Page 12 of 12
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 000-24181
Southwest Partners III, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2699554
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300
Midland, Texas 79701
(Address of principal executive offices)
(915) 686-9927
(Registrant's telephone number,
including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
The total number of pages contained in this report is 12.
<PAGE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial statements included herein have been
prepared by the Registrant (herein also referred to as the "Partnership")
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included and are of
a normal recurring nature. The financial statements should be read in
conjunction with the audited financial statements and the notes thereto for
the year ended December 31, 1997 which are found in the Registrant's Form
10 filed with the Securities and Exchange Commission on April 30, 1998.
The December 31, 1997 balance sheet included herein has been taken from the
Registrant's 1998 Form 10 Report. Operating results for the three month
period ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the full year.
<PAGE>
Southwest Partners III, L.P.
(a Delaware limited partnership)
Balance Sheets
March 31, December 31,
1998 1997
---- -----
(Unaudited)
Assets
Current asset:
Cash and cash equivalents $ 335,378 $ 501,086
---------- ----------
Total current assets 335,378
501,086
---------- ---------
Equity investment in subsidiary 15,747,634 16,512,086
Organization costs, net of
$14,472 and $10,525, respectively 64,468 68,415
---------- ---------
$16,147,480$17,081,587
========== ==========
Liabilities and Partners' Equity
Current liabilities:
Payable to General Partner and subsidiary $ 30,225 $162,351
---------- ---------
Total current liabilities30,225
162,351
---------- ----------
Partners' equity:
General Partner 1,496,124 1,615,496
Limited partners 14,727,381 15,410,070
Less notes receivable from
limited partners 106,250
106,330
---------- ----------
Total partners' equity 16,117,255
16,919,236
---------- ----------
$16,147,480 $ 17,081,587
========== =========
<PAGE>
Southwest Partners III, L.P.
(a Delaware limited partnership)
Statement of Operations
For the three months ended March 31, 1998
(Unaudited)
Revenues
Interest income $ 2,836
- -------
2,836
- -------
Expenses
General and administrative 30,248
Amortization 3,947
Equity in loss of unconsolidated subsidiary 764,452
- -------
798,647
- -------
Net loss $(795,811)
=======
Net loss allocated to:
General Partner $(119,372)
=======
Limited partners $(676,439)
=======
Per limited partner unit $ (3,940)
=======
<PAGE>
Southwest Partners III, L.P.
(a Delaware limited partnership)
Statement of Cash Flows
For the three months ended March 31, 1998
(Unaudited)
Cash flows from operating activities:
Cash paid to Managing General Partner
for administrative fees $ (23)
Interest received 2,836
- --------
Net cash provided by operating activities 2,813
- --------
Cash flows from investing activities:
Organization costs (63,514)
- --------
Net cash used in investing activities (63,514)
- --------
Cash flows from financing activities:
Capital contributed by limited partners (6,250)
Repayment of notes receivable from
limited partners 80
Syndication costs (98,837)
- --------
Net cash used in financing activities (105,007)
- --------
Net decrease in cash and cash equivalents (165,708)
Beginning of period 501,086
- --------
End of period $ 335,378
========
(continued)
<PAGE>
Southwest Partners III, L.P.
(a Delaware limited partnership)
Statement of Cash Flows, continued
For the three months ended March 31, 1998
(Unaudited)
Reconciliation of net loss to net cash
provided by operating activities:
Net loss $(795,811)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 3,947
Undistributed loss of affiliate 764,452
Increase in accounts payable 30,225
- --------
Net cash provided by operating activities $ 2,813
========
<PAGE>
Southwest Partners III, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Partners III, L.P. (the "Partnership")was organized under
the laws of the State of Delaware on March 11, 1997 for the purpose of
investing in or acquiring oil field service companies assets. The
Partnership intends to wind up its operations and distribute its
assets or the proceeds therefrom on or before December 31, 2008, at
which time the Partnership's existence will terminate, unless sooner
terminated or extended in accordance with the terms of the Partnership
Agreement. Southwest Royalties, Inc., a Delaware corporation formed
in 1983, is the General Partner of the Partnership. Revenues, costs
and expenses are allocated as follows:
Limited General
Partners Partner
-------- -------
Interest income on capital contributions(1) (1)
All other revenues 85% 15%
Organization and offering costs 100% -
Syndication costs 100% -
Amortization of organization costs 100% -
Gain or loss on property disposition 85% 15%
Operating and administrative costs 85% 15%
All other costs 85% 15%
After payout, allocations will be seventy-five (75%) to the limited
partners and twenty-five (25%) to the General Partner. Payout is when
the limited partners have received an amount equal to one hundred ten
percent (110%) of their limited partner capital contributions.
(1) Interest earned on promissory notes related to Capital
Contributions is allocated to the specific holders of those notes.
Method of Allocation of Administrative Costs
For the purpose of allocating Administrative Costs, the Managing
General Partner will allocate each employee's time among three
divisions: (1) operating partnerships; (2) corporate activities; and
(3) currently offered or proposed partnerships. The Managing General
Partner determines a percentage of total Administrative Costs per
division based on the total allocated time per division and personnel
costs (salaries) attributable to such time. Within the operating
partnership division, Administrative Costs are further allocated on
the basis of the total capital of each partnership invested in its
operations.
<PAGE>
Southwest Partners III, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies
The interim financial information as of March 31, 1998, and for the
three months ended March 31, 1998, is unaudited. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However,
in the opinion of management, these interim financial statements
include all the necessary adjustments to fairly present the results of
the interim periods and all such adjustments are of a normal recurring
nature. The interim consolidated financial statements should be read
in conjunction with the audited financial statements for the year
ended December 31, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Partners III, L.P., a Delaware limited partnership (the
"Partnership"), was formed on March 11, 1997 to invest in Sierra Well
Service, Inc. ("Sierra"), an oilfield service company which provides
services and products to oil and gas operators for the workover,
maintenance and plugging of existing oil and gas wells in the southwestern
United States. As of March 31, 1998, the Partnership owned a 45.9%
interest in Sierra, which is accounted for using the equity method of
accounting. The equity method adjusts the carrying value of the
Partnership's investment by its proportionate share of Sierra's
undistributed earnings or losses for each respective period.
<PAGE>
Results of Operations
For the quarter ended March 31, 1998
Revenues
Revenues consisted of interest income. The surplus of cash prior to the
periodic investments in Sierra generated interest income of $2,836.
Expenses
Direct expenses totaled $34,195 for the period, which consisted of $30,248
relating to general and administrative and $3,947 of amortization. General
and administrative expenses represent management fees paid to the Managing
General Partner for costs incurred to operate the partnership.
Amortization expense for the period relates to the Partnership's
organization costs.
Equity in loss of unconsolidated subsidiary of $764,452 reflects the
Partnership's weighted average proportionate share of the $573,944 loss by
Sierra for the period.
Liquidity and Capital Resources
The proceeds from the sale of partnership units in March 1997 funded the
Partnership's investment in Sierra. The Partnership did not sell any
additional partnership units or invest additional amounts in Sierra
subsequent to December 31, 1997.
Net Cash Provided by Operating Activities. Cash flows provided by
operating activities for the period consisted primarily of interest income
from a financial institution of $2,836.
Net Cash Used in Investing Activities. Cash flows used in investing
activities totaled $63,514 for the period, which consisted of organization
costs.
Net Cash Used in Financing Activities. Cash flows used in investing
activities totaled $105,007 for the period. The use of these funds
included $98,837 in syndication costs.
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
for which this report is filed.
<PAGE>
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.
SOUTHWEST PARTNERS III, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: May 15, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1998 (Unaudited) and the Statement of Operations
for the Three Months Ended March 31, 1998 (Unaudited) and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 335,378
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 335,378
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,147,480
<CURRENT-LIABILITIES> 30,225
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 16,117,255
<TOTAL-LIABILITY-AND-EQUITY> 16,147,480
<SALES> 0
<TOTAL-REVENUES> 2,836
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (795,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (795,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (795,811)
<EPS-PRIMARY> (3,940)
<EPS-DILUTED> (3,940)
</TABLE>
