-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HyGKYcZE5pQN71mkXzGQOIq2/Y4Bk6YkycJups2qMB5Dr8hf88nO79ml6d/bTfMI HhymMFMjgvSREzGtactzNg== 0000914317-03-002604.txt : 20030829 0000914317-03-002604.hdr.sgml : 20030829 20030829145148 ACCESSION NUMBER: 0000914317-03-002604 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030514 FILED AS OF DATE: 20030829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCS ENERGY INC CENTRAL INDEX KEY: 0000832820 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 222889587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13781 FILM NUMBER: 03873943 BUSINESS ADDRESS: STREET 1: 5555 SAN FELIPE ROAD CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 9086321770 FORMER COMPANY: FORMER CONFORMED NAME: KCS GROUP INC DATE OF NAME CHANGE: 19920310 10-Q/A 1 form10qa54052_kcs.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Amendment No.1 |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 001-13781 KCS ENERGY, INC. (Exact name of registrant as specified in its charter) Delaware 22-2889587 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5555 San Felipe Road, Houston, TX 77056 (Address of principal executive offices) (Zip Code) (713) 877-8006 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report.) 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.|X| Yes | | No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b2 of the Exchange Act). | | Yes |X| No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Incicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. |_| Yes |_| No Not applicable. Although the registrant was involved in bankruptcy proceedings during the 1 preceding five years, the registrant did not distribute securities under its plan of reorganization. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $0.01 par value: 38,286,414 shares outstanding as of August 12, 2003. 2 EXPLANATORY NOTE The purpose of this Amendment No.1 to the Quarterly Report on Form 10-Q/A is merely to file the certifications required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, which were inadvertently omitted from the original Form 10-Q filed on May 14, 2003. Item 1. Financial Statements. KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
Three Months Ended March 31, (Amounts in thousands except -------------------- per share data) Unaudited 2003 2002 - ----------------------------------------------- -------- -------- Oil and gas revenue $ 39,647 $ 29,357 Other revenue, net 793 (533) - ----------------------------------------------------------------------------------- Total revenue 40,440 28,824 - ----------------------------------------------------------------------------------- Operating costs and expenses Lease operating expenses 6,331 6,536 Production taxes 2,293 1,323 General and administrative expenses 1,800 2,127 Stock compensation 154 316 Accretion of asset retirement obligation 279 -- Depreciation, depletion and amortization 10,642 13,100 - ----------------------------------------------------------------------------------- Total operating costs and expenses 21,499 23,402 - ----------------------------------------------------------------------------------- Operating income 18,941 5,422 - ----------------------------------------------------------------------------------- Interest and other income, net 27 70 Interest expense (4,614) (4,830) - ----------------------------------------------------------------------------------- Income before income taxes 14,354 662 Federal and state income (taxes) benefit 482 596 - ----------------------------------------------------------------------------------- Income before cumulative effect of accounting change 14,836 1,258 Cumulative effect of accounting change, net of tax (934) (6,166) - ----------------------------------------------------------------------------------- Net income (loss) 13,902 (4,908) Dividends and accretion of issuance costs on preferred stock (309) (253) - ----------------------------------------------------------------------------------- Income (loss) available to common stockholders $ 13,593 $ (5,161) =================================================================================== Earnings (loss) per share of common stock - basic Before cumulative effect of accounting change $ 0.38 $ 0.03 Cumulative effect of accounting change $ (0.02) $ (0.18) - ----------------------------------------------------------------------------------- Earnings (loss) per share of common stock - basic $ 0.36 $ (0.15) =================================================================================== Earnings (loss) per share of common stock - diluted Before cumulative effect of accounting change $ 0.36 $ 0.03 Cumulative effect of accounting change $ (0.02) $ (0.18) - ----------------------------------------------------------------------------------- Earnings (loss) per share of common stock - diluted $ 0.34 $ (0.15) =================================================================================== Average shares outstanding for computation of earnings per share Basic 37,436 34,986 Diluted 41,120 34,986 ===================================================================================
The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements. 3 KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands March 31, December 31, except share and per share data) Unaudited 2003 2002 - ---------------------------------------------------------- --------- ------------ Assets Current assets Cash and cash equivalents $ 2,356 $ 6,935 Trade accounts receivable, less allowance for doubtful accounts-2003 $4,692; 2002 $4,678 27,601 16,863 Prepaid drilling 220 1,362 Other current assets 2,065 2,034 - ---------------------------------------------------------------------------------------------- Current assets 32,242 27,194 - ---------------------------------------------------------------------------------------------- Oil and gas properties, full cost method, less accumulated DD&A-2003 $897,222; 2002 $891,124 243,492 231,579 Other property, plant and equipment at cost less accumulated depreciation; 2003 $10,704; 2002 $10,415 8,651 8,715 - ---------------------------------------------------------------------------------------------- Property, plant and equipment, net 252,143 240,294 - ---------------------------------------------------------------------------------------------- Deferred charges and other assets 2,676 645 - ---------------------------------------------------------------------------------------------- Total Assets $ 287,061 $ 268,133 ============================================================================================== Liabilities and stockholders' deficit Current liabilities Accounts payable $ 30,520 $ 23,854 Accrued interest 2,813 8,174 Accrued drilling cost 2,802 2,861 Other accrued liabilities 9,400 8,784 - ---------------------------------------------------------------------------------------------- Current liabilities 45,535 43,673 - ---------------------------------------------------------------------------------------------- Deferred credits and other liabilities Deferred revenue 58,359 66,582 Asset retirement obligation 11,421 -- Other 940 961 - ---------------------------------------------------------------------------------------------- Deferred credits and other liabilities 70,720 67,543 - ---------------------------------------------------------------------------------------------- Long-term debt Credit facility 60,500 500 Senior notes -- 61,274 Senior subordinated notes 125,000 125,000 - ---------------------------------------------------------------------------------------------- Long-term debt 185,500 186,774 - ---------------------------------------------------------------------------------------------- Commmitments and contingencies Preferred stock, authorized 5,000,000 shares, issued 30,000 shares redeemable convertible preferred stock, par value $0.01 per share, liquidation preference $1,000 per share - 9,388 and 13,288 shares outstanding, respectively 9,101 12,859 - ---------------------------------------------------------------------------------------------- Stockholders' (deficit) Common stock, par value $0.01 per share authorized 75,000,000 shares, issued 40,383,845 and 38,611,816, respectively 404 386 Additional paid-in capital 172,378 167,335 Accumulated deficit (182,722) (196,315) Unearned compensation (1,408) (880) Accumulated other comprehensive income (7,706) (8,501) Less treasury stock, 2,167,096 shares, at cost (4,741) (4,741) - ---------------------------------------------------------------------------------------------- Total stockholders' (deficit) (23,795) (42,716) - ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' deficit $ 287,061 $ 268,133 ==============================================================================================
The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements. 4 KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended March 31, --------------------- (Amounts in thousands) Unaudited 2003 2002 - --------------------------------------------------------- -------- -------- Cash flows from operating activities: Net income (loss) $ 13,902 $ (4,908) Non-cash charges (credits): Depreciation, depletion and amortization 10,642 13,100 Amortization of deferred revenue (8,223) (13,002) Non-cash derivative losses, net 1,378 851 Deferred tax benefit (482) (596) Cumulative effect of accounting change 934 6,166 Accretion of asset retirement obligation 279 -- Other non-cash charges and credits, net 164 700 Net changes in assets and liabilities: Change in trade accounts receivable (10,752) (3,773) Change in accounts payable and accrued liabilities 7,585 (3,890) Change in accrued interest payable (5,361) (5,050) Other, net 17 (47) - ----------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 10,083 (10,449) - ----------------------------------------------------------------------------------- Cash flows from investing activities: Investment in oil and gas properties (10,818) (15,552) Proceeds from sales of oil and gas properties (157) 309 Investment in other property, plant and equipment (225) (54) - ----------------------------------------------------------------------------------- Net cash used in investing activities (11,200) (15,297) - ----------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from borrowings 69,295 10,800 Repayments of debt (70,569) (7,254) Deferred financing cost and other, net (2,188) (221) - ----------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (3,462) 3,325 - ----------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (4,579) (22,421) Cash and cash equivalents at beginning of period 6,935 22,927 - ----------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 2,356 $ 506 ===================================================================================
The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements. 5 KCS ENERGY, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED STOCKHOLDERS' DEFICIT (Amounts in thousands)
Accumulated Additional Other Common Paid-in Accumulated Comprehensive Unearned Unaudited Stock Capital Deficit Income Compensation - ------------------------------------------------------- -------------- -------------- -------------- -------------- Balance at December 31, 2002 $ 386 $ 167,335 $ (196,315) $ (8,501) $ (880) Comprehensive income Net income -- -- 13,902 -- -- Commodity hedges, net of tax -- -- -- 795 -- Comprehensive income Conversion of redeemable preferred stock 13 3,887 -- -- -- Stock issuances - benefit plans and awards of restricted stock 4 991 -- -- (682) Stock compensation expense -- -- 154 Dividends and accretion of issuance costs on preferred stock 1 165 (309) -- -- -------------- -------------- -------------- -------------- -------------- Balance at March 31, 2003 $ 404 $ 172,378 $ (182,722) $ (7,706) $ (1,408) ============== ============== ============== ============== ============== Total Stockholders' Treasury Comprehensive (Deficit) Unaudited Stock Income Equity - ------------------------------------------------------- -------------- -------------- Balance at December 31, 2002 $ (4,741) $ (42,716) Comprehensive income Net income -- $ 13,902 13,902 Commodity hedges, net of tax -- 795 795 -------------- Comprehensive income $ 14,697 ============== Conversion of redeemable preferred stock -- 3,900 Stock issuances - benefit plans and awards of restricted stock -- 313 Stock compensation expense -- 154 Dividends and accretion of issuance costs on preferred stock -- (143) -------------- -------------- Balance at March 31, 2003 $ (4,741) $ (23,795) ============== ==============
The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements. 6 KCS ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The condensed consolidated interim financial statements included herein have been prepared by KCS Energy, Inc. ("KCS" or "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and reflect all adjustments which are of a normal recurring nature and which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. Although KCS believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. Certain previously reported amounts have been reclassified to conform with current period presentations. 2. New Accounting Principles Effective January 1, 2003, the Company adopted Financial Accounting Standards Board Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the periods in which it is incurred. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. The liability is accreted to the fair value at the time of settlement over the useful life of the asset, and the capitalized cost is depreciated over the useful life of the related asset. Upon adoption of SFAS No. 143, the Company's net property, plant and equipment was increased by $10.2 million, an additional asset retirement obligation of $11.1 million was recorded and a $0.9 million charge, net of tax against net income (or a $.02 loss per basic and diluted share) was reported in the first quarter of 2003 as a cumulative effect of a change in accounting principle. Subsequent to adoption, the effect of the change in accounting principle was immaterial. Had the provisions of SFAS No. 143 been applied as of January 1, 2002, the asset retirement obligation would have been $10.1 million. The following table illustrates the pro forma effect on net loss available to common stockholders and loss per share if the Company had applied the provisions of SFAS No. 143 during the first quarter of 2002: For the Quarter Ended (Amounts in thousands except for per share data) March 31, 2002 - --------------------------------------------------------- ---------------- Loss available to common stockholders As reported $(5,161) Pro forma (5,294) Loss per share Basic - as reported $ (0.15) Basic - pro forma $ (0.15) Diluted - as reported $ (0.15) Diluted - pro forma $ (0.15) Effective January 1, 2002, KCS began amortizing the capitalized costs related to oil and gas properties on the unit-of-production basis ("UOP") using proved oil and gas reserves. Previously, KCS had computed amortization on the basis of future gross revenue ("FGR"). The Company determined that the change to UOP was preferable under accounting principles generally accepted in the United States, since among other reasons, it provides a more rational basis for amortization during periods of volatile commodity prices and also increases consistency with others in the industry. As a result of this change, the 7 Company recorded a non-cash cumulative effect charge of $6.2 million, net of tax, (or $0.18 per basic and diluted common share) in the first quarter of 2002. 3. Deferred Revenue In 2001, the Company entered into a production payment transaction whereby it sold 43.1 Bcfe (38.3 Bcf of gas and 797,000 barrels of oil) (the "Production Payment"). Net proceeds from the Production Payment of approximately $175 million were recorded as deferred revenue on the balance sheet. In accordance with SFAS No. 19 "Financial Accounting and Reporting by Oil and Gas Producing Companies," deliveries under the Production Payment are recorded as non-cash oil and gas revenue with a corresponding reduction of deferred revenue at the average discounted price per Mcf of natural gas and per barrel of oil received when the Production Payment was sold. The Company also reflects the production volumes and depletion expense as deliveries are made. However, the associated oil and gas reserves are excluded from the Company's reserve data. For the three months ended March 31, 2003, the Company delivered 2.0 Bcfe and recorded $8.2 million of oil and gas revenue. Since the sale of the Production Payment in February 2001 through March 31, 2003, the Company has delivered 28.9 Bcfe, or 67% of the total quantity to be delivered. 4. Redeemable Convertible Preferred Stock As a result of conversions of the redeemable convertible preferred stock issued in 2001, 1.3 million shares of common stock were issued in the three months ended March 31, 2003. 5. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three months ended March 31 (amounts in thousands ------------------- except per share data) 2003 2002 - ------------------------------------------------------------------ -------- Basic earnings (loss) per share: Income (loss) available to common stockholders $ 13,593 $ (5,161) -------- -------- Average shares of common stock outstanding 37,436 34,986 -------- -------- Basic earnings (loss) per share $ 0.36 $ (0.15) ======== ======== Diluted earnings (loss) per share: Income (loss) available to common stockholders $ 13,593 $ (5,161) Dividends and accretion of issuance costs on preferred stock 309 N/A -------- -------- Diluted earnings (loss) $ 13,902 $ (5,161) -------- -------- Average shares of common stock outstanding 37,436 34,986 Assumed conversion of convertible preferred stock 3,566 N/A Dividends on convertible preferred stock 66 N/A Stock options and warrants 52 -- -------- -------- Average diluted shares of common stock outstanding 41,120 34,986 -------- -------- Diluted earnings (loss) per share $ 0.34 $ (0.15) ======== ======== Common shares on assumed conversion of convertible preferred stock amounting to 5.3 million shares in the 2002 three-month period were not included in the computation of diluted loss per common share nor were accrued dividends on convertible preferred stock or stock options and warrants since they would be anti-dilutive. 8 6. Derivatives Oil and gas prices have historically been volatile. The Company has at times utilized derivative contracts, including swaps, futures contracts, options and collars, to manage this price risk. Commodity Price Swaps. Commodity price swap agreements require the Company to make or receive payments from the counter parties based upon the differential between a specified fixed price and a price related to those quoted on the New York Mercantile Exchange for the period involved. Futures Contracts. Oil or natural gas futures contracts require the Company to sell and the counter party to buy oil or natural gas at a future time at a fixed price. Option Contracts. Option contracts provide the right, not the obligation, to buy or sell a commodity at a fixed price. By buying a "put" option, the Company is able to set a floor price for a specified quantity of its oil or gas production. By selling a "call" option, the Company receives an upfront premium from selling the right for a counter party to buy a specified quantity of oil or gas production at a fixed price. Price Collars. Selling a call option and buying a put option creates a "collar" whereby the Company establishes a floor and ceiling price for a specified quantity of future production. Buying a call option with a strike price above the sold call strike price establishes a "3-way collar" that entitles the Company to capture the benefit of price increases above that call price. In 2003, the Company entered into a series of derivative transactions designed to protect against possible declines in natural gas prices while enabling the Company to benefit from price increases. At March 31, 2003, the Company had derivative instruments covering 3.5 million Mmbtu of gas production for April through November 2003. These instruments established an average floor price of $4.51 and enable the Company to receive market prices up to an average cap of $5.78, approximately 26% of any price between $5.78 and $6.28 and 100% of any price above $6.28. The following table sets forth the Company's oil and natural gas hedged position at March 31, 2003.
Expected Maturity, 2003 Fair ----------------------------------------------------- Value 2nd Quarter 3rd Quarter 4th Quarter Total ($000) ----------- ----------- ----------- ----- ------ Swaps: $ 37 Volumes (bbl) 15,000 -- -- 15,000 Weighted average price ($/bbl) $ 31.06 $ -- $ -- $ 31.06 Puts / Floors: $ 137 Volumes (Mmbtu) 150,000 460,000 305,000 915,000 Weighted average price ($/Mmbtu) $ 4.25 $ 4.25 $ 4.25 $ 4.25 3-way collars: $ 352 Volumes (MMbtu) 1,060,000 1,075,000 460,000 2,595,000 Weighted average price ($/Mmbtu) Floor (purchased put option) $ 4.83 $ 4.47 $ 4.40 $ 4.61 Cap 1 (sold call option) $ 5.81 $ 5.76 $ 5.75 $ 5.78 Cap 2 (purchased call option) $ 6.31 $ 6.26 $ 6.25 $ 6.28
In addition to the above, the Company has entered into fixed price sales contracts covering 0.3 million Mmbtu at an average price of $5.09 for April through June 2003 and will deliver 4.8 Bcfe for April thru December under the Production Payment sold in February 2001 at an average price of $4.05 per Mcfe. During 2001, the Company terminated certain derivative contracts and has been amortizing the loss accumulated in other comprehensive income into earnings over the original term of the derivative instruments. During the first three months of 2003, $0.9 million, net of tax, charged to other comprehensive 9 income ("OCI") was reclassified as a reduction of oil and gas revenues. As of March 31, 2003, $7.6 million remains in accumulated other comprehensive income and will be amortized against earnings through August 2005 ($2.7 million during the remainder of in 2003, $2.9 million in 2004 and $2.0 million in 2005). During the first quarter of 2003, $0.1 million of unrealized derivative losses were charged to OCI which will be reclassified against earnings within the current fiscal year. The ineffective portion of these derivatives was immaterial in the first quarter of 2003. 7. Supplemental Cash Flow Information The Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. Interest paid (net of capitalized interest) for the three months ended March 31, 2003 was $9.8 million. No income tax payments were made during the three-month periods ended March 31, 2003 and March 31, 2002. In connection with the adoption of SFAS No. 143, the Company recorded a non-cash increase to oil and gas properties of $10.2 million, a non-cash increase in liabilities of $11.1 million and a non-cash charge of $0.9 million as a cumulative effect of accounting change. Other non-cash additions to oil and gas properties were $1.1 million with a corresponding decrease in prepaid drilling. 8. Credit Agreement On January 14, 2003, the Company amended and restated its credit agreement ("Credit Agreement") with a group of institutional lenders. The Credit Agreement, which matures on October 3, 2005, provides up to $90.0 million of borrowing capacity, $40.0 million in the form of a term loan, a $30.0 million revolving "A" facility and a $20.0 million revolving "B" facility. Borrowing capacity is subject to monthly borrowing base calculations with respect to the value of the Company's oil and gas assets. Initial proceeds of $69.3 million were used primarily to pay off the Company's maturing Senior Note obligations. The term loan and the revolving "B" facility, which may be prepaid at any time without penalty, bear interest based on the prime rate, initially equating to 9.0%, and increasing annually. The revolving "A" facility bears, at the Company's option, an interest rate of LIBOR plus 2.75% to 3.0% or prime plus 0.5% to 0.75%, depending on utilization. On March 31, 2003, $60.5 million was outstanding under the Credit Agreement and the weighed average interest rate was 7.7%. The revolving "A" facility requires a commitment fee of 0.5% per annum on the unused availability and carries an early termination penalty of 1.5% in the first year and 1% in the second year. Financing fees associated with the Credit Agreementhave been recorded as deferred charges and are being amortized as interest expense over the life of the Credit Agreement. Certain other fees are also payable under the Credit Agreementbased on services provided. Substantially all of the Company's assets are pledged to secure the Credit Agreement. The Credit Agreement contains various restrictive covenants including ratios of debt to EBITDA, interest coverage, fixed charge coverage and liquidity. The Credit Agreement also contains provisions that require the hedging of a portion of the Company's oil and gas production, payment upon a change of control, restrictions on the payment of dividends and certain other restricted payments and places limitations on the incurrence of additional debt, capital expenditures, the sale of assets, and the repurchase of Senior Subordinated Notes. Any repayment made on the term loan portion of the facility will permanently reduce the funds available under the Credit Agreement. The Credit Agreement also contains cross-default provisions which would result in the acceleration of payments if the Company defaults on its other debt instruments. 9. Stock Compensation As permitted under SFAS No. 123 "Accounting for Stock-Based Compensation", as amended, the Company has elected to continue to account for stock options under the provisions of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees." Under this method, the Company records no compensation expense for stock options granted if the exercise price of those options 10 is equal to or greater than the market price of the Company's common stock on the date of grant, unless the awards are subsequently modified. The following table illustrates the effect on income (loss) available to common stockholders and earnings (loss) per share if the Company had applied the fair value recognition provision of SFAS No. 123, as amended, to stock options. For the Three Months Ended March 31, (amounts in thousands except -------------------------- per share data) 2003 2002 - ------------------------------------------------------- ----------- Income (loss) available to common stockholders, as reported $ 13,593 $ (5,161) Add: Stock-based compensation expense included in reported net income 154 316 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (412) (392) Pro forma income (loss) available to ---------- ---------- common stockholders $ 13,335 $ (5,237) ========== ========== Earnings (loss) per share: Basic - as reported $ 0.36 $ (0.15) Basic - pro forma $ 0.36 $ (0.15) Diluted - as reported $ 0.34 $ (0.15) Diluted - pro forma $ 0.33 $ (0.15) 10. Litigation Environmental Suits The Company was a defendant in a lawsuit originally brought by InterCoast Energy Company and MidAmerican Capital Company ("Plaintiffs") against KCS Energy, Inc., KCS Medallion Resources, Inc. and Medallion California Properties Company ("KCS Defendants"), and Kerr-McGee Oil & Gas Onshore LP and Kerr-McGee Corporation ("Kerr-McGee Defendants") in the 234th Judicial District Court of Harris County, Texas under Cause Number 1999-45998. The suit sought a declaratory judgment declaring the rights and obligations of each of the Plaintiffs, the KCS Defendants and the Kerr-McGee Defendants in connection with environmental damages and surface restoration on lands located in Los Angeles County, California which are covered by an Oil & Gas Lease dated June 13, 1935, from Newhall Land and Farming Company, as Lessor, to Barnsdall Oil Company, as Lessee (the "RSF Lease") and by an Oil and Gas Lease dated June 6, 1941, from the Newhall Corporation, as Lessor, to C. G. Willis, as Lessee (the "Ferguson Lease" and together with the RSF Lease, the "Leases"). The Kerr-McGee Defendants, KCS Defendants and Plaintiffs entered into an Agreed Interlocutory Judgment that contains clarification of the language of the 1990 agreement between predecessors of the KCS Defendants and the Kerr-McGee Defendants (the "1990 Agreement") under which the Leases were transferred from Kerr-McGee's predecessor to predecessors of Medallion California Properties Company ("MCPC"). The Court previously entered the Agreed Interlocutory Judgment, which essentially disposed of interpretation questions concerning the 1990 Agreement. After entry of the Agreed Interlocutory Judgment, the remaining issues in the case concerned the interpretation of the 1996 Stock Purchase Agreement through which certain of the KCS Defendants acquired the stock of MCPC. Specifically, the remaining issues involved the extent to which Plaintiffs are obligated to indemnify the KCS Defendants for environmental investigation costs previously incurred by the KCS Defendants and also for costs of defense and liability to the KCS Defendants, if any, in the California litigation described below. By Compromise and Settlement Agreement dated as of October 19, 2001, the Plaintiffs and KCS Defendants agreed: (i) to settle those issues dealing with the Plaintiffs' obligations to reimburse costs previously incurred in connection with defense of the California case described below; (ii) to provide prospectively for the control of defense and settlement and the sharing of defense costs in the California case described below; and 11 (iii) to defer any disputes concerning the respective liability of Plaintiffs and KCS Defendants for any individual claims until the extent of such individual claim liability, after giving effect to indemnification obligations under the 1990 Agreement, is fully and finally determined. The Agreed Interlocutory Judgment has now been entered as a final judgment. MCPC is a defendant in a lawsuit filed January 30, 2001, by The Newhall Land and Farming Company ("Newhall") against MCPC and Kerr-McGee Corporation and several Kerr-McGee affiliates. The case is currently pending in Los Angeles County Superior Court under Cause Number BC244203. In the suit, Newhall seeks damages for alleged environmental contamination and surface restoration on the lands covered by the RSF Lease and also seeks a declaration that Newhall may terminate the RSF Lease or alternatively, that it may terminate those portions of the RSF Lease on which there is currently default under the Lease. MCPC claims that Newhall is not entitled to lease termination as a remedy and that Kerr-McGee and InterCoast and MidAmerican owe indemnities to MCPC for defense and certain potential liability under Newhall's action, all as more particularly described in the Harris County, Texas litigation described above. Discovery is ongoing, and the lawsuit is set for trial in May 2003. Other The Company and several of its subsidiaries have been named as co-defendants along with numerous other industry parties in an action brought by Jack Grynberg on behalf of the Government of the United States. The complaint, filed under the Federal False Claims Act, alleges underpayment of royalties to the Government of the United States as a result of alleged mismeasurement of the volume and wrongful analysis of the heating content of natural gas produced from federal and Native American lands. The complaint is substantially similar to other complaints filed by Jack Grynberg on behalf of the Government of the United States against multiple other industry parties. All of the complaints have been consolidated in one proceeding. In April 1999, the Government of the United States filed notice that it had decided not to intervene in these actions. The Company believes that the allegations in the complaint are without merit. The Company is also a party to various other lawsuits and governmental proceedings, all arising in the ordinary course of business. Although the outcome of all of the above proceedings cannot be predicted with certainty, management does not expect such matters to have a material adverse effect, either singly or in the aggregate, on the financial position or results of operations of the Company. It is possible, however, that charges could be required that would be significant to the operating results during a particular period. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following is a discussion and analysis of our financial condition and results of operations and should be read in conjunction with the condensed consolidated financial statements (including the notes thereto) included elsewhere in this Form 10-Q. Forward-Looking Statements The information discussed in this quarterlyreport on Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included herein concerning, among other things, planned capital expenditures, increases in oil and gas production, the number of anticipated wells to be drilled after the date hereof, the Company's financial position, business strategy and other plans and objectives for future operations, are forward-looking statements. These forward-looking statements are identified by their use of terms and phrases such as "expect," "estimate," "project," "plan," "believe," "achievable," "anticipate" and similar terms and phrases. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, they do involve certain assumptions, risks and uncertainties, and the Company can give no assurance that such expectations will prove to be correct. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including: - the timing and success of the Company's drilling activities; - the volatility of prices and supply and demand for oil and gas; - the numerous uncertainties inherent in estimating quantities of oil and gas reserves and actual future production rates and associated costs; - the usual hazards associated with the oil and gas industry (including blowouts, cratering, pipe failure, spills, explosions and other unforeseen hazards); - changes in regulatory requirements; or - if underlying assumptions prove incorrect. These and other risks are described in greater detail in "Oil and Gas Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. Other than required under the securities laws, the Company does not assume a duty to update these forward looking statements. General Our main objective in 2002 was to position the Company to meet the Senior Note obligations due January 15, 2003. In order to meet this objective, we curtailed our drilling and overall capital expenditure programs and sold certain non-core assets. These actions positioned us to reduce debt and negotiate the financing necessary to pay off the remaining portion of the maturing Senior Notes during a difficult period in the capital markets. Although the asset sales and curtailed drilling and capital expenditure programs resulted in lower production and reserves in 2002, we exited the year in a stronger financial position, with increased financial flexibility, a focused asset base in our core areas, and a quality multi-year drilling prospect inventory. On January 14, 2003, we completed the arrangements necessary to amend and restate our existing credit agreement with a group of institutional lenders. The amended facility provides $90.0 million of borrowing capacity, $40.0 million in the form of a term loan and $50.0 million in revolving facilities, and 13 matures on October 3, 2005. Initial proceeds of $69.3 million were used primarily to pay off the balance of the maturing Senior Note obligations, leaving $20.7 million of available borrowing capacity under the facility. With the completion of the financing, implementation of a cost reduction program and a hedging program designed to protect against possible declines in natural gas prices while enabling us to benefit from price increases, we believe that the Company is positioned to capitalize on the current strong natural gas price environment, to focus on developing our prospect inventory to grow reserves and production in our core areas and to further reduce debt. Prices for oil and natural gas are subject to wide fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include political conditions in the Middle East and elsewhere, domestic and foreign supply of oil and natural gas, the level of industrial and consumer demand, weather conditions and overall economic conditions. Results of Operations Income before cumulative effect of an accounting change for the three months ended March 31, 2003 was $14.8 million, or $0.38 per basic share ($0.36 per diluted share) compared to $1.3 million, or $0.03 per basic and diluted share for the three months ended March 31, 2002. This increase was primarily attributable to substantially higher natural gas and oil prices partially offset by decreased oil and gas production, due largely to the sale of certain non-core properties in 2002. The cumulative effect of an accounting change was $0.9 million, or $0.02 per basic and diluted share for the current year three-month period as a result of the adoption of Financial Accounting Standards Board Statement No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). For the three months ended March 31, 2002, the cumulative effect of accounting change was $6.2 million, or $0.18 per basic and diluted share which reflected the change from the future gross revenue method of accounting for the amortization of capitalized costs related to oil and gas properties to the unit-of-production method. See Note 2 to Condensed Consolidated Financial Statements for more information regarding these accounting changes. Income available to common stockholders for the three-months ended March 31, 2003 was $13.6 million, or $0.36 per basic share ($0.34 per diluted share), compared to a loss of $5.2 million, or $0.15 per basic and diluted share for the same period in 2002. 14 Three Months Ended March 31, ------------------- 2003 2002 -------- -------- Production: (a) Gas (MMcf) 5,975 8,312 Oil (Mbbl) 215 269 Liquids (Mbbl) 48 71 Summary (MMcfe): Working interest 7,552 9,469 VPP -- 879 -------- -------- Total 7,552 10,348 Average Price: (b) Gas (per Mcf) $ 5.51 $ 2.88 Oil (per bbl) 27.48 17.70 Liquids (per bbl) 17.27 9.03 Total (per Mcfe) 5.25 2.84 Revenue: Gas $ 32,911 $ 23,964 Oil 5,911 4,753 Liquids 825 640 -------- -------- Total $ 39,647 $ 29,357 ======== ======== Notes: (a) Production includes 2,018 and 3,234 MMcfe for the three months ended in 2003 and 2002 respectively, dedicated to the Production Payment sold in February 2001. See Note 3 to Condensed Consolidated Financial Statements. (b) Includes the effects of hedging and the Production Payment sold in February 2001. See Notes 3 and 6 to Condensed Consolidated Financial Statements. Gas revenue For the three months ended March 31, 2003, gas revenue increased $8.9 million to $32.9 million due to a 91% increase in average realized natural gas prices offset by 28% decrease in production. The production decline was primarily due to the sale of oil and gas properties in 2002 and the expiration of certain VPPs. Oil and liquids revenue For the three months ended March 31, 2003, oil and liquids revenue increased $1.3 million to $6.7 million due to a 61% increase in the weighted average price offset by a 23% decrease in production. The decrease in production in current year period was primarily due to the sale of oil and gas properties in 2002 and the natural declines of producing properties. Other revenue, net Other revenue was $0.8 million for the three months ended March 31, 2003 compared to a net cost of $0.5 million for the same period a year ago. The increase was primarily attributable to increased marketing and transportation revenue incidental to our oil and gas operations. 15 Lease operating expenses Lease operating expenses decreased $0.2 million to $6.3 million for the three months ended March 31, 2003 compared to the same period in 2002. Continued focus on operating efficiency along with the sale of certain properties contributed to the current year reductions. This was partially offset by increased workover activity on oil and gas wells during the first quarter of 2003. Production taxes Production taxes, which are generally based on a percentage of revenue (excluding VPP revenue) increased $1.0 million to $2.3 million for the three months ended March 31, 2002 compared to the same period in 2002, due to higher oil and gas revenue associated with higher average realized prices. General and administrative expenses General and administrative expenses for the three months ended March 31, 2003 were $1.8 million compared to $2.1 million for the same period a year ago primarily due to lower labor costs associated with a reduced work force. Stock compensation Stock compensation was $0.2 million for the three-month period ended March 31, 2003 compared to $0.3 million for the same period a year ago. The slight decrease is associated with our reduction in work force. These amounts reflect the non-cash amortization of restricted stock grants issued to employees under the Company's 2001 Employees and Directors Stock Plan. Depreciation, depletion and amortization For the three months ended March 31, 2003, depreciation, depletion and amortization ("DD&A") decreased $2.2 million to $10.9 million compared to $13.1 million for the same period in 2002. The decrease reflects reduced production and a lower depletion base primarily as a result of the non-core property sales in 2002. Interest expense Interest expense for the three months ended March 31, 2003 was $4.6 million compared to $4.8 million for the same period a year ago. The decrease reflects the trend of lowering outstanding debt and, to a lesser extent, lower interest rates on our new credit facility. Income Taxes Income tax benefits were $0.5 million for the three months ended March 31, 2003 compared to $0.6 million for the same period a year ago and are related to the continued amortization of terminated derivative contracts from accumulated other comprehensive income into earnings. We continue to maintain a valuation allowance against 100% of net deferred tax assets, since at this time, it is difficult to project the necessary levels of future taxable income with sufficient certainty, considering the significant volatility in natural gas and oil prices and that the current higher price environment has existed for only a short period. We will continue to assess the valuation allowance, and to the extent it is determined that such allowance is no longer required, the tax benefit of the remaining net deferred tax assets will be recognized in the future. Liquidity and Capital Resources Our main objective in 2002 was to position the Company to meet the Senior Note obligations due January 15, 2003. In order to meet this objective, we curtailed our drilling and overall capital expenditure programs and sold certain non-core assets. These actions positioned us to reduce debt and negotiate the financing necessary to pay off the remaining portion of the maturing Senior Notes during a difficult period in the capital markets. Although the asset sales and curtailed drilling and capital expenditure programs 16 resulted in lower production and reserves in 2002, we exited the year in a stronger financial position, with increased financial flexibility, a focused asset base in our core areas, and a quality multi-year drilling prospect inventory. On January 14, 2003, we completed the arrangements necessary to amend and restate our existing credit agreement ("Credit Agreement") with a group of institutional lenders. Initial proceeds of $69.3 million were used primarily to pay off the balance of the maturing Senior Note obligations. On March 31, 2003, $60.5 million was outstanding under the Credit Agreement and the weighed average interest rate was 7.7%. With the completion of the financing, implementation of a cost reduction program and a hedging program designed to protect against possible declines in natural gas prices while enabling us to benefit from price increases, we believe that the Company is positioned to capitalize on the current strong natural gas price environment, to focus on developing our prospect inventory to grow reserves and production in our core areas and to further reduce debt. Cash flow from operating activities Net cash provided by operating activities for the three months ended March 31, 2003 was $10.1 million compared to net cash used in operating activities of $10.4 million during the same period in 2002. The improvement in our cash flow in 2003 was primarily due to higher realized oil and natural gas prices. The net changes in trade accounts receivable and in accounts payable and accrued liabilities also reflect the higher natural gas and oil price environment in 2003 and the timing of cash receipts and disbursements. Investing activities Capital expenditures for the three months ended March 31, 2003 were $11.9 million of which $11.0 million was for development activities, $0.8 million was for lease acquisitions, seismic surveys and exploratory drilling and $0.1 million was for the acquisition of proved reserves. Capital expenditures for the three months ended March 31, 2002 were $15.6 million of which $10.9 million was for development activities, $4.6 million for lease acquisitions, seismic surveys and exploratory drilling and $0.1 million for other assets. New Accounting Principles Effective January 1, 2003, the Company adopted SFAS No. 143 which requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the periods in which it is incurred. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived asset. The liability is accreted to the fair value at the time of settlement over the useful life of the asset, and the capitalized cost is depreciated over the useful life of the related asset. Upon adoption of SFAS No. 143, the Company's net property, plant and equipment was increased by $10.2 million, an additional asset retirement obligation of $11.1 million was recorded and a $0.9 million charge, net of tax against net income (or a $0.02 loss per basic and diluted share) was reported in the first quarter of 2003 as a cumulative effect of a change in accounting principle. Subsequent to adoption, the effect of the change in accounting principles was inmaterial. Effective January 1, 2002, KCS began amortizing the capitalized costs related to oil and gas properties on the unit-of-production basis ("UOP") using proved oil and gas reserves. Previously, KCS had computed amortization on the basis of future gross revenue ("FGR"). The Company determined that the change to UOP was preferable under accounting principles generally accepted in the United States, since among other reasons, it provides a more rational basis for amortization during periods of volatile commodity prices and also increases consistency with others in the industry. As a result of this change, the Company recorded a non-cash cumulative effect charge of $6.2 million, net of tax, (or $0.17 per basic and diluted common share) in the first quarter of 2002. 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk Derivative Instruments. The Company's major market risk exposure is to oil and gas prices, which have historically been volatile. Realized prices are primarily driven by the prevailing worldwide price for crude oil and regional spot prices for natural gas production. The Company has utilized, and may continue to utilize, derivative contracts, including swaps, futures contracts, options and collars to manage this price risk. See Note 6 to Condensed Consolidated Financial Statements. While these derivative contracts are structured to reduce the Company's exposure to decreases in the price associated with the underlying commodity, they also limit the benefit the Company might otherwise receive from any price increases. At March 31, 2003, the Company had derivative instruments covering 3.5 million Mmbtu of gas production for April through November 2003. These instruments established an average floor price of $4.51 and enable the Company to receive market prices up to an average cap of $5.78, approximately 26% of any price between $5.78 and $6.28 and 100% of any price above $6.28. The following table sets forth the Company's oil and natural gas hedged position at March 31, 2003.
Expected Maturity, 2003 Fair ----------------------------------------------------- Value 2nd Quarter 3rd Quarter 4th Quarter Total ($000) ----------- ----------- ----------- ----- ------ Swaps: $ 37 Volumes (bbl) 15,000 -- -- 15,000 Weighted average price ($/bbl) $ 31.06 $ -- $ -- $ 31.06 Puts / Floors: $ 137 Volumes (Mmbtu) 150,000 460,000 305,000 915,000 Weighted average price ($/Mmbtu) $ 4.25 $ 4.25 $ 4.25 $ 4.25 3-way collars: $ 352 Volumes (MMbtu) 1,060,000 1,075,000 460,000 2,595,000 Weighted average price ($/Mmbtu) Floor (purchased put option) $ 4.83 $ 4.47 $ 4.40 $ 4.61 Cap 1 (sold call option) $ 5.81 $ 5.76 $ 5.75 $ 5.78 Cap 2 (purchased call option) $ 6.31 $ 6.26 $ 6.25 $ 6.28
In addition to the above, the Company has entered into fixed price sales contracts covering 0.3 million Mmbtu at an average price of $5.09 for April through June 2003 and will deliver 4.8 Bcfe for April thru December under the Production Payment sold in February 2001 at an average price of $4.05 per Mcfe as described in Note 3 to Condensed Consolidated Financial Statements. Interest Rate Risk. The Company uses fixed and variable rate long-term debt to finance its capital spending program and for general corporate purposes. These variable rate debt instruments expose the Company to market risk related to changes in interest rates. The Company's fixed rate debt and the associated weighted average interest rate was $125.0 million at 8.9% on March 31, 2003 and $198.9 million at 9.7% on March 31, 2002. The Company's variable rate debt and weighted average interest rate was $60.5 million at 7.7% on March 31, 2003 and $10.8 million at 3.9% on March 31, 2002. 18 Item 4. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. The term disclosure controls and procedures is defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934. These rules refer to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Furthermore, we have designed our disclosure controls and procedures to ensure that information that we are required to disclose in our report is accumulated and communicated to management (including our Chief Executive Officer and Principal Financial Officer) in a manner that permits timely decisions to be made regarding required disclosure. Our Chief Executive Officer and our Principal Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of a date within 90 days prior to the date of the filing of this quarterly report, and they have concluded that such disclosure controls and procedures were effective at ensuring that they were alerted in a timely manner as to all material information that we are required to include in our reports with the Securities and Exchange Commission. (b) Changes in internal controls. We maintain a system of internal accounting controls that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. Since the date of the evaluation of our disclosure controls and procedures by our Chief Executive Officer and Principal Financial Officer, there have been no significant changes to our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of the most recent evaluation. 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to Note 10 to Condensed Consolidated Financial Statements included herein. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 3.1 Restated Certificate of Incorporation of KCS Energy, Inc. (filed as Exhibit (3) i to the Annual Report on Form 10-K as filed with the SEC on April 2, 2001 and incorporated by reference herein). 3.2 Restated By-Laws of KCS Energy, Inc. (filed as Exhibit (3) ii to the Annual Report on Form 10-K as filed with the SEC on April 2, 2001 and incorporated by reference herein). 10.1 Amended and Restated Credit Agreement by and among KCS Energy, Inc., the lenders from time to time hereto, Foothill Capital Corporation, as collateral and administrative agent, and Highbridge/ Zwirn Special Opportunities Fund, L.P., as lead arranger (filed as Exhibit (10) vii to the Annual Report on Form 10-K as filed with the SEC on March 31, 2003 and incorporated by reference herein. * 31.1 Certification of James W. Christmas, Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of Joseph T. Leary, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32.1 Certification of James W. Christmas, Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. * 32.2 Certification of Joseph T. Leary, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. ----------------- * Filed herewith. (b) Reports on Form 8-K. On January 21, 2003, the Company filed a report on Form 8-K under Item 5, Other Events reporting that the Company had completed its previously announced financing and that it paid off the balance of its maturing Senior Notes obligations. 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 undersigned thereunto duly authorized. KCS ENERGY, INC. August 29,2003 By: /S/ FREDERICK DWYER ------------------------------------ Frederick Dwyer Vice President, Controller and Secretary 20 Exhibit Index Exhibit No. Description ------ ----------- 3.1 Restated Certificate of Incorporation of KCS Energy, Inc. (filed as Exhibit (3) i to the Annual Report on Form 10-K as filed with the SEC on April 2, 2001 and incorporated by reference herein). 3.2 Restated By-Laws of KCS Energy, Inc. (filed as Exhibit (3) ii to the Annual Report on Form 10-K as filed with the SEC on April 2, 2001 and incorporated by reference herein). 10.1 Amended and Restated Credit Agreement by and among KCS Energy, Inc., the lenders from time to time hereto, Foothill Capital Corporation, as collateral and administrative agent, and Highbridge/ Zwirn Special Opportunities Fund, L.P., as lead arranger (filed as Exhibit (10) vii to the Annual Report on Form 10-K as filed with the SEC on March 31, 2003 and incorporated by reference herein). * 31.1 Certification of James W. Christmas, Chairman and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of Joseph T. Leary, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32.1 Certification of James W. Christmas, Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. * 32.2 Certification of Joseph T. Leary Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002. ------------------- * Filed herewith. 21 EX-31.1 3 exhibit31-1.txt EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, James W. Christmas, certify that: 1. I have reviewed this amendment to quarterly report on Form 10-Q/A of KCS Energy, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; /s/ JAMES W. CHRISTMAS ------------------------------------- James W. Christmas Chairman and Chief Executive Officer Date: August 29,2003 EX-31.2 4 exhibit31-2.txt EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Joseph T. Leary, certify that: 1. I have reviewed this amendment to quarterly report on Form 10-Q/A of KCS Energy, Inc.; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; /s/ Joseph T. Leary ---------------------------------------- Joseph T. Leary Vice President and Chief Financial Officer Date: August 29, 2003 EX-32.1 5 exhibit32-1.txt Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of KCS Energy, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on May 14, 2003 (the "Report"), I, James W. Christmas, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James W. Christmas ------------------------------- James W. Christmas Chief Executive Officer August 29, 2003 EX-32.2 6 exhibit32-2.txt Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of KCS Energy, Inc. (the "Company") on Form 10-Q for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on May 14, 2003 (the "Report"), I, Joseph T. Leary, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph T. Leary ------------------------------- Joseph T. Leary Vice President and Chief Financial Officer August 29, 2003 -----END PRIVACY-ENHANCED MESSAGE-----