-----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, VOv5MMEj1e9Ko3vc3tFIt1jsLqgJJOELp0FYLFb7Crx4uXxnzhXsMfG8vSwfzpM6 A/mBgHDphL4c/mxsIPPsHQ== 0000950123-97-004394.txt : 19970520 0000950123-97-004394.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950123-97-004394 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KCS ENERGY INC CENTRAL INDEX KEY: 0000832820 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 222889587 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16932 FILM NUMBER: 97607279 BUSINESS ADDRESS: STREET 1: 379 THORNALL ST CITY: EDISON STATE: NJ ZIP: 08837 BUSINESS PHONE: 9086321770 FORMER COMPANY: FORMER CONFORMED NAME: KCS GROUP INC DATE OF NAME CHANGE: 19920310 10-Q 1 FORM 10-Q / KCS ENERGY 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES _____ EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _____________________ Commission file number 1-11698 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.) 379 Thornall Street, Edison, New Jersey 08837 (Address of principal executive offices) (Zip Code) (908) 632-1770 (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 twelve 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. (1) X Yes (2) No ------- -------- APPLICABLE ONLY TO CORPORATE ISSUERS: 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: 14,625,647 shares outstanding as of April 30, 1997. 2 KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended March 31, ----------------------------- (Thousands of Dollars) Unaudited 1997 1996 - ----------------------------------------------------- ------------ ------------ Oil and gas revenue $39,234 $26,781 Other revenue, net 645 412 - -------------------------------------------------------------------------------------- Total revenue 39,879 27,193 Operating costs and expenses Production (lifting) costs 8,463 2,265 Other operating and administrative 3,049 1,807 Depreciation, depletion and amortization 14,651 11,286 - -------------------------------------------------------------------------------------- Total operating costs and expenses 26,163 15,358 - -------------------------------------------------------------------------------------- Operating income 13,716 11,835 Interest and other income, net 35 1,591 Interest expense (5,186) (4,050) - -------------------------------------------------------------------------------------- Income from continuing operations before income taxes 8,565 9,376 Federal and state income taxes 3,161 3,403 - -------------------------------------------------------------------------------------- Income from continuing operations 5,404 5,973 Discontinued operations Net loss from operations (72) (118) Net gain on disposition 5,461 -- - -------------------------------------------------------------------------------------- Net income $10,793 $ 5,855 ====================================================================================== Earnings per share of common stock and common stock equivalents: Continuing operations $ 0.39 $ 0.51 Discontinued operations 0.38 (0.01) - -------------------------------------------------------------------------------------- $ 0.77 $ 0.50 Average shares of common stock and and common stock equivalents outstanding 14,030,865 11,788,301 ====================================================================================== Cash dividends per share $ 0.03 $ 0.03 ======================================================================================
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 2 3 KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, Dec. 31, (Thousands of Dollars) Unaudited 1997 1996 - -------------------------------- --------- --------- Assets - ------ Current assets Cash and cash equivalents $ 3,309 $ 5,100 Trade accounts receivable, net 31,850 30,307 Net assets of discontinued operations 857 20,475 Other current assets 4,000 8,392 - -------------------------------------------------------------------------- Current assets 40,016 64,274 - -------------------------------------------------------------------------- Oil and gas properties, full cost method, net 432,377 415,870 Other property, plant and equipment, net 14,692 14,483 - -------------------------------------------------------------------------- Property, plant and equipment, net 447,069 430,353 - -------------------------------------------------------------------------- Investments and other assets 10,888 11,010 - -------------------------------------------------------------------------- $497,973 $505,637 ========================================================================== Liabilities and stockholders' equity - ------------------------------------ Current liabilities Accounts payable $ 21,967 $ 24,144 Accrued liabilities 6,903 15,558 - -------------------------------------------------------------------------- Current liabilities 28,870 39,702 - -------------------------------------------------------------------------- Deferred credits and other liabilities 36,836 29,966 - -------------------------------------------------------------------------- Long-term debt 185,283 310,347 - -------------------------------------------------------------------------- Stockholders' equity Common stock, par value $0.01 per share - authorized 50,000,000 shares, issued 15,514,875 and 12,438,235, respectively 155 125 Additional paid-in capital 141,566 30,587 Retained earnings 108,651 98,298 Less treasury stock, 900,478 shares, at cost (3,388) (3,388) - -------------------------------------------------------------------------- Total stockholders' equity 246,984 125,622 - -------------------------------------------------------------------------- $497,973 $505,637 ==========================================================================
The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 3 4 KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended March 31, (Thousands of Dollars) Unaudited 1997 1996 - -------------------------------- --------- --------- Cash flows from operating activities: Net income $ 10,793 $ 5,855 Non-cash charges (credits): Depreciation, depletion and amortization 14,740 11,630 Gain on disposition of discontinued operations (5,461) -- Other non-cash charges and credits, net 3,249 3,129 - --------------------------------------------------------------------------------- 23,321 20,614 Net changes in assets and liabilities: Trade accounts receivable 28,673 (7,982) Receivable from Tennessee Gas -- (9,310) Accounts payable and accrued liabilities (39,641) 22 Other, net 4,007 39 - --------------------------------------------------------------------------------- Net cash provided by operating activities 16,360 3,383 - --------------------------------------------------------------------------------- Cash flows from investing activities: Investment in oil and gas properties (31,690) (9,250) Proceeds from sale of pipeline assets 27,907 -- Proceeds from sale of oil and gas properties 789 718 Other capital expenditures (581) (943) - --------------------------------------------------------------------------------- Net cash used in investing activities (3,575) (9,475) - --------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from debt 10,705 150,345 Repayments of debt (135,791) (139,200) Proceeds from issuance of common stock 111,110 306 Deferred financing costs (153) (4,772) Dividends paid (347) (344) Other, net (100) (116) - --------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (14,576) 6,219 - --------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1,791) 127 Cash and cash equivalents at beginning of period 5,100 5,846 - --------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 3,309 $ 5,973 =================================================================================
The Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. Interest payments were $9,967,000 and $2,041,000 for the three months ended March 31, 1997 and March 31, 1996, respectively. Income tax payments were $800,000 during the three months ended March 31, 1996. No income tax payments were made during the three months ended March 31, 1997. The accompanying notes to condensed consolidated financial statements are an integral part of these statements. 4 5 KCS ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The condensed 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 interim periods. 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 financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report to stockholders. Certain previously reported amounts have been reclassified to conform with current year presentations. 2. Discontinued Operations - During the first quarter of 1997, the Board of Directors approved a plan to discontinue the Company's natural gas transportation and marketing operations in order to focus on the core oil and gas exploration and production operations. As of March 31, 1997, the Company sold its Texas intrastate natural gas pipeline system, together with related marketing assets and a joint venture gathering system for and received approximately $28 million in cash. Management continues pursuing the sale of its remaining third-party natural gas marketing operations which is expected to be concluded during 1997. The results for the transportation and marketing operations have been classified as discontinued operations for all periods presented in the Condensed Statements of Consolidated Income. The assets and liabilities of discontinued operations have been classified in the Condensed Consolidated Balance Sheet as "Net assets of discontinued operations". Net assets of the Company's discontinued operations at March 31, 1997 and December 31, 1996 are as follows:
March 31, Dec. 31, (Thousands of dollars) 1997 1996 ----------------------------------------------------------- Assets Current Assets Accounts receivable, net $30,817 $61,632 Other 3,101 2,995 ------- ------- Total current assets 33,918 64,627 Net property, plant and equipment 126 17,977 Other non-current assets 2,313 1,964 ------- ------- Total 36,357 84,568 Liabilities Current liabilities 35,469 61,884 Non-current liabilities 31 2,209 ------- ------- Total 35,500 64,093 ------- ------- Net assets of discontinued operations $ 857 $20,475 ======= =======
5 6 KCS ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Summarized results of operations of the discontinued transportation and marketing operations are as follows:
For the Three Months Ended March 31, -------------------------- (Thousands of dollars) 1997 1996 --------------------------------------------------------------------- Revenues 22,015 114,522 Costs and expenses * 22,129 114,680 --------------------------------------------------------------------- Income (loss) before income taxes (114) (158) Provision (benefit) for income taxes (42) (40) --------------------------------------------------------------------- Income (loss) from discontinued operations (72) (118) ===================================================================== Gain on disposal before income taxes ** 8,668 -- Provision for income taxes 3,207 -- --------------------------------------------------------------------- Net gain on disposal 5,461 -- =====================================================================
* Includes allocated interest expense of $78 and $696 for the first quarter of 1997 and 1996, respectively. ** 1997 includes $1.1 million provision for losses during the wind down period. Discontinued operations have not been segregated in the Condensed Statements of Consolidated Cash Flows and, therefore, amounts for certain captions will not agree with the respective Condensed Statements of Consolidated Income and Condensed Consolidated Balance Sheets . 3. In January 1997, the Company completed a public offering of 3,000,000 shares of its common stock. The net proceeds to the Company of approximately $110.6 million were used to reduce outstanding indebtedness under its bank credit facilities. 4. On May 6, 1997, the Company's Board of Directors approved a two-for-one stock split of its common stock effective June 30, 1997 to stockholders of record on June 3, 1997. The references in the financial statements included in this Form 10-Q to the weighted average number of common shares outstanding and earnings per share do not reflect the stock split as it has not yet occurred. 5. In October 1996, the American Institute of Certified Public Accountants issued statement of Position 96-1, "Environmental Remediation Liabilities" (the SOP), which was adopted by the Company in the first quarter of 1997. The SOP provides guidance concerning the recognition, measurement and disclosure of environmental remediation liabilities. The adoption of the SOP did not have a material effect of the Company's financial position or results of operations. 6. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per share", which specifies the computation, presentation and disclosure requirements for earnings per share. This statement is effective for fiscal years ending after December 15, 1997, ad earlier adoption is not permitted. Adoption of the provisions of this statement is not expected to have a material effect on reported earnings per share. 6 7 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Results of operations for the three months ended March 31, 1997, as compared to the same period a year ago, reflect several important developments. The Medallion acquisition, which was completed as of December 31, 1996, significantly increased the overall size of the Company, doubling its oil and gas production and proved reserves. Another important development was the termination, as of January 1, 1997, of the Tennessee Gas contract. Prior to its termination, the Tennessee Gas contract and its above-market-pricing provisions had a material and positive effect on the Company's gas revenue, income and cash flow. Also during the first quarter of 1997, the Company sold its principal natural gas transportation asset, the Texas intrastate pipeline for approximately $28 million and decided to dispose of its remaining third-party gas marketing operations. Accordingly, the condensed statements of consolidated income and condensed consolidated balance sheets have been restated to reflect the natural gas transportation and marketing operations as discontinued operations. See Notes 2 and 9 to Consolidated Financial Statements in the Company's 1996 Annual Report to Stockholders for more information on the Medallion acquisition and the Tennessee Gas contract, respectively. See Note 2 to Condensed Consolidated Financial Statements in this Form 10-Q for further information regarding the discontinued operations. Results of Operations Net income for the three months ended March 31, 1997 was $10.8 million, or $0.77 per share, compared to $5.9 million, or $0.50 per share, for the same period a year ago. Income from continuing operations was $5.4 million, or $0.39 per share, compared to $6.0 million, or $0.51 per share last year. Significantly higher oil and gas production, along with higher oil and gas prices in the current year period were offset by the impact of the termination of the Tennessee Gas contract and higher net interest costs. Income from discontinued operations was $5.4 million, or $0.38 per share, compared to a loss of $0.1 million, or $0.01 per share. The income from discontinued operations arose mainly from the gain on the sale of the Texas intrastate pipeline, net of the estimated costs of terminating the third-party gas marketing operations. Oil and gas revenue
Three Months Ended March 31, ------------------ 1997 1996 ------ ------ Production Oil (Mbbl) 455 159 Liquids (Mbbl) 43 -- Gas (MMcf) 11,239 6,457 Total (MMcfe) 14,225 7,411 Average Price Oil (per bbl) $ 21.21 $ 17.89 Liquids (per bbl) 12.44 -- Gas (per MMcf) 2.59 3.71 Total (Per MMcfe) 2.76 3.61 Revenue Oil $ 9,651 $ 2,840 Liquids 529 -- Gas 29,054 23,941 ------- ------- Total $39,234 $26,781 ======= =======
7 8 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Largely due to higher oil and gas production, oil and gas revenue increased $12.5 million to $39.2 million for the three months ended March 31, 1997, compared to the same period last year. Oil and liquids production increased 213% to 498,000 barrels while gas production increased 74% to 11.2 Bcf. Offsetting the benefits of higher production, average realized gas prices declined by 30% to $2.59 per Mcf, compared to $3.71 per Mcf last year due to the termination of the Tennessee Gas contract, while average realized oil prices increased 19% to $21.21 per barrel. Gas revenue increased $5.1 million for the three months ended March 31, 1997, compared to the same period in the prior year. Higher production, primarily as a result of the Medallion acquisition, added $12.3 million to revenue. The termination of the Tennessee Gas contract as of January 1, 1997 reduced revenue by $8.5 million and offset the benefit of otherwise higher average realized gas prices of $2.59 per Mcf, compared to $2.39 per Mcf last year. The increase in the average realized price for gas not covered by the Tennessee Gas contract added $1.3 million to revenue. Oil and liquids revenue increased $7.3 million during the 1997 three-month period, compared to the same period a year ago. Higher production, primarily due to the Medallion acquisition and expanded operations in the Rocky Mountains added $6.8 million to revenue. The increase in average realized oil price added $0.5 million to oil revenue. Production (lifting) costs The $6.2 million increase in production (lifting) costs during the current year three-month period was principally due to the higher level of oil and gas production and the Company's expanded operations in the Rocky Mountain region, particularly in the Manderson Field. Contributing also to the increase were production taxes, which are generally based on a fixed percentage of revenue. In prior periods, the Tennessee Gas contract provided for reimbursement of production taxes for production under the contract. Therefore, since the Company's oil and gas revenue, excluding the Tennessee Gas contract premium of $8.5 million, was approximately $21.0 million or 115% higher than a year ago, production taxes increased accordingly. Other operating and administrative expenses Other operating and administrative expenses increased $1.2 million to $3.0 million during the three months ended March 31, 1997, compared to the same period last year, primarily as a result of the Medallion acquisition and the Company's significant growth in the Rocky Mountain region. Depreciation, depletion and amortization The Company provides for depreciation, depletion and amortization ("DD&A") using the future gross revenue method based on recoverable reserves valued at current prices. During the three months ended March 31, 1997, DD&A increased $3.4 million largely due to higher oil and gas production offset by the impact of a decline in the DD&A accrual rate. The decline in the rate, from 42% to 37% of oil and gas revenue, reflects the higher year-end 1996 oil and gas prices, compared to year-end 1995 prices. Interest and Other Income, net The $1.6 million of interest and other income in the 1996 three-month period was primarily from interest income accruals on outstanding receivables related to the Tennessee Gas litigation. The outstanding receivables plus interest were paid by Tennessee Gas on September 30, 1996. 8 9 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest Expense Interest expense was $5.2 million during the three months ended March 31, 1997 compared to $4.1 for the three months ended March 31, 1996. This increase resulted from higher average borrowings, partially offset by lower average interest rates during the current year period. Average borrowings for the three months ended March 31, 1997 were $245.7 million, compared to $174.7 million for the same period last year. The higher average borrowings in 1997 reflect the expansion of the Company's oil and gas operations including the Medallion acquisition which was initially funded with borrowings under the Company's bank credit facilities. Proceeds from the January 1997 three million share common stock offering of approximately $110.6 million were used to pay down a portion of those borrowings. The interest rates on borrowings outstanding during the 1997 three-month period averaged 9.78% compared to 10.19% for the same period a year ago. Liquidity and Capital Resources Cash Flow From Operating Activities Net income adjusted for non-cash charges increased to $23.3 million for the three months ended March 31, 1997, compared to $20.6 during the same period in 1996. The increase reflects cash flow from the properties acquired as part of the Medallion acquisition which more than offset the impact of the termination of the Tennessee Gas contract and its above-market pricing provisions. Net cash provided by operating activities was $16.4 million during the current year three month period, compared to $3.4 million for the three months ended March 31, 1996. The prior year period reflected a short-term working capital requirement resulting from the timing of cash receipts and payments. The cash flow impacts in the current period of reductions in trade accounts receivable ($28.7 million) and in accounts payable and accrued liabilities ($39.6 million) are largely related to the discontinuance of the marketing operations. Investing Activities Capital expenditures for the three months ended March 31, 1997 were $32.2 million. Of that total, $23.6 million was for development drilling, $5.5 million was for lease acquisitions, seismic surveys and exploratory drilling and $2.6 million for the purchase of proved reserves. As of March 31, 1997, the Company completed the sale of its principal pipeline asset for a net purchase price of $27.9 million, the proceeds of which were used to pay down bank debt. Capital spending for 1997 has initially been budgeted at $160 million. Of that total, $70 million has initially been allocated to development drilling, $25 million for exploration and $65 million for oil and gas property acquisitions, including reserves acquired under the Company's VPP program. The Company believes that internally generated cash, sales of certain non-strategic assets, e.g., the pipeline sale, and borrowings under its bank credit facilities will be sufficient to fund its 1997 capital budget. Financing Activities In January 1997, the Company completed a public offering of 3,000,000 shares of common stock. The net proceeds to the Company of approximately $110.6 million were used to reduce outstanding indebtedness under its bank credit facilities. Equity Availability KCS has 5 million authorized but unissued shares of preferred stock and, following the June 1997 two-for-one stock split, will have over 20.7 million shares of common stock available for future equity financing. 9 10 KCS ENERGY, INC. - FORM 10-Q PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11 - Statement re computation of per share earnings. Exhibit 27 - Financial Data Schedule. (b) Reports on Form 8-K. On January 9, 1997 the registrant reported, under Item 2 of Form 8K/A2, that it had completed a significant acquisition of assets. 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. May 12, 1997 /s/ HENRY A. JURAND - ------------ -------------------- Henry A. Jurand Senior Vice President, Chief Financial Officer and Secretary 10 11 EXHIBIT INDEX ------------- Exhibit 11 - Statement re computation of per share earnings. Exhibit 27 - Financial Data Schedule. EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11 Statement Re Computation of Per Share Earnings Primary earnings per share were calculated as follows:
Three Months Ended March 31, ------------------- 1997 1996 ------- -------- In Thousands Except per share amounts Net Income: Continuing operations $ 5,404 $ 5,973 Discontinued operations 5,389 (118) - ---------------------------------------------------------------------- $10,793 $ 5,855 ====================================================================== Average shares of common stock outstanding 13,670 11,517 Add: Net shares assumed to be issued for dilutive stock options 361 271 - ---------------------------------------------------------------------- Average shares of common stock and common stock equivalents outstanding 14,031 11,788 ====================================================================== Earnings per common share: Continuing operations $ 0.39 $ 0.51 Discontinued operations $ 0.38 $ (0.01) - ---------------------------------------------------------------------- $ 0.77 $ 0.50 ======================================================================
11 EX-27 3 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 3,309 0 31,915 65 1,513 40,016 596,559 149,490 497,973 28,870 0 0 0 155 246,829 497,973 39,879 0 0 0 26,163 0 5,186 8,565 3,161 5,404 5,389 0 0 10,793 0.77 0.77
-----END PRIVACY-ENHANCED MESSAGE-----