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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 DECEMBER 31, 2002.
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
December 31, 2002 was 621,991 shares.
ENERGY CORPORATION OF AMERICA
TABLE OF CONTENTS
PAGES
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 2002 (unaudited) and June 30, 2002. . . . . . . . . . . . 3
Unaudited Condensed Consolidated Statements of Operations
For the three and six months ended December 31, 2002 and 2001. . . . . 5
Unaudited Condensed Consolidated Statements of Cash Flows
For the six months ended December 31, 2002 and 2001. . . . . . . . . . 6
Unaudited Condensed Consolidated Statements of Comprehensive Income
For the three and six months ended December 31, 2002 and 2001. . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 19
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)
- ---------------------------------------------------------------------------------------
DECEMBER 31 JUNE 30
2002 2002
(UNAUDITED) *
------------ --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 7,929 $ 17,775
Accounts receivable, net of allowance for doubtful
accounts of $1,362 and $1,366. . . . . . . . . . . . . . 19,367 18,165
Gas inventory, lower of cost or market. . . . . . . . . . . 83 199
Deferred income tax asset . . . . . . . . . . . . . . . . . 2,237 2,237
Prepaid and other current assets. . . . . . . . . . . . . . 3,067 6,085
------------ --------
Total current assets . . . . . . . . . . . . . . . . . . 32,683 44,461
------------ --------
Property, plant and equipment, net of accumulated
depreciation and depletion of $121,611 and $116,294 . . . . 241,702 244,155
------------ --------
OTHER ASSETS
Deferred financing costs, net of accumulated
amortization of $5,207 and $3,722. . . . . . . . . . . . 3,602 3,617
Notes receivable, related party . . . . . . . . . . . . . . 1,714 1,756
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,775 10,747
------------ --------
Total other assets . . . . . . . . . . . . . . . . . . . 14,091 16,120
------------ --------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 288,476 $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)
- -----------------------------------------------------------------------------------------
DECEMBER 31 JUNE 30
2002 2002
(UNAUDITED) *
------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses . . . . . . . . . . . $ 11,475 $ 15,683
Current portion of long-term debt . . . . . . . . . . . . . 127 121
Funds held for future distribution. . . . . . . . . . . . . 12,876 11,414
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . 12,236 8,221
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,323 7,258
------------- ---------
Total current liabilities. . . . . . . . . . . . . . . . 44,037 42,697
LONG-TERM OBLIGATIONS
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . 173,625 198,701
Gas delivery obligation and deferred revenue. . . . . . . . 3,128 5,886
Deferred income tax liability . . . . . . . . . . . . . . . 15,673 9,887
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,273 8,689
------------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . 244,736 265,860
Minority Interest. . . . . . . . . . . . . . . . . . . . . . . 1,628 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 . . . . . . . . . . . . . . . . . . . . . 42,658 36,422
Treasury stock and notes receivable arising from the
issuance of common stock . . . . . . . . . . . . . . . . (11,197) (10,426)
Accumulated comprehensive loss. . . . . . . . . . . . . . . (674) (177)
------------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . 42,112 37,144
------------- ---------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 288,476 $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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------- -------------------
2002 2001 2002 2001
--------- -------- --------- --------
REVENUES:
Oil and gas sales. . . . . . . . . . . . . . . . $ 10,841 $ 9,788 $ 20,005 $21,298
Gas marketing and pipeline sales . . . . . . . . 14,203 10,051 26,124 20,530
Well operations and service revenues . . . . . . 1,339 1,318 2,806 2,723
Other. . . . . . . . . . . . . . . . . . . . . . - - 36 -
--------- -------- --------- --------
Total revenues. . . . . . . . . . . . . . . 26,383 21,157 48,971 44,551
COST AND EXPENSES:
Field operating expenses . . . . . . . . . . . . 2,477 2,616 4,962 5,124
Gas marketing and pipeline cost. . . . . . . . . 12,967 9,107 23,723 19,148
General and administrative . . . . . . . . . . . 3,773 3,503 7,332 7,027
Taxes, other than income . . . . . . . . . . . . 633 380 1,264 902
Depletion and depreciation, oil and gas related. 3,038 3,148 6,090 6,479
Depreciation of pipelines and equipment. . . . . 939 673 1,795 1,419
Exploration and impairment . . . . . . . . . . . 4,275 611 4,848 1,389
--------- -------- --------- --------
Total costs and expenses. . . . . . . . . . 28,102 20,038 50,014 41,488
--------- -------- --------- --------
Income (loss) from operations. . . . . . . . . . (1,719) 1,119 (1,043) 3,063
OTHER (INCOME) EXPENSE:
Interest expense . . . . . . . . . . . . . . . . 4,262 4,940 9,143 9,927
Interest income and other. . . . . . . . . . . . (18,763) (658) (20,520) (1,437)
--------- -------- --------- --------
Income (loss) before income taxes . . . . . . . . . 12,782 (3,163) 10,334 (5,427)
Income tax expense (benefit). . . . . . . . . . . . 4,512 (1,077) 3,688 (1,824)
--------- -------- --------- --------
Income (loss) before minority interest. . . . . . . 8,270 (2,086) 6,646 (3,603)
Minority interest . . . . . . . . . . . . . . . . . (50) - (112) -
--------- -------- --------- --------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . $ 8,320 $(2,086) $ 6,758 $(3,603)
========= ======== ========= ========
Basic and diluted earnings per common share:
Net income (loss)
Basic. . . . . . . . . . . . . . . . . . . . . $ 12.77 $ (3.16) $ 10.34 $ (5.46)
========= ======== ========= ========
Diluted (see Note 5) . . . . . . . . . . . . . $ 12.49 N/A $ 10.12 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)
- -------------------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31
--------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . $ 6,758 $ (3,603)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depletion, depreciation and amortization . . . . . . . . . 8,217 8,266
Gain on purchase of senior bonds . . . . . . . . . . . . . (22,693) -
Impairment and exploratory expense . . . . . . . . . . . . 4,714 1,003
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,335 (884)
--------- ---------
(669) 4,782
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . (1,197) 4,194
Gas inventory. . . . . . . . . . . . . . . . . . . . . . . 116 702
Prepaid and other assets . . . . . . . . . . . . . . . . . (1,800) (786)
Accounts payable . . . . . . . . . . . . . . . . . . . . . (4,093) (5,669)
Income taxes payable . . . . . . . . . . . . . . . . . . . 5,482 (1,822)
Funds held for future distribution . . . . . . . . . . . . 1,462 (5,482)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,465 (17,134)
--------- ---------
Net cash provided (used) by operating activities . . . . . 1,766 (21,215)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment . . . . . . (11,677) (15,961)
Proceeds from sale of assets . . . . . . . . . . . . . . . 3,084 307
Notes receivable and other . . . . . . . . . . . . . . . . (284) (150)
--------- ---------
Net cash used by investing activities. . . . . . . . . . . (8,877) (15,804)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . . . . 42,923 -
Principal payments on long-term debt . . . . . . . . . . . (44,308) (75)
Purchase of treasury stock and other financing activities. (825) (682)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . (525) (528)
--------- ---------
Net cash used by financing activities. . . . . . . . . . . (2,735) (1,285)
--------- ---------
Net decrease in cash and cash equivalents. . . . . . . . . (9,846) (38,304)
Cash and cash equivalents, beginning of period . . . . . . 17,775 80,336
--------- ---------
Cash and cash equivalents, end of period . . . . . . . . . $ 7,929 $ 42,032
========= =========
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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------ ----------------
2002 2001 2002 2001
------- -------- ------- --------
Net income (loss) . . . . . . . . . . . . . . . $8,320 $(2,086) $6,758 $(3,603)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment:
Current period change . . . . . . . . . . 500 (219) 177 (941)
Marketable securities:
Current period change . . . . . . . . . . 1 59 (5) (2)
Reclassification to earnings. . . . . . . (9) - (25) -
Oil and gas derivatives:
Current period transactions . . . . . . . (386) 32 (813) 1,622
Reclassification to earnings. . . . . . . 95 (1,541) 169 (3,475)
------- -------- ------- --------
Other comprehensive income (loss), net of tax . 201 (1,669) (497) (2,796)
------- -------- ------- --------
Comprehensive income (loss) . . . . . . . . . . $8,521 $(3,755) $6,261 $(6,399)
======= ======== ======= ========
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
DECEMBER 31, 2002
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 December 31, 2002 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 $62.9 million of its 9 % Senior Subordinated Notes
("Notes") during the first six months of the current fiscal year in privately
negotiated transactions. Subsequent to December 31, 2002, the Company has
purchased an additional $2.5 million 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 December 31, 2002
Basic. . . . . . . . . . . . . $ 8,320 651,787 $ 12.77
Diluted. . . . . . . . . . . . $ 8,320 666,053 $ 12.49
Six months ended December 31, 2002
Basic. . . . . . . . . . . . . $ 6,758 653,718 $ 10.34
Diluted. . . . . . . . . . . . $ 6,758 667,984 $ 10.12
Three months ended December 31, 2001
Basic and Diluted. . . . . . . $ (2,086) 659,615 $ (3.16)
Six months ended December 31, 2001
Basic and Diluted. . . . . . . $ (3,603) 659,682 $ (5.46)
The effect of outstanding stock options was not included in the computation of
diluted earnings per share for the periods ended December 31, 2001 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 the
related transportation. 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 six months ended December 31, 2002
- -------------------------------------------
Revenue from unaffiliated customers. . . $ 22,811 $ 26,124 $ 36 $ 48,971
Depreciation, depletion, amortization. . 6,692 406 787 7,885
Exploration and impairment costs . . . . 4,848 4,848
Income (loss) from operations. . . . . . (1,373) 950 (620) (1,043)
Interest expense, net. . . . . . . . . . 10,670 (3,033) 1,169 8,806
EBITDAX. . . . . . . . . . . . . . . . . 11,108 1,284 19,930 32,322
Total assets . . . . . . . . . . . . . . 182,720 79,547 26,209 288,476
Capital expenditures . . . . . . . . . . 11,095 174 408 11,677
- ------------------------------------------------------------------------------------------------------
For the six months ended December 31, 2001
- -------------------------------------------
Revenue from unaffiliated customers. . . $ 24,021 $ 20,530 $ - $ 44,551
Depreciation, depletion, amortization. . 7,183 442 273 7,898
Exploration and impairment costs . . . . 1,389 1,389
Income (loss) from operations. . . . . . 3,259 (170) (26) 3,063
Interest expense, net. . . . . . . . . . 10,309 (3,630) 1,950 8,629
EBITDAX. . . . . . . . . . . . . . . . . 12,891 324 572 13,787
Total assets . . . . . . . . . . . . . . 154,545 74,652 112,694 341,891
Capital expenditures . . . . . . . . . . 15,439 51 471 15,961
- ------------------------------------------------------------------------------------------------------
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 $4.1 million and
$5.2 million as of December 31, 2002 and 2001.
7. Derivative Instruments and Hedging Activities
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
December 31, 2002, the Company had recorded a $0.36 million other comprehensive
loss, $0.04 million short-term derivative asset, $0.21 million short-term
derivative tax asset, $0.57 million short-term derivative liability, $0.16
million long-term derivative liability, and $0.12 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 $0.31 million. The Company has
partially hedged its exposure to the variability in future cash flows through
October 2004.
-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 DECEMBER 31, 2002
- --------------------------------------------------------------------------------
AND 2001
- ---------
The Company recorded net income of $8.3 million for the quarter ended
December 31, 2002 compared to a net loss of $2.1 million in 2001. The increase
in net income of $10.4 million is attributable to the net of a $5.2 million
increase in revenues, $8.1 million increase in costs and expenses, $0.7 million
decrease in interest expense, $18.1 million increase in other income, and $5.6
million increase in income tax expense.
-11-
Production, marketing and pipeline volumes, revenue and average sales
prices for the quarters ended December 31 and their related variances are as
follows:
THREE MONTHS ENDED
DECEMBER 31 VARIANCE
------------------ -----------------
2002 2001 AMOUNT PERCENT
------- ------ ------- --------
Natural Gas
Production (Mmcf). . . . . . . . . . . . . . . . 2,455 2,548 (93) -3.6%
Average sales price received ($/Mcf) . . . . . . 4.21 2.50 1.71 68.4%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 10,328 6,371 3,957 62.1%
Oil
Production (Mbbl). . . . . . . . . . . . . . . . 23 30 (7) -23.3%
Average sales price received ($/Bbl) . . . . . . 24.06 18.71 5.35 28.6%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 547 568 (21) -3.7%
Hedging. . . . . . . . . . . . . . . . . . . . . . (132) 2,679 (2,811) -104.9%
Other. . . . . . . . . . . . . . . . . . . . . . . 98 170 (72) -42.4%
------- ------ ------- --------
Total oil and gas sales ($in thousands). . . . . . 10,841 9,788 1,053 10.8%
======= ====== ======= ========
Marketing Revenue
Volume (Thousand Mmbtu). . . . . . . . . . . . . 2,482 2,735 (253) -9.3%
Average sales price received ($/Mmbtu) . . . . . 4.45 2.82 1.63 57.8%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 11,044 7,718 3,326 43.1%
Pipeline Revenue
Volume (Thousand Mmbtu). . . . . . . . . . . . . 1,459 1,538 (79) -5.1%
Average sales price received ($/Mmbtu) . . . . . 2.16 1.52 0.64 42.1%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 3,159 2,333 826 35.4%
------- ------ ------- --------
Total marketing and pipeline sales ($in thousands) 14,203 10,051 4,152 41.3%
======= ====== ======= ========
Marketing Gas Cost
Volume (Thousand Mmbtu). . . . . . . . . . . . . 2,482 2,734 (252) -9.2%
Average price paid ($/Mmbtu) . . . . . . . . . . 4.20 2.66 1.54 57.9%
------- ------ ------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 10,429 7,273 3,156 43.4%
Pipeline Gas Cost
Volume (Thousand Mmbtu). . . . . . . . . . . . . 1,182 1,250 (68) -5.4%
Average price paid ($/Mmbtu) . . . . . . . . . . 2.15 1.47 0.68 46.3%
------- ------ ------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 2,538 1,834 704 38.4%
------- ------ ------- --------
Total marketing and pipeline cost ($in thousands). 12,967 9,107 3,860 42.4%
======= ====== ======= ========
REVENUES. Total revenues increased $5.2 million or 24.7% between the
--------
periods. The net increase was due to a 10.8% increase in oil and gas sales and
a 41.3% 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 $1.0 million from $9.8
million for the quarter ended December 31, 2001 to $10.8 million for the quarter
ended December 31, 2002. Natural gas sales increased $4.0 million and oil sales
declined $0.02 million. The net increase in production revenue is attributable
to the increase in gas prices $4.2 million and 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 $0.1 million for the
quarter ended December 31, 2002 compared to a gain of $2.7 million for the
quarter ended December 31, 2001. The average price per Mcfe, after hedging, was
$4.18 and $3.58 for the quarters ended December 31, 2002 and 2001, respectively.
Revenues from gas marketing and pipeline sales increased $4.1 million from
$10.1 million during the period ended December 31, 2001 to $14.2 million in the
period ended December 31, 2002. Gas marketing revenue increased $3.3 million
primarily as a result of a 57.8% increase in the average sales price which
corresponds to the rise in the related natural gas price indexes for this period
compared to the prior period. Marketing volumes declined 9.3% compared to the
prior period primarily due to certain contracts that expired. Pipeline revenue,
which has a sales and transportation component, increased $0.8 million. Pipeline
volumes are down 5.1% primarily due to natural production declines on the
system.
COSTS AND EXPENSES. The Company's costs and expenses increased $8.1 million
-------------------
or 40.2% between the periods primarily as a net result of a 42.4% increase in
gas marketing and pipeline costs, a 66.6% increase in taxes other than income, a
4.1% increase in depreciation, depletion and amortization expenses and a 600%
increase in exploration and impairment costs. Field and lease operating and
general and administrative expenses were comparable between periods.
Gas marketing and pipeline costs increased $3.9 million. Gas marketing
costs increased $3.2 million and pipeline costs increased $0.7 million. The
increase in costs is primarily attributable to the increase in average price of
gas which corresponds to the rise in the related natural gas indexes for this
period compared to the prior period.
Taxes other than income increased $0.3 million due to the increase in
average sales price received for oil and gas production.
Depreciation, depletion and amortization expenses increased primarily due
to the amortization of loan closing costs and depreciation related to a
consolidated subsidiary that owns drilling equipment.
Exploration and impairment expenses increased $3.7 million. The increase
is primarily due to dry hole expense for three exploratory wells and the
impairment of land costs.
OTHER INCOME. Other income increased $18.1 million when comparing the
-------------
periods. This is primarily the result of a gain of $20.9 million recognized on
the purchase of a portion of the Company's Notes. 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 $0.4 million less interest income primarily due to
decreased cash balances.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
AND 2001
- ---------
The Company recorded net income of $6.8 million for the six-month period
ended December 31, 2002 compared to a net loss of $3.6 million for the same
period in 2001. The increase in net income of $10.4 million is primarily
attributable to the net of $4.4 million increase in revenue, $8.5 million
increase in costs and expenses, $0.8 million decrease in interest expense, $19.1
million increase in other income and $5.5 million increase in income tax
expense.
-13-
Production, marketing and pipeline volumes, revenue and average sales
prices for the six months ended December 31 and their related variances are as
follows:
SIX MONTHS ENDED
DECEMBER 31 VARIANCE
------------------ -----------------
2002 2001 AMOUNT PERCENT
------- ------ ------- --------
Natural Gas
Production (Mmcf). . . . . . . . . . . . . . . . 4,986 5,115 (129) -2.5%
Average sales price received ($/Mcf) . . . . . . 3.76 2.69 1.07 39.8%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 18,763 13,763 5,000 36.3%
Oil
Production (Mbbl). . . . . . . . . . . . . . . . 52 70 (18) -25.7%
Average sales price received ($/Bbl) . . . . . . 23.73 21.03 2.70 12.8%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 1,242 1,465 (223) -15.2%
Hedging (loss) gain. . . . . . . . . . . . . . . . (194) 5,802 (5,996) -103.3%
Other. . . . . . . . . . . . . . . . . . . . . . . 194 268 (74) -27.6%
------- ------ ------- --------
Total oil and gas sales ($in thousands). . . . . . 20,005 21,298 (1,293) -6.1%
======= ====== ======= ========
Marketing Revenue
Volume (Thousand Mmbtu). . . . . . . . . . . . . 4,914 5,178 (264) -5.1%
Average sales price received ($/Mmbtu) . . . . . 4.08 3.02 1.06 35.1%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 20,046 15,652 4,394 28.1%
Pipeline Revenue
Volume (Thousand Mmbtu). . . . . . . . . . . . . 2,938 3,002 (64) -2.1%
Average sales price received ($/Mmbtu) . . . . . 2.07 1.62 0.45 27.8%
------- ------ ------- --------
Sales ($in thousands). . . . . . . . . . . . . . 6,078 4,878 1,200 24.6%
------- ------ ------- --------
Total marketing and pipeline sales ($in thousands) 26,124 20,530 5,594 27.2%
======= ====== ======= ========
Marketing Gas Cost
Volume (Thousand Mmbtu). . . . . . . . . . . . . 4,914 5,177 (263) -5.1%
Average price paid ($/Mmbtu) . . . . . . . . . . 3.84 2.93 0.91 31.1%
------- ------ ------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 18,847 15,179 3,668 24.2%
Pipeline Gas Cost
Volume (Thousand Mmbtu). . . . . . . . . . . . . 2,365 2,480 (115) -4.6%
Average price paid ($/Mmbtu) . . . . . . . . . . 2.06 1.60 0.46 28.8%
------- ------ ------- --------
Cost ($in thousands) . . . . . . . . . . . . . . 4,876 3,969 907 22.9%
------- ------ ------- --------
Total marketing and pipeline cost ($in thousands). 23,723 19,148 4,575 23.9%
======= ====== ======= ========
REVENUES. Total revenues increased $4.4 million or 9.9% between the
--------
periods. The net increase was due to a 6.1% decrease in oil and gas sales and a
27.2% increase in gas marketing and pipeline sales. Well operations and service
revenues remained relatively constant.
-14-
Revenues from oil and gas sales decreased $1.3 million from $21.3 million
for the period ended December 31, 2001 to $20.0 million for the period ended
December 31, 2002. The Company's net gas production decreased 129 Mmcf or 2.5%
between the periods and oil production decreased by 18 Mbbl or 25.7%. Offsetting
the decrease in volumes sold is an increase in average sales price for gas and
oil. The average price per Mcf increased from $2.69 for the prior period to
$3.76 for the current period, and the average price per barrel increased from
$21.03 for the prior period to $23.73 for the current period. The net effect of
the increase in price and decrease in production between periods is an increase
of $4.8 million in oil and gas sales before hedging activity. This increase was
offset by recognized losses related to hedging transactions totaling $0.2
million for the period ended December 31, 2002, compared to a gain of $5.8
million for the period ended December 31, 2001. The average price per Mcf, after
hedging, was $3.78 and $3.85 for the periods ended December 31, 2002 and 2001,
respectively.
Revenues from gas marketing and pipeline sales increased $5.6 million from
$20.5 million during the period ended December 31, 2001 to $26.1 million in the
period ended December 31, 2002. Gas marketing revenue increased by $4.4 million
primarily due to a 35.1% increase in average sales price per Mmbtu from $3.02
for the six months ended December 31, 2001 to $4.08 for the six months ended
December 31, 2002. Offsetting this increase in average sales price was a 5.1%
decrease in gas volumes sold from 5.2 million Mmbtu for the six months ended
December 31, 2001 to 4.9 million Mmbtu for the six months ended December 31,
2002. Pipeline revenue increased by $1.2 million primarily due to a 27.8%
increase in the average sales price per Mmbtu. Offsetting this increase in price
was a 2.1% decline in gas volumes from 3.0 million Mmbtu for the six months
ended December 31, 2001 to 2.9 million Mmbtu for the six months ended December
31, 2002. 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 $8.5 million
--------------------
or 20.6% between the periods primarily as a net result of a 23.9% increase in
gas marketing and pipeline costs, a 40.1% increase in taxes other than income,
and a 249.0% increase in exploration and impairment costs. Field and lease
operating, together with general and administrative, and depreciation,
depletion, and amortization expenses were comparable between periods.
Gas marketing and pipeline costs increased $4.6 million. Gas marketing
costs increased $3.7 million primarily due to a 31.1% increase in the average
price paid per Mmbtu from $2.93 for the period ended December 31, 2001 to $3.84
for the period ended December 31, 2002. Offsetting the increase in the average
price paid was a 5.1% decline in purchased gas volumes from 5.2 million Mmbtu
for the six month ended December 31, 2001 to 4.9 million Mmbtu for the six
months ended December 31, 2002. Pipeline costs increased $0.9 million primarily
due to a 28.8% increase in the average price paid for gas purchased from $1.60
per Mmbtu for the period ended December 31, 2001 to $2.06 for the period ended
December 31, 2002. Offsetting the increase in the average price paid for gas
purchased was a 4.6% decline in purchased gas volumes from 2.5 million Mmbtu for
the period ended December 31, 2001 to 2.4 million Mmbtu for the period ended
December 31, 2002. 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.
Taxes other than income increased $0.4 million due to the increase in
average sales price received for oil and gas production.
Exploration and impairment expenses increased $3.5 million due to dry hole
expense related to three exploratory wells and the impairment of land costs.
OTHER INCOME. Other income increased $19.1 million when comparing periods.
-------------
This is primarily the result of a gain of $22.7 million recognized on the
purchase of a portion of the Company's Notes. 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 $1.0 million decline in interest income primarily due to
decreased cash balances.
-15-
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
The Company's financial condition has improved since September 30, 2002,
but at the same time, there has been a decrease in the Company's liquidity.
Stockholders' equity has increased from $34.4 million at September 30, 2002 to
$42.1 million at December 31, 2002. The Company's working capital of $1.7
million at September 30, 2002 decreased to a negative $11.4 million at December
31, 2002. The Company's cash decreased from $20.7 million at September 30, 2002
to $7.9 million at December 31, 2002. The Company's cash at February 10, 2003
was $2.0 million. The change in cash during the quarter of approximately $12.8
million resulted from various operating, investing and financing activities of
the Company. The activities were primarily comprised of: the borrowing of
approximately $27.9 million under the Company's $50 million revolving Credit
Agreement (the "Agreement"); the net investment of approximately $7.0 million in
property, plant and equipment; payments of approximately $35.4 million for the
purchase of a portion of the Company's outstanding Notes; payments of
approximately $0.9 million for the acquisition of treasury stock and dividends;
and approximately $2.0 million of cash provided by operations and $0.6 million
of cash proceeds from sale of assets 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 December 31, 2002, the Company's principal source of liquidity consisted
of $7.9 million of cash, plus amounts available under the Agreement. At
December 31, 2002, $37.9 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 February 10, 2003, there are
$34.0 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.
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 sale of assets and 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
-16-
fiscal year 2003 projected interest charges of over $17 million and fund the
Company's anticipated fiscal year 2003 capital expenditures program of $29
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 hedge transactions through derivative and physical
delivery contracts, covering approximately 64.1% of its estimated production
through October 2004.
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 and the percentage of gas production
hedged under physical delivery contracts and derivative instruments remain at
December 2002 levels, a 10% change in the average unhedged prices realized would
change the Company's gas and oil revenues by approximately $0.51 million on a
quarterly basis.
-17-
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 December 31, 2002, all but $37.9 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 December 31, 2002 level, a 10% change in rates would have a
$0.25 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously disclosed, in June 2001, the Company filed a lawsuit against
Oracle Corporation for breach of contract, breach of warranty and rescission
with respect to a software package purchased from Oracle and the failed
implementation thereof. The Complaint was later amended to add a claim for
fraud. Oracle answered the complaint, substantially denying all of the
Company's allegations, and filed a counterclaim against the Company. The case
was scheduled for trial in January 2003; however, prior to the commencement of
the trial, the case was settled on terms satisfactory to the Company.
-18-
As previously disclosed, on December 27, 2001, the Company received a
Notice of Default from certain holders of its $200 million 91/2% 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 are attached as exhibits 99.01 and 99.02 and
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. The appealing Noteholders must file their brief on or
before February 28, 2003.
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
-19-
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
-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 12th day of February 2003.
ENERGY CORPORATION OF AMERICA
By: /s/John Mork
----------------------------------------
John Mork
Chief Executive Officer and Director
By: /s/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: February 12, 2003 /s/John Mork
------------------------------
John Mork
Chief Executive Officer
-22-
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: February 12, 2003 /s/Michael S. Fletcher
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Michael S. Fletcher
Chief Financial Officer
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