
costs and lower DD&A rate.
LIQUIDITY AND CAPITAL RESOURCES
As of September 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
8
<PAGE> 9
cash provided by operating activities for the nine months ended September 30,
1994 was $9 million. Cash utilized for financing activities for the nine
months ended September 30, 1994 was $8.7 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 or short-term
debt. Cash utilized in investing activities was $2 million, which was
primarily used for exploration.
The Company's short-term and long-term internal sources of liquidity
are working capital and cash flow from operations. The Company currently does
not have, nor has it sought, any arrangements for short-term or long-term
sources of external liquidity.
In September 1994 the Khalda Contractors were advised that they were
the successful bidder to acquire the approximately two-million acre area which
surrounds the Khalda Concession, known as the South Khalda Block. Discussions
with EGPC are necessary to finalize the detailed agreement which, in turn,
requires Parliamentary approval. If approved, capital expenditures in this
block will begin in 1995.
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 be in the range of $10
million, which will be funded from cash flow from operations and working
capital. These capital expenditures include the Company's share of estimated
capital expenditures in the Khalda Concession, Qarun Concession and South
Khalda Block. However, if development opportunities arise or accelerate, the
Company's capital expenditure requirements, and possible need for external
funding, could increase during the next 12 months.
Excess working capital, net cash flow from operations and any
potential external funding would be available to fund the development of any of
the Company's potential 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
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: November 3, 1994
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 23,636
<SECURITIES> 0
<RECEIVABLES> 2,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,597
<PP&E> 21,115
<DEPRECIATION> 12,434
<TOTAL-ASSETS> 51,651
<CURRENT-LIABILITIES> 8,607
<BONDS> 0
<COMMON> 42
0
0
<OTHER-SE> 33,910
<TOTAL-LIABILITY-AND-EQUITY> 51,651
<SALES> 23,910
<TOTAL-REVENUES> 24,683
<CGS> 4,277
<TOTAL-COSTS> 8,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,836
<INCOME-TAX> 7,917
<INCOME-CONTINUING> 7,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,919
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.91
</TABLE>
