-----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, KP/uUVVBt53b/eOZmwY4XGmAaAW1OII+BtmvVnnpt3XQqXd/uwy3lHaUm+YzCjlR L/AZzTiPUty+xUZOf2J/JQ== 0000950123-97-006910.txt : 19970815 0000950123-97-006910.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950123-97-006910 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97662204 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 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 June 30, 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: 29,366,881 shares outstanding as of July 31, 1997. 1 2 KCS ENERGY, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended Six Months Ended (Dollars in thousands except per share data) June 30, June 30, ------------------------ ------------------------ Unaudited 1997 1996 1997 1996 - -------------------------------------------------- -------- -------- -------- -------- Oil and gas revenue $ 30,589 $ 26,292 $ 69,823 $ 53,073 Other revenue, net 1,962 (194) 2,607 309 - ------------------------------------------------------------------------------------------------------------------------------- Total revenue 32,551 26,098 72,430 53,382 Operating costs and expenses Lease operating expenses 7,011 1,928 13,699 3,573 Production taxes 1,312 497 3,086 1,117 Other operating and administrative 2,289 1,942 5,338 3,749 Depreciation, depletion and amortization 13,914 11,010 28,565 22,387 - ------------------------------------------------------------------------------------------------------------------------------- Total operating costs and expenses 24,526 15,377 50,688 30,826 - ------------------------------------------------------------------------------------------------------------------------------- Operating income 8,025 10,721 21,742 22,556 Interest and other income, net 119 1,619 230 3,210 Interest expense (4,536) (3,672) (9,798) (7,722) - ------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 3,608 8,668 12,174 18,044 Federal and state income taxes 1,316 3,144 4,477 6,547 - ------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 2,292 5,524 7,697 11,497 Discontinued operations Net loss from operations -- (537) (72) (655) Net gain on disposition -- -- 5,461 -- - ------------------------------------------------------------------------------------------------------------------------------- Net income $ 2,292 $ 4,987 $ 13,086 $ 10,842 =============================================================================================================================== Earnings per share of common stock and common stock equivalents: Continuing operations $ 0.08 $ 0.23 $ 0.27 $ 0.49 Discontinued operations -- (0.02) 0.18 (0.03) - ------------------------------------------------------------------------------------------------------------------------------- $ 0.08 $ 0.21 $ 0.45 $ 0.46 Average shares of common stock and common stock equivalents outstanding 29,970 23,790 29,021 23,683 =============================================================================================================================== Cash dividends per share $ 0.015 $ 0.015 $ 0.030 $ 0.030 ===============================================================================================================================
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
June 30, December 31, (Dollars in thousands except per share data) 1997 1996 --------- --------- Unaudited Assets Current assets Cash and cash equivalents $ 4,543 $ 5,100 Trade accounts receivable, net 34,779 30,307 Net assets of discontinued operations 5,882 26,658 Other current assets 5,212 8,392 - ------------------------------------------------------------------------------------- Current assets 50,416 70,457 - ------------------------------------------------------------------------------------- Oil and gas properties, full cost method, net 470,053 415,870 Other property, plant and equipment, net 14,682 14,483 - ------------------------------------------------------------------------------------- Property, plant and equipment, net 484,735 430,353 - ------------------------------------------------------------------------------------- Investments and other assets 8,404 11,010 - ------------------------------------------------------------------------------------- $ 543,555 $ 511,820 ===================================================================================== Liabilities and stockholders' equity Current liabilities Accounts payable $ 31,133 $ 24,144 Accrued liabilities 10,889 15,558 - ------------------------------------------------------------------------------------- Current liabilities 42,022 39,702 - ------------------------------------------------------------------------------------- Deferred credits and other liabilities 43,557 36,149 - ------------------------------------------------------------------------------------- Long-term debt 207,500 310,347 - ------------------------------------------------------------------------------------- Stockholders' equity Common stock, par value $0.01 per share - authorized 50,000,000 shares, issued 31,167,270 and 24,976,340 respectively 312 249 Additional paid-in capital 143,197 30,463 Retained earnings 110,355 98,298 Less treasury stock, 1,801,496 shares, at cost (3,388) (3,388) - ------------------------------------------------------------------------------------- Total stockholders' equity 250,476 125,622 - ------------------------------------------------------------------------------------- $ 543,555 $ 511,820 =====================================================================================
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
Six Months Ended June 30, -------------------------- (Dollars in thousands) Unaudited 1997 1996 - ------------------------------------------------------- ---------- --------- Cash flows from operating activities: Net income $ 13,086 $ 10,842 Non-cash charges: Depreciation, depletion and amortization 28,565 22,912 Gain on disposition of discontinued operations (5,461) -- Other non-cash charges and credits, net 4,710 2,790 - ----------------------------------------------------------------------------------------- 40,900 36,544 Net changes in assets and liabilities: Trade accounts receivable 36,682 5,174 Receivable from Tennessee Gas -- (13,272) Accounts payable and accrued liabilities (37,504) (18,612) Other, net 5,505 (164) - ----------------------------------------------------------------------------------------- Net cash provided by operating activities 45,583 9,670 - ----------------------------------------------------------------------------------------- Cash flows from investing activities: Investment in oil and gas properties (85,436) (26,498) Proceeds from the sale of pipeline assets 27,907 -- Proceeds from the sale of oil and gas properties 3,712 16,384 Other capital expenditures, net (1,274) (1,676) - ----------------------------------------------------------------------------------------- Net cash used in investing activities (55,091) (11,790) - ----------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from debt 49,100 165,145 Repayments of debt (151,991) (161,202) Proceeds from issuance of common stock 112,898 703 Deferred financing costs (169) (4,956) Dividends paid (787) (692) Other, net (100) (116) - ----------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 8,951 (1,118) - ----------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (557) (3,238) Cash and cash equivalents at beginning of period 5,100 5,846 - ----------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 4,543 $ 2,608 =========================================================================================
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 $10,622,000 and $2,661,000 for the six months ended June 30, 1997 and June 30, 1996 respectively. Income tax payments were $483,000 and $3,855,000 during the six months ended June 30, 1997 and June 30, 1996 respectively. The accompanying notes to the 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 approximately $28 million in cash. Management is 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 June 30, 1997 and December 31, 1996 are as follows:
June 30, December 31, (Thousands of dollars) 1997 1996 - ------------------------------------------------------------------ Assets Current Assets Accounts receivable, net $21,128 $61,632 Other 1,996 2,995 ------- ------- Total current assets 23,124 64,627 Net property, plant and equipment 130 17,977 Other noncurrent assets 2,075 1,964 ------- ------- Total 25,329 84,568 Liabilities Current liabilities 19,091 55,701 Noncurrent liabilities 356 2,209 ------- ------- Total 19,447 57,910 ------- ------- Net assets of discontinued operations $ 5,882 $26,658 ======= =======
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:
Six Months Ended June 30, ----------------------------- (Thousands of dollars) 1997 1996 - ----------------------------------------------------------------------------------- Revenues 22,015 181,511 Costs and expenses * 22,129 182,539 - ----------------------------------------------------------------------------------- Income (loss) before income taxes (114) (1,028) Provision (benefit) for income taxes (42) (373) - ----------------------------------------------------------------------------------- Income (loss) from discontinued operations (72) (655) =================================================================================== 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 $0.1 million and 1.7 million for the six-month period ended June 30, 1997 and 1996, respectively. ** 1997 includes $1.1 million provision for estimated 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. Litigation. Reference is made to Note 9 - "Litigation" - to Consolidated Financial Statements in the Company's 1996 Annual Report to Stockholders for a description of pending litigation involving the Company. Since January 1, 1997, the only significant development with respect to such litigation is the settlement of the claim asserted by certain of the royalty owners in the Jesus Yzaguirre Royalty Basis suit that the largest lease contained therein had terminated in December 1975. On June 2, 1997, the trial judge signed an Order of Dismissal with Prejudice as to that claim. 4. In January 1997, the Company completed a public offering of 6,000,000 shares (giving effect to the two-for-one stock split effective June 30, 1997) 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. 5. 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. All references in the financial statements and notes thereto included in this Form 10-Q to the number of common shares and earnings per share reflect the stock split. 6 7 KCS ENERGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6. 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 provided guidance concerning the recognition, measurement and disclosure of environmental remediation liabilities. The adoption of the SOP did not have a material effect on the Company's financial position or results of operations. 7. In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (FAS 128). This statement simplifies the computation of earnings per share (EPS). Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects potential dilution for options and warrants, using the Company's average share price for the period. FAS 128 is effective for periods ending after December 15, 1997. Pro-forma EPS under the methodology required by FAS 128 is as follows:
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1997 1996 1997 1996 ------- -------- ------- -------- Income from continuing operations $ 2,292 $ 5,524 $ 7,697 $ 11,497 Income (loss) from discontinued operations -- (537) 5,389 (655) ---------------------------------------------------- Net income $ 2,292 $ 4,987 $13,086 $ 10,842 ==================================================== Average shares of common stock outstanding 29,272 23,111 28,311 23,072 Pro-forma basic EPS Continuing operations $ 0.08 $ 0.24 $ 0.27 $ 0.50 Discontinued operations -- (0.02) 0.19 (0.03) ---------------------------------------------------- $ 0.08 $ 0.22 $ 0.46 $ 0.47 ====================================================
7 8 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Results of operations for the three and six months ended June 30, 1997, as compared to the same periods 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, more than doubling the Company's proved reserves. Another important development was the January 1, 1997 termination 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 elected 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. The following discussion focuses on material changes in results of operations for the three and six months ended June 30, 1997, compared to the three and six months ended June 30, 1996, and in financial condition since December 31, 1996. Results of Operations Net income for the three months ended June 30, 1997 was $2.3 million, or $0.08 per share, compared to $5.0 million, or $0.21 per share last year. Significantly higher oil and gas production, in the current year three-month period, primarily as a result of the Medallion acquisition, was more than offset by the impact of the termination of the Tennessee Gas contract, lower average oil and gas prices and higher net interest costs. The 1996 quarter included a loss of $0.5 million, or $0.02 per share from discontinued operations. Net income for the six months ended June 30, 1997 was $13.1 million, or $0.45 per share, compared to $10.8 million, or $0.46 per share. Income from continuing operations was $7.7 million, or $0.27 per share, compared to $11.5 million, or $0.49 per share. Significantly higher oil and gas production was more than offset by the impact of the termination of the Tennessee Gas contract and higher net interest costs. In addition, current year earnings per share reflect the impact of 6.0 million additional shares outstanding following the January 1997 public equity offering. The current six-month period included $5.4 million or $0.18 per share, from discontinued operations, principally from the gain on sale of the Texas intrastate pipeline system. 8 9 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenue
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 1997 1996 1997 1996 ------ ------ ------ ------ Production: Oil (Mbbl) 427 189 882 348 Liquids (Mbbl) 28 -- 70 -- Gas (MMcf) 10,920 6,302 22,159 12,760 Total (MMcfe) 13,648 7,436 27,872 14,848 Average Price: Oil (per bbl) $ 17.89 $ 19.92 $ 19.60 $ 19.00 Liquids (per bbl) 10.73 -- 11.76 -- Gas (per Mcf) 2.07 3.57 2.33 3.64 Total (per Mcfe) 2.24 3.54 2.51 3.57 Revenue: Oil $ 7,637 $ 3,771 $ 17,289 $ 6,611 Liquids 299 -- 827 -- Gas 22,653 22,521 51,707 46,462 ------ ------ ------ ------ Total $ 30,589 $ 26,292 $ 69,823 $ 53,073
Oil and Gas Production. The Company's oil and gas production during the second quarter of 1997 increased 84% to 13.6 Bcfe, compared to 7.4 Bcfe during the second quarter of 1996. Production for the first six months of 1997 increased 88% to 27.9 Bcfe, compared to 14.8 Bcfe produced during the first six months of 1996. Oil and liquids production increased 141% to 455,000 barrels during the second quarter of 1997 and 174% to 952,000 barrels during the first six months of 1997. Gas production increased 73% to 10.9 Bcf during the second quarter of 1997 and 74% to 22.2 Bcf during the first six months of 1997. The production increases were primarily as a result of the Medallion acquisition. Gas revenue. For the three months ended June 30, 1997, gas revenue increased $0.1 million to $22.6 million, compared to the same period a year ago, as the increased production was offset by lower average realized prices. Production gains in the 1997 quarter added $9.7 million of revenue. Average realized prices decreased 42% to $2.07 principally due to the termination of the Tennessee Gas contract, which reduced revenue by $8.4 million. In addition, average realized prices for gas not covered by the Tennessee Gas contract declined 8%, which reduced revenue by $1.2 million. For the six months ended June 30, 1997, gas revenues increased $5.3 million to $51.7 million. Production gains added $22.2 of gas revenue during the 1997 period. The termination of the Tennessee Gas contract reduced revenue by $16.9 million. Average realized prices for gas not covered by the Tennessee Gas contract were $2.33 per Mcf, compared to $2.31 per Mcf last year. 9 10 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Oil and liquids revenue. Oil and liquids revenue during the second quarter of 1997 increased $4.2 million to $7.9 million. Production gains added $4.6 million, which was partially offset by a $0.4 million reduction due to lower average oil prices during the second quarter of 1997, compared to the same period a year ago. For the six months ended June 30, 1997 oil and liquids revenue increased $11.5 million to $18.1 million. Production gains added $11.3 million of oil and liquids revenue while the increase in average realized price added the remaining $0.2 million. Other revenue, net The increase in 1997 other revenue, net includes $1.3 million from the settlement of a gas sales contract dispute. Lease operating expenses Reflecting the substantial increase in oil and gas production, lease operating expenses increased $5.1 million to $7.0 million during the second quarter of 1997, compared to the same period in 1996. Of this increase, approximately $4.4 million was related to the properties acquired as part of the Medallion acquisition. The remainder of the increase was mainly due to the expanded operations in the Rocky Mountain region, especially in the Manderson Field. During the first half of 1997, lease operating expenses increased $10.1 million to $13.7, compared to the same period a year ago, primarily due to oil and gas production increases. Approximately $8.3 million of the increase was related to the Medallion properties, with the remainder of the increase primarily related to the Rocky Mountain properties. Production taxes Production taxes, which are generally based on a fixed percentage of revenue, increased 163% to $1.3 million during the second quarter and 174% to $3.1 million during the first half of 1997, compared to the same periods in 1996. In addition to the effect of higher oil and gas revenue during the current year three and six-month periods, a larger percentage of that revenue was subject to severance taxes, as compared to the same periods in 1996. In the prior year periods, the Tennessee Gas contract provided for reimbursement of production taxes for the production covered under that contract. Other operating and administrative expenses Other operating and administrative expenses increased $0.3 million to $2.3 million during the second quarter and $1.6 million to $5.3 million for the first half of 1997. These increases were primarily the result of the overall growth of the Company. Depreciation, depletion and amortization The Company provides for depreciation, depletion and amortization ("DD&A") on its oil and gas properties using the future gross revenue method based on recoverable reserves valued at current prices. During the three months ended June 30, 1997, DD&A on the Company's oil and gas properties increased $2.1 million, of which $1.8 million was attributable to increased production with the remainder 10 11 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS due to an increase in the DD&A accrual rate. For the six months ended June 30, 1997, DD&A on the Company's oil and gas properties increased $5.4 million. Production gains increased DD&A by $6.6 million partially offset by a $1.2 million reduction attributable to a decline in the DD&A rate. The decline in rate reflects the higher year-end 1996 oil and gas prices, compared to year-end 1995 prices. In addition, depreciation on assets other than oil and gas properties increased $0.8 million primarily due to the expansion of the Company's operations in the Mid-Continent and Rocky Mountain regions. Interest and Other Income, net Interest and other income during the prior year three and six-month periods arose primarily from interest income on outstanding receivables related to the Tennessee Gas litigation. The outstanding receivables plus interest were paid by Tennessee Gas on September 30, 1996. Interest Expense Interest expense increased $0.9 million to $4.5 million during the second quarter and $2.1 million to $9.8 million for the first half of 1997, as compared to the same periods a year ago. Higher average borrowings due to the expansion of the Company's oil and gas operations, including the Medallion acquisition, were offset in part by lower average interest rates during the current year periods. Liquidity and Capital Resources Cash Flow From Operating Activities Net income adjusted for non-cash charges increased to $40.9 million for the six months ended June 30, 1997, compared to $36.5 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 ($13.2 million). Net cash provided by operating activities was $45.6 million during the current year six-month period, compared to $9.7 million for the six months ended June 30, 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 ($36.7 million) and in accounts payable and accrued liabilities ($37.5 million) are largely related to the discontinuance of the natural gas transportation and marketing operations. Investing Activities Capital expenditures for the six months ended June 30, 1997 were $86.7 million of which $85.4 million was related to oil and gas properties. Of the $85.4 million, $51.5 million was for development drilling, $24.9 million for the acquisition of proved reserves and $9.0 million was for lease acquisitions, seismic surveys and exploratory drilling. As of March 31, 1997, the Company completed the sale of its principal natural gas transportation asset for a net purchase price of $27.9 million, the proceeds of which were used to pay down debt under its bank credit facilities. The Company believes that internally generated cash, sales of certain non-strategic assets, including the Texas intrastate pipeline, and borrowings under its bank credit facilities will be sufficient to fund its 1997 capital budget of $160 million. 11 12 KCS ENERGY, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financing Activities In January 1997, the Company completed a public offering of 6,000,000 shares (giving effect to the two-for-one stock split effective June 30, 1997) 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. 12 13 KCS ENERGY, INC. - FORM 10-Q PART II - OTHER INFORMATION Item 1. Legal Proceedings. Incorporated by reference from Note 3 to Notes to Condensed Consolidated Financial Statements of this Form 10-Q. Item 4. Submission of Matters to a Vote of Security Holders. The Annual Meeting of Shareholders of KCS Energy, Inc. was held on May 14, 1997. On the matter of approval of the proposal to increase the number of shares available under the 1992 Stock Plan by 1,000,000, 21,936,420 affirmative votes were cast and 1,150,082 negative votes were cast. These figures give effect to the two-for-one stock split effective June 30, 1997. 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. There were no reports on Form 8-K filed during the three months ended June 30, 1997. 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 12, 1997 /S/ HENRY A. JURAND --------------- -------------------- Henry A. Jurand Senior Vice President, Chief Financial Officer and Secretary 13 14 EXHIBIT INDEX Exhibit 11 - Statement re computation of per share earnings. Exhibit 27 - Financial Data Schedule. EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 Statement Re Computation of Per Share Earnings Primary earnings per share were calculated as follows:
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- (Amounts in thousands except per share amounts) 1997 1996 1997 1996 ------- -------- ------- -------- Net income: Continuing operations $ 2,292 $ 5,524 $ 7,697 $ 11,497 Discontinued operations -- (537) 5,389 (655) - ------------------------------------------------------------------------------------------------------- $ 2,292 $ 4,987 $13,086 $ 10,842 ======================================================================================================= Average shares of common stock outstanding 29,272 23,111 28,311 23,072 Add: Net shares assumed to be issued for dilutive stock options 698 679 710 611 - ------------------------------------------------------------------------------------------------------- Average shares of common stock and common stock equivalents outstanding 29,970 23,790 29,021 23,683 ======================================================================================================= Earning per common share: Continuing operations $ 0.08 $ 0.23 $ 0.27 $ 0.49 Discontinued operations -- (0.02) 0.18 (0.03) - ------------------------------------------------------------------------------------------------------- $ 0.08 $ 0.21 $ 0.45 $ 0.46 =======================================================================================================
14 EX-27 3 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 4,543 0 34,909 130 1,066 50,416 647,684 162,949 543,555 42,022 0 0 0 312 250,164 543,555 72,430 0 0 0 50,688 0 9,798 12,174 4,477 7,697 5,389 0 0 13,086 0.45 0
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