<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
MARCH 31, 1996
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 CORPORATE ISSUERS:
At May 8, 1996 there were 16,099,880 shares of the registrant's common
stock outstanding.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I
Consolidated Statement of Income -
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheet at March 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 8
PART II
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
2
<PAGE> 3
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
----------- ---------
<S> <C> <C>
Revenues:
Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 9,107 $ 5,486
Revenues dedicated to foreign tax liability . . . . . . . . . . . . . 3,329 2,831
------ -------
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . 12,436 8,317
Interest and other income . . . . . . . . . . . . . . . . . . . . . . 413 370
------ -------
12,849 8,687
------ -------
Costs and Expenses:
Production costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,183 1,377
Depreciation, depletion and amortization . . . . . . . . . . . . . . . 2,282 795
General and administrative . . . . . . . . . . . . . . . . . . . . . . 751 547
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 --
Merger costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334 --
------ -------
5,759 2,719
------ -------
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . 7,090 5,968
Provision for income taxes:
U.S. alternative minimum tax . . . . . . . . . . . . . . . . . . . . . 66 53
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,329 2,831
------ -------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,695 $ 3,084
====== =======
Income Per Share:
Weighted average common and common equivalent
shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 16,798 15,984
====== =======
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.22 $ 0.19
====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
THE PHOENIX RESOURCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, December 31,
1996 1995
------------- -----------
Current Assets: (Unaudited)
<S> <C>
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 25,377 $ 22,759
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 7,408 5,639
Receivable for payment of foreign taxes . . . . . . . . . . . . . 11,026 11,026
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 3,843 2,072
-------- --------
47,654 41,496
-------- --------
Property and Equipment, at cost:
Oil and gas properties (using full cost accounting) . . . . . . . 51,398 40,842
Other property and equipment . . . . . . . . . . . . . . . . . 923 983
-------- --------
52,321 41,825
Less: Accumulated depreciation, depletion and amortization . . . . . 20,895 18,672
-------- --------
Net Property and Equipment . . . . . . . . . . . . . . . . . . . . 31,426 23,153
Deferred Receivable for payment of foreign taxes . . . . . . . . . . 6,326 2,997
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957 687
-------- --------
$ 86,363 $ 68,333
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 875 $ 562
Accrued foreign taxes . . . . . . . . . . . . . . . . . . . . . . 11,026 11,026
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . 1,262 952
-------- --------
13,163 12,540
-------- --------
Long-Term Obligations:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 --
Deferred foreign taxes . . . . . . . . . . . . . . . . . . . . . . 6,326 2,997
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 1,173 988
-------- --------
19,999 3,985
-------- --------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred stock, par value $0.01 (authorized 5,000 shares, none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common stock, par value $0.01 (authorized 20,000 shares, 16,098
shares outstanding in 1996 and 16,190 in 1995) . . . . . . . . . 170 170
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 45,190 45,170
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 15,493 12,281
Treasury stock, at cost (864 shares in 1996 and 772 shares in
1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,652) (5,813)
-------- --------
53,201 51,808
-------- --------
$ 86,363 $ 68,333
======== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
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>
Three Months Ended
March 31,
------------------------
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from purchasers . . . . . . . . . . . . . . . . . . . . $ 7,560 $ 3,746
Cash paid to suppliers and employees . . . . . . . . . . . . . . . . . (4,281) (2,502)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . -- (23)
Interest and other cash receipts . . . . . . . . . . . . . . . . . . . 318 315
------- --------
Net cash provided by operating activities . . . . . . . . . . . . . 3,597 1,536
------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . (10,819) (2,195)
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . (10,819) (2,195)
-------- --------
Cash flows from financing activities:
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 --
Debt issue cost . . . . . . . . . . . . . . . . . . . . . . . . . . . (321) --
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . (1,905) (1,421)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (483) (311)
Proceeds from stock options exercised . . . . . . . . . . . . . . . . 49 --
------- --------
Net cash provided by (used in) financing activities . . . . . . . . 9,840 (1,732)
------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . 2,618 (2,391)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 22,759 26,536
------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . $ 25,377 $ 24,145
======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,695 $ 3,084
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . . . . 2,282 795
Capitalized general and administrative . . . . . . . . . . . . . . . (701) (172)
Increase in accounts receivable related to operating activities . . (1,769) (1,988)
Increase (decrease) in accounts payable related to operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 (78)
Increase (decrease) in accrued liabilities related to operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 (294)
Other noncash items . . . . . . . . . . . . . . . . . . . . . . . . (318) 189
-------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . (98) (1,548)
-------- ---------
Net cash provided by operating activities . . . . . . . . . . . $ 3,597 $ 1,536
======== ========
</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
1995 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 -- PROPOSED MERGER:
A special meeting of the Company's stockholders will be held on May
20, 1996 to consider the approval of a merger (the "Merger") of the Company and
Apache Corporation ("Apache"). Pursuant to the Agreement and Plan of Merger,
dated March 27, 1996 (the "Merger Agreement"), if a majority of the
stockholders of the Company approve the Merger and certain other conditions are
satisfied or waived, each outstanding share of common stock of the Company will
be converted into the right to receive .75 shares of Apache common stock and
$4.00 in cash, and the Company will become a wholly-owned subsidiary of Apache,
all as more particularly described in the Proxy Statement/Prospectus related
thereto dated April 17, 1996.
If the Merger is consummated the Company will pay, as a result of the
Merger, the following amounts: (i) a transaction fee to its investment banker,
Petrie Parkman & Co., in the amount of $3.5 million; (ii) payments pursuant to
certain employment contracts to executive officers of the Company in an
aggregate amount of approximately $1.8 million; (iii) deferred incentive
compensation plan payments to executive officers of the Company in an aggregate
amount of approximately $1.3 million; (iv) annual incentive compensation plan
payments to executive officers of the Company in an aggregate amount of
approximately $0.3 million; and (v) other miscellaneous amounts of
approximately $0.3 million. Of the foregoing amounts, $0.8 million had been
accrued as of March 31, 1996. In addition, whether or not the Merger is
consummated, the Company has and will incur in connection with the Merger
Agreement up to an additional approximately $0.7 million in professional
expenses, printing costs and other expenses which have not yet been accrued.
NOTE 3 -- LONG-TERM DEBT:
During the first quarter of 1996, the Company completed a $50 million
project financing for the Qarun Concession development and borrowed $12.5
million under the loan facility. This financing was arranged by the
International Finance Corporation, an affiliate of the World Bank. The loan is
secured by the stock and assets of the Company's wholly-owned subsidiary,
Phoenix Resources Company of Qarun, and prior to the completion of the
development project the loan is guaranteed by the Company. Interest payments
will commence June 15, 1996 and will be payable semi- annually at a rate equal
to the London Inter-Bank Offered Rate plus 2-3/8% to 3%. Semi-annual principal
payments commence June 15, 1998 and continue through 2002.
NOTE 4 -- CAPITAL STOCK AND OPTIONS:
Capital Stock - A two-for-one split of the number of shares of Common
Stock outstanding was effected in September 1995. All references in the
accompanying first quarter
6
<PAGE> 7
1995 financial statements to the number of common shares and per share amounts
have been restated to reflect the split.
On February 16, 1996 the Company purchased 100,000 shares of its
Common Stock in open market transactions at a price of $19 per share. As of
March 31, 1996 a total of 864,164 shares of Common Stock were held as Treasury
Stock.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES:
Substantially all of the Company's operations and reserves are located
in Egypt and, therefore, are subject to certain risks relating to economic and
political stability in Egypt and the surrounding region. The Company is
exposed to certain risks due to its concentration of Egyptian operations, which
include possible changes in Egyptian laws, particularly relating to foreign
investments and taxation, renegotiation or modification of existing contracts
and expropriation. Adverse developments in Egypt and future changes in
Egyptian governmental regulations and policies could have a material adverse
effect on the Company. The Company does not insure against loss of production
or political risks.
Egypt retains the right of requisition of production from Egyptian
concessions and cancellation of the concession agreements 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 concession, the concession holder being adjudicated bankrupt by a court of
competent jurisdiction and intentional extraction of any mineral not authorized
by the concession agreement. Requisition or cancellation of the Company's
concession agreements 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 Egyptian concessions 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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis of the quarter ended March 31,
1996 compared to March 31, 1995 should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Net income for the first quarter of 1996 was $3.7 million, a 20%
increase compared to the same period of 1995. Net operating revenues (oil and
gas revenues less production costs) for the first quarter of 1996 increased
$2.8 million, or 69%, compared to the first quarter of 1995. The increases in
net income and net operating revenues were primarily due to production from the
Qarun Concession, which commenced in late November 1995, and higher oil prices.
Average daily gross oil production from the Qarun Concession was 5,459 barrels
per day for the first quarter of 1996. Average daily gross oil production from
the Khalda Concession was 31,461 barrels per day for the first quarter of 1996
compared to 31,372 barrels per day in the same period of 1995. The average
price for the first quarter of 1996 was $18.61 per barrel, 11% higher than the
$16.83 per barrel received in the first quarter of 1995.
Depreciation, depletion and amortization ("DD&A") for the first
quarter of 1996 increased $1.5 million, or 187%, compared to the first quarter
of 1995 primarily due to the inclusion of costs attributable to proved reserves
added from the Qarun Concession. The costs recognized on the Qarun Concession
for DD&A purposes include future costs for central processing, pipeline and
storage facilities, which facilities may be utilized to handle production
volumes from subsequent additions to proved reserves. Accordingly, costs
attributable to future reserves in Qarun, if and when added, could be less per
barrel than that applicable to reserves presently considered proved on the
Qarun Concession.
General and administrative expense for the first quarter of 1996
increased $0.2 million, or 37%, compared to the first quarter of 1995 primarily
due to an increase in the accrual for deferred incentive compensation as a
result of an increase in the market price of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 the Company's working capital (current assets
less current liabilities) was $34.5 million, which included cash and cash
equivalents of $25.4 million. Net cash provided by operating activities for
the quarter ended March 31, 1996 was $3.6 million. Net cash provided by
financing activities for the quarter ended March 31, 1996 was $9.8 million.
Cash utilized in investing activities was $10.8 million, which was primarily
used for development of the Qarun Concession.
The Company's current sources of liquidity are working capital, cash
flow from operations and a $50 million project financing facility provided by
the International Finance Corporation to fund the Company's share of
expenditures in the Qarun Concession. In early 1996 the Company borrowed $12.5
million under this facility. Interest payments on the loan facility will
commence June 15, 1996 and will be payable semi-annually at a rate equal to the
London Inter-Bank Offered Rate plus 2-3/8% to 3%. Semi-annual principal
payments commence June 15, 1998 and continue through 2002.
The Company believes that its current sources of liquidity are
sufficient to meet its obligations during the next 12 months. Excess working
capital and net cash flow from operations 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
8
<PAGE> 9
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. To the extent these sources of liquidity are deemed to be
inadequate to fund such activities, the Company believes additional external
sources of capital would be available.
9
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PART II
Exhibits
None.
Current Reports on Form 8-K
A Current Report on Form 8-K dated March 27, 1996, regarding the
proposed merger with Apache Corporation, was filed by the Company, pursuant to
Item 5. Other Events.
10
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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)
By: /s/Cheryl A. Rich
------------------------------------------
Cheryl A. Rich
Vice President & Chief Financial Officer
(Principal Financial & Accounting Officer)
DATE: May 14, 1996
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,377
<SECURITIES> 0
<RECEIVABLES> 7,408
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 47,654
<PP&E> 52,321
<DEPRECIATION> 20,895
<TOTAL-ASSETS> 86,363
<CURRENT-LIABILITIES> 13,163
<BONDS> 12,500
<COMMON> 170
0
0
<OTHER-SE> 53,031
<TOTAL-LIABILITY-AND-EQUITY> 86,363
<SALES> 12,436
<TOTAL-REVENUES> 12,849
<CGS> 2,183
<TOTAL-COSTS> 5,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209
<INCOME-PRETAX> 7,090
<INCOME-TAX> 3,395
<INCOME-CONTINUING> 3,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,695
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
