UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003.
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: 333-29001-01
ENERGY CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 84-1235822
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
4643 SOUTH ULSTER STREET, SUITE 1100
DENVER, COLORADO 80237
(Address of principal executive offices and zip code)
(303) 694-2667
(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 ___
---
The number of shares of the Registrant's common stock, par value $1.00 per
share, outstanding at
May 8, 2003 was 620,393 shares.
ENERGY CORPORATION OF AMERICA
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . PAGES
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2003 (Unaudited) and June 30, 2002 . . . . . . . . . . . . . 3
Unaudited Condensed Consolidated Statements of Operations
For the three and nine months ended March 31, 2003 and 2002. . . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended March 31, 2003 and 2002. . . . . . . . . . . 6
Unaudited Condensed Consolidated Statements of Comprehensive Income
For the three and nine months ended March 31, 2003 and 2002. . . . . . 7
Notes to Unaudited Condensed Consolidated Financial Statements. . . . . . 8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . 17
Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 20
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 20
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . 20
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-2-
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------------
MARCH 31, JUNE 30,
2003 2002
(UNAUDITED) *
----------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 4,875 $ 17,775
Accounts receivable, net of allowance for doubtful
accounts of $1,371 and $1,366. . . . . . . . . . . . . . 26,341 18,165
Gas inventory, lower of cost or market. . . . . . . . . . . - 199
Deferred income tax asset . . . . . . . . . . . . . . . . . 2,237 2,237
Notes receivable, related party . . . . . . . . . . . . . . 1,645 10
Prepaid and other current assets. . . . . . . . . . . . . . 1,519 6,075
---------- ---------
Total current assets . . . . . . . . . . . . . . . . . . 36,617 44,461
Property, plant and equipment, net of accumulated
depreciation and depletion of $125,171 and $116,294 . . . . 248,553 244,155
OTHER ASSETS
Deferred financing costs, net of accumulated
amortization of $5,493 and $3,722. . . . . . . . . . . . 3,349 3,617
Notes receivable, related party . . . . . . . . . . . . . . 72 1,756
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,765 10,747
---------- ---------
Total other assets . . . . . . . . . . . . . . . . . . . 12,186 16,120
---------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297,356 $ 304,736
========== =========
* Condensed from audited consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial
statements.
-3-
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- ----------------------------------------------------------------------------------------
MARCH 31, JUNE 30,
2003 2002
(UNAUDITED) *
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . . $ 16,824 $ 15,683
Current portion of long-term debt . . . . . . . . . . . . . 130 121
Funds held for future distribution. . . . . . . . . . . . . 17,930 11,414
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . 14,907 8,221
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,907 7,258
----------- ----------
Total current liabilities. . . . . . . . . . . . . . . . 55,698 42,697
LONG-TERM OBLIGATIONS
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 168,512 198,701
Gas delivery obligation and deferred revenue. . . . . . . . 3,025 5,886
Deferred income tax liability . . . . . . . . . . . . . . . 15,673 9,887
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,914 8,689
----------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . 250,822 265,860
Minority Interest. . . . . . . . . . . . . . . . . . . . . . . 1,587 1,732
STOCKHOLDERS' EQUITY
Common stock, par value $1.00; 2,000,000 shares
authorized; 730,039 shares issued. . . . . . . . . . . . 730 730
Class A stock, no par value; 100,000 shares authorized;
45,582 shares issued . . . . . . . . . . . . . . . . . . 5,092 5,092
Additional paid in capital. . . . . . . . . . . . . . . . . 5,503 5,503
Retained earnings . . . . . . . . . . . . . . . . . . . . . 45,707 36,422
Treasury stock and notes receivable arising from the
issuance of common stock . . . . . . . . . . . . . . . . (11,477) (10,426)
Accumulated other comprehensive loss. . . . . . . . . . . . (608) (177)
----------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . 44,947 37,144
----------- ----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 297,356 $ 304,736
=========== ==========
* Condensed from audited consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial
statements.
-4-
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
----------------- -----------------
2003 2002 2003 2002
-------- -------- --------- ---------
REVENUES:
Oil and gas sales. . . . . . . . . . . . . . . . $13,511 $ 8,095 $ 33,516 $ 29,393
Gas marketing and pipeline sales . . . . . . . . 19,259 9,153 45,384 29,683
Well operations and service revenues . . . . . . 1,268 1,325 4,073 4,048
Other. . . . . . . . . . . . . . . . . . . . . . - - 36 -
-------- -------- --------- ---------
Total revenues. . . . . . . . . . . . . . . 34,038 18,573 83,009 63,124
-------- -------- --------- ---------
COST AND EXPENSES:
Field operating expenses . . . . . . . . . . . . 2,436 2,624 7,398 7,748
Gas marketing and pipeline cost. . . . . . . . . 16,971 8,115 40,694 27,262
General and administrative . . . . . . . . . . . 3,225 3,955 10,557 10,982
Taxes, other than income . . . . . . . . . . . . 1,074 500 2,338 1,402
Depletion and depreciation, oil and gas related. 2,911 2,939 9,001 9,418
Depreciation of pipelines and equipment. . . . . 949 718 2,744 2,137
Exploration and impairment . . . . . . . . . . . 3,015 3,308 7,863 4,698
-------- -------- --------- ---------
Total costs and expenses. . . . . . . . . . 30,581 22,159 80,595 63,647
-------- -------- --------- ---------
Income (loss) from operations. . . . . . . . . . 3,457 (3,586) 2,414 (523)
OTHER (INCOME) EXPENSE:
Interest expense . . . . . . . . . . . . . . . . 3,922 4,910 13,065 14,836
Interest income and other. . . . . . . . . . . . (5,763) (234) (26,283) (1,670)
-------- -------- --------- ---------
Income (loss) before income taxes . . . . . . . . . 5,298 (8,262) 15,632 (13,689)
Income tax expense (benefit). . . . . . . . . . . . 2,014 (2,904) 5,702 (4,728)
-------- -------- --------- ---------
Income (loss) before minority interest. . . . . . . 3,284 (5,358) 9,930 (8,961)
Minority interest . . . . . . . . . . . . . . . . . (64) - (175) -
-------- -------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 3,348 $(5,358) $ 10,105 $ (8,961)
======== ======== ========= =========
Basic and diluted earnings per common share:
Net income (loss)
Basic. . . . . . . . . . . . . . . . . . . . . $ 5.15 $ (8.16) $ 15.49 $ (13.60)
======== ======== ========= =========
Diluted (see Note 5) . . . . . . . . . . . . . $ 5.04 N/A $ 15.16 N/A
======== ======== ========= =========
The accompanying notes are an integral part of these condensed consolidated financial
statements.
-5-
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------
NINE MONTHS ENDED
MARCH 31
------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 10,105 $ (8,961)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depletion, depreciation and amortization. . . . . . . . 12,205 12,107
Gain on purchase of senior bonds. . . . . . . . . . . . (23,609) -
Exploration and impairment . . . . . . . . . . 7,705 4,291
Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,292 (1,203)
--------- ---------
8,698 6,234
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . (8,170) 3,093
Gas inventory . . . . . . . . . . . . . . . . . . . . . 199 706
Prepaid and other assets. . . . . . . . . . . . . . . . (301) (1,114)
Accounts payable. . . . . . . . . . . . . . . . . . . . 1,081 (1,915)
Taxes payable . . . . . . . . . . . . . . . . . . . . . 6,686 (2,443)
Funds held for future distribution. . . . . . . . . . . 6,517 (6,282)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 554 (20,368)
--------- ---------
Net cash provided (used) by operating activities. . . . 15,264 (22,089)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment. . . . . (25,183) (29,291)
Proceeds from sale of assets. . . . . . . . . . . . . . 3,134 506
Notes receivable and other. . . . . . . . . . . . . . . 1,334 (52)
--------- ---------
Net cash used by investing activities . . . . . . . . . (20,715) (28,837)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt. . . . . . . . . . . . . . 52,818 -
Principal payments on long-term debt. . . . . . . . . . (58,369) (113)
Purchase of treasury stock. . . . . . . . . . . . . . . (1,113) (1,187)
Dividends paid. . . . . . . . . . . . . . . . . . . . . (785) (791)
--------- ---------
Net cash used by financing activities . . . . . . . . . (7,449) (2,091)
--------- ---------
Net decrease in cash and cash equivalents . . . . . . . (12,900) (53,017)
Cash and cash equivalents, beginning of period. . . . . 17,775 80,336
--------- ---------
Cash and cash equivalents, end of period. . . . . . . . $ 4,875 $ 27,319
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-6-
ENERGY CORPORATION OF AMERICA
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED - AMOUNTS IN THOUSANDS)
- -----------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------ -----------------
2003 2002 2003 2002
------- -------- -------- ---------
Net income (loss) . . . . . . . . . . . . . . . $3,348 $(5,358) $10,105 $ (8,961)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment:
Current period change . . . . . . . . . . 249 (66) 426 (1,007)
Marketable securities:
Current period change . . . . . . . . . . - (39) (5) (41)
Reclassification to earnings. . . . . . . - - (25) -
Oil and gas derivatives:
Current period transactions . . . . . . . (588) 39 (1,401) 1,661
Reclassification to earnings. . . . . . . 405 (674) 574 (4,149)
------- -------- -------- ---------
Other comprehensive income (loss), net of tax . 66 (740) (431) (3,536)
------- -------- -------- ---------
Comprehensive income (loss) . . . . . . . . . . $3,414 $(6,098) $ 9,674 $(12,497)
======= ======== ======== =========
The accompanying notes are an integral part of these condensed consolidated financial
statements.
-7-
ENERGY CORPORATION OF AMERICA
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
1. Nature of Organization
Energy Corporation of America (the "Company") was formed in June 1993 through an
exchange of shares with the common stockholders of Eastern American Energy
Corporation ("Eastern American"). The Company is an independent energy company.
All references to the "Company" include Energy Corporation of America and its
consolidated subsidiaries.
The Company, through its wholly owned subsidiary Eastern American, is engaged in
exploration, development and production, transportation and marketing of natural
gas primarily within the Appalachian Basin states of West Virginia,
Pennsylvania, Kentucky, Virginia and Ohio.
The Company, through its wholly owned subsidiaries Westech Energy Corporation
and Westech Energy New Zealand, is engaged in the exploration for and production
of oil and natural gas primarily in Texas, California and New Zealand.
2. Accounting Policies
Reference is hereby made to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2002, which contains a summary of major accounting
policies followed in preparation of its consolidated financial statements.
These policies were also followed in preparing the quarterly report included
herein.
Management of the Company believes that all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the results of
such interim periods have been made. The results of operations for the period
ended March 31, 2003 are not necessarily indicative of the results to be
expected for the full year.
Certain amounts in the financial statements of prior periods have been
reclassified to conform to the current period presentation.
3. New Accounting Pronouncements
In December 2002, the FASB approved Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure -
an amendment of FASB Statement No. 123" (SFAS No. 148). SFAS No. 148 amends
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
SFAS No. 148 is effective for financial statements for fiscal years ending after
December 15, 2002. As permitted under SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company has elected to continue to measure compensation costs
for stock-based employee compensation plans using the intrinsic value method as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees".
-8-
4. Note Repurchases
The Company has purchased $65.4 million of its 9 1/2% Senior Subordinated Notes
("Notes") during the first nine months of the current fiscal year in privately
negotiated transactions. Subsequent to March 31, 2003, the Company has
purchased an additional $20,000 of such Notes in privately negotiated
transactions.
5. Earnings per Share
A reconciliation of the components of basic and diluted net income (loss) per
common share is as follows for the net income (loss) available to common
shareholders:
NET INCOME (LOSS)
(IN THOUSANDS) SHARES PER SHARE
------------------ ------- -----------
Three months ended March 31, 2003
Basic. . . . . . . . . . . . $ 3,348 649,921 $ 5.15
Diluted. . . . . . . . . . . $ 3,348 664,187 $ 5.04
Nine months ended March 31, 2003
Basic. . . . . . . . . . . . $ 10,105 652,471 $ 15.49
Diluted. . . . . . . . . . . $ 10,105 666,737 $ 15.16
Three months ended March 31, 2002
Basic and Diluted (a). . . . $ (5,358) 656,566 $ (8.16)
Nine months ended March 31, 2002
Basic and Diluted (a). . . . $ (8,961) 658,662 $ (13.60)
(a) The effect of outstanding stock options was not included in the computation
of diluted earnings per share for the periods ended March 31, 2002 because to do
so would have been antidilutive.
6. Industry Segments
The Company's reportable business segments have been identified based on the
differences in products and service provided. Revenues for the exploration and
production segment are derived from the production and sale of natural gas and
crude oil. Revenues for the marketing and pipeline segment arise from the
marketing of both Company and third party produced natural gas volumes and
revenues derived from gathering and pipeline services (functions) provided for
Company and third party natural gas. The Company utilizes earnings before
interest, taxes, depreciation, depletion, amortization and exploration and
impairment costs ("EBITDAX") to evaluate the operations of each segment.
-9-
Summarized financial information for the Company's reportable segments for
operations is as follows (in thousands):
Exploration & Marketing &
Production Pipeline Other Consolidated
--------------- ------------- --------- --------------
For the nine months ended March 31, 2003
- -----------------------------------------
Revenue from unaffiliated customers. . $ 37,589 $ 45,384 $ 36 $ 83,009
Depreciation, depletion, amortization. 9,905 608 1,232 11,745
Exploration and impairment costs . . . 7,863 - - 7,863
Income (loss) from operations. . . . . 656 2,558 (800) 2,414
Interest expense, net. . . . . . . . . 16,300 (4,681) 1,028 12,647
EBITDAX. . . . . . . . . . . . . . . . 20,269 3,116 25,095 48,480
Total assets . . . . . . . . . . . . . 186,376 90,041 20,939 297,356
Capital expenditures . . . . . . . . . 24,300 231 652 25,183
- ----------------------------------------------------------------------------------------------------
For the nine months ended March 31, 2002
- -----------------------------------------
Revenue from unaffiliated customers. . $ 33,441 $ 29,683 $ - $ 63,124
Depreciation, depletion, amortization. 10,459 658 438 11,555
Exploration and impairment costs . . . 4,698 - - 4,698
Income (loss) from operations. . . . . (363) 4 (164) (523)
Interest expense, net. . . . . . . . . 15,802 (5,402) 2,897 13,297
EBITDAX. . . . . . . . . . . . . . . . 16,441 716 243 17,400
Total assets . . . . . . . . . . . . . 150,152 73,867 109,262 333,281
Capital expenditures . . . . . . . . . 25,108 95 4,088 29,291
- ----------------------------------------------------------------------------------------------------
Income (loss) from operations represents revenues less costs which are directly
associated with such operations. Revenues are priced and accounted for
consistently for both unaffiliated and intersegment sales. The 'Other' column
includes corporate-related items, including corporate debt and non-reportable
segments. Included in the total assets of the exploration and production
segment are net long-lived assets located in New Zealand of $5.3 million and
$2.7 million as of March 31, 2003 and 2002.
7. Derivative Instruments
The Company periodically hedges a portion of its gas production through futures
and swap agreements. The purpose of the hedges is to provide a measure of
stability in the volatile environment of oil and gas prices and to manage its
exposure to commodity price risk under existing sales commitments. All of the
Company's price swap agreements in place are designated as cash flow hedges. At
March 31, 2003, the Company had recorded a $0.55 million other comprehensive
loss, $0.32 million short-term derivative tax asset, $0.78 million short-term
derivative liability, $0.10 million long-term derivative liability, and $0.01
million in recognized expense due to ineffectiveness. The estimated net amount
of the existing losses within other comprehensive income that are expected to be
reclassified into earnings within the next twelve months is approximately $0.52
million. The Company has partially hedged its exposure to the variability in
future cash flows through June 2005.
-10-
8. Contingencies
In addition to the matters discussed in Legal Proceedings at Part II, Item 1,
the Company is involved in various other legal actions and claims arising in the
ordinary course of business. While the outcome of the lawsuits against the
Company cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the Company's operations or
financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
AND FINANCIAL CONDITION
-------------------------
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
This discussion and analysis of financial condition and results of
operations, and other sections of this Form 10-Q, contain forward-looking
statements that are based on management's beliefs, assumptions, current
expectations, estimates, intentions and projections about the oil and gas
industry, the economy and about the Company itself. Words such as
"anticipates," "believes," "estimates," "expects," "forecasts," "intends," "is
likely," "plans," "predicts," "projects," variations of such words and similar
expressions are intended to identify such forward-looking statements under the
Private Securities Litigation Reform Act of 1995. The Company cautions that
these statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict with regard
to timing, extent, likelihood and degree of occurrence. Therefore, actual
results and outcomes may materially differ from what may be expressed or
forecasted in such forward-looking statements. Furthermore, the Company
undertakes no obligation to update, amend or clarify forward-looking statements,
whether as a result of new information, future events or otherwise.
Important factors that could cause actual results to differ materially from
the forward-looking statements include, but are not limited to, weather
conditions, changes in production volumes, worldwide demand and commodity prices
for petroleum natural resources, the timing and extent of the Company's success
in discovering, acquiring, developing and producing oil and natural gas
reserves, risks incident to the drilling and operation of oil and natural gas
wells, future production and development costs, foreign currency exchange rates,
the effect of existing and future laws, governmental regulations and the
political and economic climate of the United States and New Zealand, the effect
of hedging activities, and conditions in the capital markets.
The following should be read in conjunction with the Company's Financial
Statements and Notes (including the segment information) at Part I, Item 1.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003
- --------------------------------------------------------------------------------
AND 2002
- ---------
The Company recorded net income of $3.3 million for the quarter ended March
31, 2003 compared to a net loss of $5.4 million in 2002. The increase in net
income of $8.7 million is primarily attributable to the net of a $15.5 million
increase in revenues, $8.4 million increase in costs and expenses, $1.0 million
decrease in interest expense, $5.5 million increase in interest income and
other, and a $4.9 million increase in income tax expense.
-11-
Production, marketing and pipeline volumes, revenue and average sales prices
For the quarters ended March 31 and their related variances are as follows:
THREE MONTHS ENDED
MARCH 31 VARIANCE
------------- -----------------
2003 2002 AMOUNT PERCENT
------- ----- ------- --------
Natural Gas
Production (Mmcf). . . . . . . . . . . . . . . . 2,250 2,348 (98) -4.2%
Average sales price received ($/Mcf) . . . . . . 7.37 2.55 4.82 189.1%
------- ----- ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 16,591 5,989 10,602 177.0%
Oil
Production (Mbbl). . . . . . . . . . . . . . . . 25 27 (2) -7.4%
Average sales price received ($/Bbl) . . . . . . 31.44 19.41 12.03 62.0%
------- ----- ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 786 524 262 50.0%
Hedging. . . . . . . . . . . . . . . . . . . . . . (3,956) 1,278 (5,234) -409.5%
Other. . . . . . . . . . . . . . . . . . . . . . . 90 304 (214) -70.4%
------- ----- ------- --------
Total oil and gas sales ($in thousands). . . . . . 13,511 8,095 5,416 66.9%
======= ===== ======= ========
Marketing Revenue
Volume (Million Mmbtu) . . . . . . . . . . . . . 2,361 2,387 (26) -1.1%
Average sales price received ($/Mmbtu) . . . . . 6.00 2.87 3.13 109.3%
------- ----- ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 14,167 6,843 7,324 107.0%
Pipeline Revenue
Volume (Million Mmbtu) . . . . . . . . . . . . . 1,399 1,526 (127) -8.3%
Average sales price received ($/Mnbtu) . . . . . 3.64 1.51 2.13 140.4%
------- ----- ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 5,092 2,310 2,782 120.4%
------- ----- ------- --------
Total marketing and pipeline sales ($in thousands) 19,259 9,153 10,106 110.4%
======= ===== ======= ========
Marketing Gas Cost
Volume (Million Mmbtu) . . . . . . . . . . . . . 2,361 2,387 (26) -1.1%
Average price paid ($/Mmbtu) . . . . . . . . . . 5.59 2.68 2.91 108.6%
------- ----- ------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 13,200 6,399 6,801 106.3%
Pipeline Gas Cost
Volume (Million Mmbtu) . . . . . . . . . . . . . 1,081 1,207 (126) -10.4%
Average price paid ($/Mmbtu) . . . . . . . . . . 3.49 1.42 2.07 145.4%
------- ----- ------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 3,771 1,716 2,055 119.8%
------- ----- ------- --------
Total marketing and pipeline cost ($in thousands). 16,971 8,115 8,856 109.1%
======= ===== ======= ========
REVENUES. Total revenues increased $15.5 million or 83.3% between the
--------
periods. The increase was due to a $5.4 million increase in oil and gas sales
and a $10.1 increase in gas marketing and pipeline sales. Well operations and
service revenues remained relatively constant.
-12-
Revenues from oil and gas sales increased a net of $5.4 million from $8.1
million for the quarter ended March 31, 2002 to $13.5 million for the quarter
ended March 31, 2003. Natural gas sales increased $10.6 million and oil sales
increased $0.26 million. The net increase in gas production revenue is
attributable to the increase in gas prices ($10.8 million) offset by the
decrease in gas production ($0.2 million). The price increase is a result of
the rise in the related natural gas indexes. The increased production revenue
was offset by recognized losses on related hedging transactions, which totaled a
loss of $4.0 million for the quarter ended March 31, 2003 compared to a gain of
$1.3 million for the quarter ended March 31, 2002. The average price per Mcfe,
after hedging and other, was $5.63 and $3.23 for the quarters ended March 31,
2003 and 2002, respectively.
Revenues from gas marketing and pipeline sales increased $10.1 million from
$9.2 million during the period ended March 31, 2002 to $19.3 million in the
period ended March 31, 2003. Gas marketing revenue increased $7.3 million
primarily as a result of a 109.3% increase in the average sales price that
corresponds to the rise in the related natural gas price indexes for this period
compared to the prior period. Pipeline revenue, which has a sales and
gathering component, increased $2.8 million primarily as a result of a 140.4%
increase in the average sales price that corresponds to the rise in the related
natural gas price indexes for this period compared to the prior period. Pipeline
volumes declined 8.3% compared to the prior period primarily due to natural
production declines on the system.
COSTS AND EXPENSES. The Company's costs and expenses increased $8.4 million or
- -------------------
38.0% between the periods primarily as a net result of an $8.9 million increase
in gas marketing and pipeline costs, $0.7 million decrease in general and
administrative expenses, $0.6 million increase in taxes other than income, and a
$0.3 million decrease in exploration and impairment costs. Field and lease
operating and depreciation, depletion and amortization expenses were comparable
between periods.
Gas marketing and pipeline costs increased $8.9 million. Gas marketing
costs increased $6.8 million and pipeline costs increased $2.1 million. The
increase in costs is primarily attributable to the increase in average price of
gas that corresponds to the rise in the related natural gas indexes for this
period compared to the prior period.
General and administrative expenses decreased $0.7 million primarily as a
Result of a decrease in legal expenses as compared to the prior period.
Taxes other than income increased $0.6 million due to the increase in
Average sales price received for oil and gas production.
Exploration and impairment costs decreased $0.3 million primarily due to a
reduction in dry hole expense between the periods.
INTEREST EXPENSE. Interest expense decreased $1.0 million when comparing
------------------
the periods primarily as a result of the reduction in long-term debt and a lower
interest rate on a portion of the outstanding borrowings.
INTEREST INCOME AND OTHER. Other income increased $5.5 million when
----------------------------
comparing the periods. This is primarily the result of a recognized gain of
$4.6 million related to the settlement of a disputed claim and a gain of $0.9
million related to the purchase of a portion of the Company's Notes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 2003 AND
- --------------------------------------------------------------------------------
2002
- ----
The Company recorded net income of $10.1 million for the nine month period
ended March 31, 2003 compared to a net loss of $9.0 million for the same period
in 2002. The increase in net income of $19.1 million is primarily attributable
to the net of a $19.9 million increase in revenue, $16.9 million increase in
costs and expenses, $1.8 million decrease in interest expense, $24.6 million
increase in interest income and other and a $10.4 million increase in income tax
expense.
-13-
Production, marketing and pipeline volumes, revenue and average sales
prices for the nine months ended March 31 and their related variances are as
follows:
NINE MONTHS ENDED
MARCH 31 VARIANCE
-------- ---------
2003 2002 AMOUNT PERCENT
------- ------ -------- --------
Natural Gas
Production (Mmcf). . . . . . . . . . . . . . . . 7,236 7,463 (227) -3.0%
Average sales price received ($/Mcf) . . . . . . 4.89 2.65 2.24 84.6%
------- ------ -------- --------
Sales ($in thousands). . . . . . . . . . . . . . 35,354 19,751 15,603 79.0%
Oil
Production (Mbbl). . . . . . . . . . . . . . . . 77 96 (19) -19.8%
Average sales price received ($/Bbl) . . . . . . 26.32 20.72 5.61 27.1%
------- ------ -------- --------
Sales ($in thousands). . . . . . . . . . . . . . 2,027 1,989 38 1.9%
Hedging. . . . . . . . . . . . . . . . . . . . . . (4,144) 7,080 (11,224) -158.5%
Other. . . . . . . . . . . . . . . . . . . . . . . 279 573 (294) -51.3%
------- ------ -------- --------
Total oil and gas sales ($in thousands). . . . . . 33,516 29,393 4,123 14.0%
======= ====== ======== ========
Marketing Revenue
Volume (Million Mmbtu) . . . . . . . . . . . . . 7,275 7,564 (289) -3.8%
Average sales price received ($/Mmbtu) . . . . . 4.70 2.97 1.73 58.1%
------- ------ -------- --------
Sales ($in thousands). . . . . . . . . . . . . . 34,213 22,495 11,718 52.1%
Pipeline Revenue
Volume (Million Mmbtu) . . . . . . . . . . . . . 4,337 4,528 (191) -4.2%
Average sales price received ($/Mnbtu) . . . . . 2.58 1.59 0.99 62.3%
------- ------ -------- --------
Sales ($in thousands). . . . . . . . . . . . . . 11,171 7,188 3,983 55.4%
------- ------ -------- --------
Total marketing and pipeline sales ($in thousands) 45,384 29,683 15,701 52.9%
======= ====== ======== ========
Marketing Gas Cost
Volume (Million Mmbtu) . . . . . . . . . . . . . 7,275 7,563 (288) -3.8%
Average price paid ($/Mmbtu) . . . . . . . . . . 4.41 2.85 1.56 54.8%
------- ------ -------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 32,047 21,577 10,470 48.5%
Pipeline Gas Cost
Volume (Million Mmbtu) . . . . . . . . . . . . . 3,446 3,687 (241) -6.5%
Average price paid ($/Mmbtu) . . . . . . . . . . 2.51 1.54 0.97 62.7%
------- ------ -------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 8,647 5,685 2,962 52.1%
------- ------ -------- --------
Total marketing and pipeline cost ($in thousands). 40,694 27,262 13,432 49.3%
======= ====== ======== ========
REVENUES. Total revenues increased $19.9 million or 31.5% between the
--------
periods. The increase was due to a 14.0% increase in oil and gas sales and a
52.9% increase in gas marketing and pipeline sales. Well operations and service
revenues remained relatively constant.
-14-
Revenues from oil and gas sales increased $4.1 million from $29.4 million
for the period ended March 31, 2002 to $33.5 million for the period ended March
31, 2003. The Company's net gas production decreased 227 Mmcf or 3.0% between
the periods and oil production decreased by 19 Mbbl or 19.8%. Offsetting the
decrease in volumes sold is an increase in average sales price for gas and oil.
The average price per Mcf increased from $2.65 for the prior period to $4.89 for
the current period, and the average price per barrel increased from $20.72 for
the prior period to $26.32 for the current period. The net effect of the
increase in price and decrease in production between periods is an increase of
$15.6 million in oil and gas sales before hedging and other activity. This
increase was offset by recognized losses related to hedging transactions
totaling $4.1 million for the period ended March 31, 2003, compared to a gain of
$7.1 million for the period ended March 31, 2002. The average price per Mcfe,
after hedging and other, was $4.35 and $3.66 for the periods ended March 31,
2003 and 2002, respectively.
Revenues from gas marketing and pipeline sales increased $15.7 million from
$29.7 million during the period ended March 31, 2002 to $45.4 million in the
period ended March 31, 2003. Gas marketing revenue increased by $11.7 million
primarily due to a 58.1% increase in average sales price per Mmbtu from $2.97
for the nine months ended March 31, 2002 to $4.70 for the nine months ended
March 31, 2003. Offsetting this increase in average sales price was a 3.8%
decrease in gas volumes sold from 7.6 million Mmbtu for the nine months ended
March 31, 2002 to 7.3 million Mmbtu for the nine months ended March 31, 2003.
Pipeline revenue increased by $4.0 million primarily due to a 62.3% increase in
the average sales price per Mmbtu. Offsetting this increase in price was a 4.2%
decline in gas volumes from 4.5 million Mmbtu for the nine months ended March
31, 2002 to 4.3 million Mmbtu for the nine months ended March 31, 2003. The
increase in the average price was a result of the rise in natural gas index
prices for this period compared to the prior period.
COSTS AND EXPENSES. The Company's costs and expenses increased $16.9 million
-------------------
or 26.7% between the periods primarily as a net result of a $13.4 million
increase in gas marketing and pipeline costs, $0.4 million decrease in general
and administrative expenses, $0.9 million increase in taxes other than income,
and a $3.2 million increase in exploration and impairment costs. Field and lease
operating, and depreciation, depletion, and amortization expenses were
comparable between periods.
Gas marketing and pipeline costs increased $13.4 million. Gas marketing
costs increased $10.5 million primarily due to a 54.8% increase in the average
price paid per Mmbtu from $2.85 for the period ended March 31, 2002 to $4.41 for
the period ended March 31, 2003. Offsetting the increase in the average price
paid was a 3.8% decline in purchased gas volumes from 7.6 million Mmbtu for the
nine months ended March 31, 2002 to 7.3 million Mmbtu for the nine months ended
March 31, 2003. Pipeline costs increased $3.0 million primarily due to a 62.7%
increase in the average price paid for gas purchased from $1.54 per Mmbtu for
the period ended March 31, 2002 to $2.51 for the period ended March 31, 2003.
Offsetting the increase in the average price paid for gas purchased was a 6.5%
decline in purchased gas volumes from 3.7 million Mmbtu for the period ended
March 31, 2002 to 3.4 million Mmbtu for the period ended March 31, 2003. The
increase in the average price paid was a result of the rise in natural gas index
prices for this period compared to the prior period.
General and administrative expenses decreased $0.4 million primarily as a
result of a decrease in legal expenses as compared to the prior period.
Taxes other than income increased $0.9 million due to the increase in
average sales price received for oil and gas production.
Exploration and impairment expenses increased $3.2 million due to an
increase in dry hole expense primarily related to an unsuccessful exploratory
deep well test drilled in Texas.
-15-
INTEREST EXPENSE. Interest expense decreased $1.8 million when comparing
------------------
the periods primarily as a result of the reduction in long-term debt and a lower
interest rate on a portion of the outstanding borrowings.
INTEREST INCOME AND OTHER. Other income increased $24.6 million when
----------------------------
comparing periods. This is primarily the result of a gain of $23.6 million
-
recognized on the purchase of a portion of the Company's Notes and a recognized
gain of $4.6 million related to a legal settlement. The gain was partially
offset by a loss of $2.1 million related to an unconsolidated entity in which
the Company has an investment and a $1.1 million decline in interest income
primarily due to decreased cash balances.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
The Company's financial condition has continued to improve since December
31, 2002, but at the same time, there has been a further decrease in the
Company's liquidity. Stockholders' equity has increased from $42.1 million at
December 31, 2002 to $44.9 million at March 31, 2003. However, the Company's
working capital of a negative $11.4 million at December 31, 2002 decreased to a
negative $19.1 million at March 31, 2003. The Company's cash decreased from
$7.9 million at December 31, 2002 to $4.9 million at March 31, 2003. The
Company's cash at May 8, 2003 was $2.3 million. The change in cash during the
quarter of approximately $3.0 million resulted from various operating, investing
and financing activities of the Company. The activities were primarily
comprised of: the repayment of approximately $2.6 million under the Company's
$50 million revolving Credit Agreement (the "Agreement"); the net investment of
approximately $13.5 million in property, plant and equipment; payments of
approximately $1.5 million for the purchase of a portion of the Company's
outstanding Notes; payments of approximately $0.6 million for the acquisition of
treasury stock and dividends; and approximately $15.1 million of cash provided
by operations during the quarter.
On December 13, 2002, Standard & Poor's Rating Services ("S&P"), with a
negative outlook, lowered its corporate credit rating on the Company to CCC+
from B, and its rating on the Notes to CCC- from CCC+. S&P stated that "the
ratings downgrade reflects ECA's burdensome debt leverage with limited,
near-term prospects for significant deleveraging and a likely decline in
liquidity through 2003 as S&P expects ECA to outspend its internally generated
cash flow. Given the probable cash flow generation of ECA's properties, it may
be very challenging for the company to continue servicing its debt while
averting depletion."
At March 31, 2003, the Company's principal source of liquidity consisted of
$4.9 million of cash, $2 million available under an unsecured credit facility
currently in place, plus amounts available under the Agreement. At March 31,
2003, no amounts were outstanding or committed under the short term credit
facility and $35.3 million was outstanding under the Agreement.
On July 10, 2002, the Company entered into the Agreement with Foothill
Capital Corporation ("Foothill"). Depending on its level of borrowing under the
Agreement, the applicable interest rates are based on Wells Fargo's prime rate
plus 0.50% to 2.50%. The Agreement expires on July 10, 2005. The Agreement is
secured by certain of the existing proved producing oil and gas assets of the
Company. The Agreement, among other things, restricts the ability of the
Company and its subsidiaries to incur new debt, grant additional security
interests in its collateral, engage in certain merger or reorganization
activities, or dispose of certain assets. Upon the occurrence of an event of
default, the lenders may terminate the Agreement and declare all obligations
thereunder immediately due and payable. As of May 8, 2003, there are $27.6
million in outstanding borrowings under the Agreement. Under the Indenture for
the Company's Notes, the Company is restricted from incurring additional debt in
excess of the $50 million available under the Agreement unless the Company's
fixed charge coverage ratio, as defined in the Indenture, is at least 2.5 to 1.
Currently, the Company's fixed charge coverage ratio is less than 2.5 to 1.
-16-
The Company's net cash requirements will fluctuate based on timing and the
extent of the interplay of capital expenditures, cash generated by continuing
operations, cash generated by the sale of assets and interest expense. EBITDAX
for fiscal years 2002, 2001 and 2000 was $19.7 million, $33.7 million and $4.1
million, respectively. Management anticipates that EBITDAX, before inclusion of
anticipated gain on the purchase of the Company's Notes, for fiscal year 2003
will approximate $33 million; however, such results will not be sufficient to
fully fund fiscal year 2003 projected interest charges of over $17 million and
fund the Company's anticipated fiscal year 2003 capital expenditures program of
$32 million. Although cash provided from oil and gas operations will not be
sufficient to fully fund the Company's fiscal year 2003 projected interest
charges, capital expenditures program, and other uses, management believes that
cash generated from continuing oil and gas operations, together with the
liquidity provided by existing cash balances, permitted borrowings and the cash
proceeds resulting from the sale of certain assets, will be sufficient to
satisfy commitments for capital expenditures, debt service obligations, working
capital needs and other cash requirements for the current fiscal year.
In order to reduce future cash interest payments, as well as future amounts
due at maturity or upon redemption, the Company may, from time to time, purchase
its outstanding Notes in open market purchases and/or privately negotiated
transactions. The Company will evaluate any such transactions in light of then
existing market conditions, taking into account its liquidity, uses of capital
and prospects for future access to capital. The amounts involved in any such
transaction, individually or in the aggregate, may be material.
The Company believes that its existing capital resources and its expected
fiscal year 2003 results of operations and cash flows from operating activities
will be sufficient for the Company to remain in compliance with the requirements
of its Notes. However, since future results of operations, cash flow from
operating activities, debt service capability, levels and availability of
capital resources and continuing liquidity are dependent on future weather
patterns, oil and gas commodity prices and production volume levels, future
exploration and development drilling success and successful acquisition
transactions, no assurance can be given that the Company will remain in
compliance with the requirements of its Notes. See Part II Item 1 "Legal
Proceedings" for a discussion related to the Company's receipt of Notice of
Default from certain holders of the Notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------
COMMODITY RISK
- ---------------
The Company's operations consist primarily of exploring for, producing,
aggregating and selling natural gas and oil. Contracts to deliver gas at
pre-established prices mitigate the risk to the Company of falling prices but at
the same time limit the Company's ability to benefit from the effects of rising
prices. The Company occasionally uses derivative instruments to hedge commodity
price risk. The Company hedges a portion of its projected natural gas
production through a variety of financial and physical arrangements intended to
support natural gas prices at targeted levels and to manage its exposure to
price fluctuations. The Company may use futures contracts, swaps, options and
fixed price physical contracts to hedge commodity prices. Realized gains and
losses from the Company's price risk management activities are recognized in oil
and gas sales when the associated production occurs. Unrecognized gains and
losses are included as a component of other comprehensive income.
Ineffectiveness is recorded in current earnings. The Company does not hold or
issue derivative instruments for trading purposes. The Company currently has
elected to enter into derivative hedge transactions and fixed price physical
delivery contracts on its estimated production covering approximately 60% to
70% through June 30, 2003, and for the fiscal year ending June 30, 2004, and 20%
to 30% for the fiscal year ending June 30, 2005.
-17-
Notwithstanding the above, the Company's future cash flows from gas and oil
production are exposed to significant volatility as commodity prices change.
Assuming total oil and gas production, pricing, and the percentage of gas
production hedged under physical delivery contracts and derivative instruments
remain at March 2003 levels, a 10% change in the average unhedged prices
realized would change the Company's gas and oil revenues by approximately $0.23
million on a quarterly basis.
INTEREST RATE RISK
- --------------------
Interest rate risk is attributable to the Company's debt. The Company
utilizes United States dollar denominated borrowings to fund working capital and
investment needs. As of March 31, 2003, all but $35.3 million of the Company's
debt has fixed interest rates. There is inherent rollover risk for borrowings
as they mature and are renewed at current market rates. The extent of this risk
is not predictable because of the variability of future interest rates and the
Company's future financing needs. Assuming the variable interest debt remained
at the March 31, 2003 level, a 10% change in rates would have a $0.24 million
impact on interest expense on an annual basis. The Company has not attempted to
hedge the interest rate risk associated with its debt.
FOREIGN CURRENCY EXCHANGE RISK
- ---------------------------------
Some of the Company's transactions are denominated in New Zealand dollars.
For foreign operations with the local currency as the functional currency,
assets and liabilities are translated at the period end exchange rates, and
statements of income are translated at the average exchange rates during the
period. Gains and losses resulting from foreign currency translation are
included as a component of other comprehensive income.
ITEM 4. CONTROLS AND PROCEDURES
- -----------------------------------
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, the
Company has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures within 90 days of the filing date of this
quarterly report and, based on their evaluation, our principal executive officer
and principal financial officer have concluded that these controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation. Disclosure controls and procedures
are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Securities Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
-18-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, on December 27, 2001, the Company received a
Notice of Default from certain holders of its $200 million 9 1/2% Senior
Subordinate Notes due 2007 (the "Notes") alleging a default under Section 4.9 of
the Indenture pursuant to which the Notes were issued. The alleged default
related to the proper calculation of Net Proceeds of an Asset Sale, particularly
with respect to the deduction for taxes paid or payable as a result of such
sale. On December 28, 2001, the Company filed a declaratory judgment action in
the United States District Court for the Southern District of West Virginia (the
"Court") against the holders of the Notes who issued the Notice of Default (the
"Noteholders"), asking the Court to confirm the proper calculation of Net
Proceeds of an Asset Sale under the Indenture. On January 25, 2002, the Court
entered an order denying the Noteholders' Motion to Dismiss and granting the
Company's Motion for Partial Summary Judgment, which order approved the
Company's methodology in calculating taxes paid or payable in connection with an
Asset Sale. On February 28, 2002, the Noteholders filed an answer and
counterclaim in the declaratory judgment action. The counterclaim alleged that
the Company's sale of Mountaineer in August of 2000 constituted a sale of
substantially all assets of the Company, as opposed to an Asset Sale, and
invoked certain obligations under the Indenture to repurchase the outstanding
Notes. On March 25, 2002, the Company filed its Second Motion for Partial
Summary Judgment, asserting that the Noteholders were barred from asserting the
counterclaim. On June 3, 2002, the United States District Court for the
Southern District of West Virginia entered an order granting the Company's
Second Motion for Partial Summary Judgment, which order dismissed the
Noteholders' claim on the basis of judicial admissions and equitable estoppel.
On May 22, 2002, the Noteholders filed a "Motion for Reconsideration of the
Court's January 25, 2002, Order and Permission to Take Limited Discovery in
Order to Supplement the Record". The Court entered an Order dated July 19,
2002, denying the Noteholders' Motion for Reconsideration. On July 27, 2002,
the Noteholders filed a Notice of Appeal in the United States Court of Appeals
for the Fourth Circuit. The Noteholders subsequently filed a motion to
voluntarily dismiss the appeal without prejudice. This motion was granted and
the matter was remanded to the District Court. The District Court entered a
Stipulation and Final Judgment on December 3, 2002, and a Judgment Order dated
December 4, 2002. This discussion is qualified in its entirety by the foregoing
Stipulation and Final Judgment dated December 3, 2002 and the Judgment Order
dated December 4, 2002, which have been previously filed and are incorporated
herein by reference.
On December 9, 2002, some of the Noteholders filed a Notice of Appeal to
the United States Court of Appeals for the Fourth Circuit from the Stipulation
and Final Judgment Order dated December 3, 2002, and the Judgment Order entered
on December 4, 2002. Briefing is complete and oral argument has not yet been
scheduled.
The Company and Prudential Securities Incorporated ("Prudential") have been
in a long-standing contract dispute resulting from the sale of Mountaineer Gas
Company to Allegheny Energy, Inc. In March 2003, the dispute resulted in
Prudential filing suit against the Company in the District Court, City and
County of Denver, Colorado. Management does not believe the merits of
Prudential's allegations, and is of the opinion that the matter is not material
regardless of the outcome.
-19-
The Company is involved in various other legal actions and claims arising
in the ordinary course of business. While the outcome of these other lawsuits
against the Company cannot be predicted with certainty, management does not
expect these matters to have a material adverse effect on the Company's
operations or financial position.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
99.01* Stipulation and Final Judgment
99.02* Judgment Order
b) Reports on Form 8-K:
None
* Incorporated by reference to the indicated exhibits to filings previously
made with the Securities and Exchange Commission by the Registrant's Quarterly
report on Form 10-Q for the quarter ended December 31, 2002.
-20-
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 under
signed thereunto, duly authorized, in the City of Denver, State of Colorado, on
the 9th day of May 2003.
ENERGY CORPORATION OF AMERICA
By: /s/John Mork
-------------
John Mork
Chief Executive Officer and Director
By: /s/Michael S. Fletcher
------------------------
Michael S. Fletcher
Chief Financial Officer
-21-
CERTIFICATION PURSUANT TO SECTION 302 UNDER THE SECURITIES ACT OF 1934
FORM OF 302 CERTIFICATION (10-Q)
I, John Mork, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Energy Corporation
of America;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 9, 2003 /s/John Mork
-------------
John Mork
Chief Executive Officer
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CERTIFICATION PURSUANT TO SECTION 302 UNDER THE SECURITIES ACT OF 1934
FORM OF 302 CERTIFICATION (10-Q)
I, Michael S. Fletcher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Energy Corporation
of America;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
d. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
e. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 9, 2003 /s/Michael S. Fletcher
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Michael S. Fletcher
Chief Financial Officer
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