23
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999
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: 000-23701
SOUTHWEST ROYALTIES, INC. SOUTHWEST ROYALTIES
(Exact Name of Registrant as HOLDINGS, INC.
Specified in Its Charter) (Exact Name of Registrant as
Specified in Its Charter)
Delaware Delaware
(State or Other Jurisdiction of (State or Other Jurisdiction
of
Incorporation or Organization) Incorporation or Organization)
75-1917432 75-2724264
(I.R.S. Employer (I.R.S. Employer
Identification Number) Identification Number)
407 North Big Spring, Suite 300
Midland, Texas 79701
(Address of Principal Executive Offices) (Zip Code)
(915) 686-9927
Registrants' Telephone Number, Including Area Code:
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Number of shares of common stock outstanding as of June 30, 1999 for
Southwest Royalties, Inc. 100.
Number of shares of common stock outstanding as of June 30, 1999 for
Southwest Royalties Holdings, Inc. 1,075,868.
<PAGE>
SOUTHWEST ROYALTIES, INC.
SOUTHWEST ROYALTIES HOLDINGS, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Operations for the
three and six months ended June 30, 1999
and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for the three
and six months ended June 30, 1999
and 1998 (unaudited) 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
PART II - OTHER INFORMATION
Item 6. Reports on Form 8-K and Exhibits 21
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
June 30, December 31,
1999 1998
--------- -----------
(unaudited)
ASSETS
- ---------------------------------------------------------
Current assets
Cash and cash equivalents $ 14,210 $ 13,801
Accounts receivable, net of allowance of $97 and
$342, respectively 6,591 5,248
Receivables from related parties 993 1,594
Other current assets 912 1,624
------- -------
Total current assets 22,706 22,267
------- -------
Oil and gas properties, using the full cost
method of accounting
Proved 190,532 194,096
Unproved 2,373 3,230
------- -------
192,905 197,326
Less accumulated depletion, depreciation and
amortization 124,558 121,841
------- -------
Oil and gas properties, net 68,347 75,485
------- -------
Rental property, net 132,175 132,120
------- -------
Other property and equipment, net 5,015 5,888
------- -------
Other assets
Restricted cash 4,142 5,050
Equity investment in subsidiaries - 931
Real estate investments 3,686 4,019
Deferred debt costs, net of accumulated
amortization of $2,439 and $3,136, respectively 10,849
8,725
Noncompete covenants, net of accumulated
amortization of $417 and $269, respectively 1,187 1,335
Other, net 1,488 1,730
------- -------
Total other assets 21,352 21,790
------- -------
Total assets $249,595 $ 257,550
======= =======
(continued)
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except per share data)
June 30, December 31,
1999 1998
--------- -----------
(unaudited)
LIABILITIES, MINORITY INTEREST, REDEEMABLE
COMMON STOCK AND STOCKHOLDERS' DEFICIT
- ---------------------------------------------------------
Current liabilities
Current maturities of long-term debt $ 6,913 $ 12,716
Accounts payable 5,507 7,116
Accounts payable to related parties - 173
Accrued expenses 10,329 9,737
------- -------
Total current liabilities 22,749 29,742
------- -------
Long-term debt 336,605 322,368
------- -------
Other long-term liabilities 1,765 1,797
------- -------
Minority interest 8 206
------- -------
Redeemable common stock of subsidiary 3,053 2,979
------- -------
Redeemable common stock 8,290 8,290
------- -------
Stockholders' deficit
Preferred stock - $1 par value; 5,000,000
shares authorized; none issued - -
Common stock - $.10 par value; 5,000,000 shares
authorized; 1,161,037 issued at June 30, 1999
and December 31, 1998 116 116
Additional paid-in capital 2,196 2,196
Accumulated deficit (120,434) (105,375)
Note receivable from an officer and
stockholder (1,663) (1,679)
Less: treasury stock - at cost; 214,215 shares at
June 30, 1999 and December 31, 1998 (3,090) (3,090)
------- -------
Total stockholders' deficit (122,875) (107,832)
------- -------
Total liabilities, minority interest, redeemable
common stock and stockholders' deficit $249,595 $ 257,550
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------ ----- ----- -----
Operating revenues
Oil and gas $ 6,960 $ 9,120 $13,054 $18,831
Real estate 7,742 5,883 15,951 10,794
Other 223 351 508 789
------ ------ ------ ------
Total operating revenues 14,925 15,354 29,513 30,414
------ ------ ------ ------
Operating expenses
Oil and gas production 2,763 5,209 5,631 10,662
Real estate 4,428 3,114 8,642 5,252
General and administrative, net of
related party management and
administrative fees of $821,
$1,721, $1,691 and $2,618,
respectively 673 1,250 1,460 2,602
Depreciation, depletion and
amortization 2,542 5,223 5,286 9,488
Impairment of oil and gas
properties - 29,000 - 29,000
Other 246 352 459 727
------ ------ ------ ------
Total operating expenses 10,652 44,148 21,478 57,731
------ ------ ------ ------
Operating income (loss) 4,273 (28,794) 8,035 (27,317)
------ ------ ------ ------
Other income (expense)
Interest and dividend income 258 354 412 797
Interest expense (10,375) (8,565) (21,063) (16,918)
Other (186) 277 14 280
------ ------ ------ ------
(10,303) (7,934) (20,637) (15,841)
------ ------ ------ ------
(contin
ued)
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------ ----- ----- -----
Loss before income taxes, minority
interest, equity income (loss) and
extraordinary item $ (6,030) $(36,728) $(12,602) $(43,158)
Income tax benefit - 404 - 2,348
--------- --------- --------- ---------
Loss before minority interest,
equity income (loss) and
extraordinary item (6,030) (36,324) (12,602) (40,810)
Minority interest in subsidiaries,
net of tax (87) 93 67 199
Equity in income (loss) of subsidiary
and partnerships net of tax 1 (759) (187) (1,081)
Impairment of equity investment,
net of tax - (744)
--------- --------- --------- ---------
Loss before extraordinary item (6,116) (36,990) (13,466) (41,692)
Extraordinary loss from
early extinguishment
of debt (1,593) - (1,593) -
--------- --------- --------- ---------
Net loss $ (7,709) $(36,990) $(15,059) $(41,692)
========= ========= ========= =========
Loss per common share before
extraordinary item $ (5.69) $ (34.38) $ (12.52) $ (38.75)
Extraordinary loss from
early extinguishment
of debt (1.48) - (1.48) -
--------- --------- --------- ---------
Loss per common share $ (7.17) $ (34.38) $ (14.00) $ (38.75)
========= ========= ========= =========
Weighted average shares
outstanding 1,075,868 1,075,868 1,075,868 1,075,868
========= ========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------ ----- ----- -----
Cash flows from operating activities
Net loss $(7,709) $(36,990) $(15,059) $(41,692)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation, depletion and
amortization 2,542 5,223 5,286 9,488
Impairment of oil and gas
properties - 29,000 - 29,000
Noncash interest expense 1,347 577 2,510 1,225
Extraordinary loss from early
extinguishment of debt 1,593 - 1,593 -
Gain on sale of assets (129) (261) (196) (261)
Equity (income) loss of subsidiary
and partnerships (1) 759 187 1,081
Impairment of equity investment - - 744
- -
Other noncash items 426 142 605 77
Bad debt expense 12 150 99 155
Deferred income taxes - (404) - (2,348)
Minority interest in (income) loss
of subsidiary 87 (93) (67) (199)
Changes in operating assets
and liabilities-
Accounts receivable (1,380) 73 (934) 2,370
Other current assets (370) (263) (320) (253)
Accounts payable and accrued
expenses 1,362 1,457 (674) (643)
Accrued interest payable (5,107) (5,223) (251) (22)
------ ------ ------ ------
Net cash used in operating activities (7,327) (5,853) (6,477)
(2,022)
------ ------ ------ ------
Cash flows from investing activities
Proceeds from sale of oil and
gas properties 4,887 2,838 5,205 3,058
Purchase of oil and gas properties (513) (2,275) (784)
(6,566)
Purchase of other property and
equipment and rental property (1,391) (25,415) (2,473)
(26,451)
Purchase of other assets (234) (790) (455) (2,147)
Purchase of noncompete covenants - - -
(1,602)
Proceeds from sale of real
estate investments 333 764 333 764
Proceeds from sale of other assets 713 1,040 945
1,060
Proceeds from sale of other
property and equipment and
rental property 855 24 1,068 24
(continued)
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
1999 1998 1999 1998
------ ----- ----- -----
Change in restricted cash $ 2,727 $ 384 $ 908 $ 1,056
Other 8 (14) 16 8
------ ------ ------ ------
Net cash provided by (used in)
investing activities 7,385 (23,444) 4,763 (30,796)
------ ------ ------ ------
Cash flows from financing activities
Proceeds from borrowings 99,210 24,873 103,240 26,965
Payments on debt (94,819) (561) (96,078) (837)
Increase (decrease) in other
long-term liabilities (48) 14 (32) (35)
Deferred debt cost (3,986) (637) (4,075) (780)
Dividends paid to minority interest
owners (30) (30) (61) (61)
Purchase of minority interest in
subsidiary - (108) - (305)
Other 4 (3) 4 (3)
Prepayment penalty on early
extinguishment of debt (875) - (875) -
------ ------ ------ ------
Net cash provided by (used in)
financing activities (544) 23,548 2,123 24,944
------ ------ ------ ------
Net increase (decrease) in unrestricted
cash and cash equivalents (486) (5,749) 409 (7,874)
Unrestricted cash and cash equivalents -
beginning of period 14,696 25,240 13,801 27,365
------ ------ ------ ------
Unrestricted cash and cash equivalents -
end of period $14,210 $19,491 $14,210 $19,491
======= ======= ======= =======
Supplemental disclosures of cash flow
information
Interest paid $14,135 $13,212 $18,804 $15,716
Income taxes paid $ - $ - $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Business
Southwest Royalties Holdings, Inc. ("SRH"), a Delaware corporation, was
formed in June 1997 to serve as a holding company for Southwest Royalties
Inc. ("Southwest"), Sierra Well Service Inc. ("Sierra") and Midland Red Oak
Realty, Inc. ("Red Oak") (collectively, the "Company"). Each shareholder of
Southwest was issued one share in SRH for each share of Southwest stock
held. Prior to the formation of SRH, Red Oak and Sierra were subsidiaries
of Southwest. Southwest paid a dividend of the shares it owned in Red Oak
and Sierra to SRH. After the formation of SRH, Southwest and Red Oak became
subsidiaries of SRH and, as of July 1, 1997, Sierra was deconsolidated.
Southwest is principally involved in the business of oil and gas
development and production, as well as organizing and serving as managing
general partner for various public and private limited partnerships engaged
in oil and gas acquisitions, exploration, development and production.
Southwest is also the general partner of Southwest Partners II and III,
which own common stock in Sierra. Southwest sells its oil and gas
production to a variety of purchasers, with the prices it receives being
dependent upon the oil and gas commodity prices. Red Oak is principally
involved in real estate investment and development. Sierra is principally
involved in the business of oil and gas well services.
Principles of Consolidation
The consolidated financial statements include the accounts of SRH and
its subsidiaries. As of June 30, 1999 and 1998, the Company owned
approximately 81% of Red Oak, 30% and 39% of Sierra, as well as 99% of
Midland Southwest Software ("MSS"), 100% and 98% of Threading Products
International, LLC ("TPI"), both of which are subsidiaries of Southwest.
Effective July 1, 1997, Sierra was deconsolidated and is accounted for
using the equity method. The consolidated financial statements include the
Company's proportionate share of the assets, liabilities, income and
expenses of oil and gas limited partnerships for which it serves as
managing general partner. The Company accounts for its investments in
Southwest Partners II and III using the equity method, as the Company
exercises significant influence over the operations of these partnerships.
All significant intercompany transactions have been eliminated.
Restricted Cash
Restricted cash represents amounts required to be reserved in separate
accounts by financial lenders. These reserves are principally for real
estate activity and are held in the names of Red Oak and its various
subsidiaries, but withdrawals from such accounts require the signature or
authorization of the lender.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies - continued
Restricted cash accounts, principally for Red Oak and its subsidiaries,
have been established for the following purposes (in thousands):
June 30, December 31,
1999 1998
---- ----
Certificate of Deposits $ 110 105
Tenant security deposits 488 412
Interest reserves - 707
Capital expenditures account 119 1,229
Tax and insurance reserve 1,723 1,009
Tenant bankruptcy reserve - 767
Lockbox 1,074 217
Customer service reserve 15 10
Escrow fund 613 594
----- -----
$ 4,142 5,050
===== =====
Interim Financial Statements
In the opinion of management, the unaudited consolidated financial
statements of the Company as of June 30, 1999 and 1998 include all
adjustments and accruals, consisting only of normal recurring accrual
adjustments, which are necessary for a fair presentation of the results for
the interim periods. These interim results are not necessarily indicative
of results for a full year.
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 Report
pursuant to the rules and regulations of the Securities and Exchange
Commission. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the 1998 Form 10-K of the Company.
2. Liquidity
The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
consolidated financial statements do not include any adjustments relating
to the recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
The Company has a highly leveraged capital structure with $21.0 million
of interest payments due by April 15, 2000 on its 10.5% Senior Notes and
approximately $6.9 million of principal and approximately $10.9 million of
cash interest payments due by June 30, 2000 on its other obligations
(principally related to Red Oak). Due to severely depressed commodity
prices experienced by the oil and gas industry during the last quarter of
1997, throughout 1998 and continuing through the first quarter of 1999 and
lagging rental property utilization, the Company is experiencing difficulty
in generating sufficient cash flow to meet its obligations and sustain its
operations. Management is attempting to renegotiate the terms of the
Company's various obligations with its note holders and lenders and/or
attempting to seek new lenders or equity investors. Additionally,
management would consider disposing of certain assets in order to meet its
obligations.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Liquidity - continued
There can be no assurance that the Company's debt restructuring efforts
will be successful or that the note holders or lenders will agree to a
course of action consistent with the Company's requirements in
restructuring the obligations. Even if such agreement is reached, it may
require approval of additional note holders, or possibly, agreements of
other creditors of the Company, none of which is assured. Furthermore,
there can be no assurance that the sale of assets can be successfully
accomplished on terms acceptable to the Company. Under current
circumstances, the Company's ability to continue as a going concern depends
upon its ability to (1) successfully restructure its 10.5% Senior Notes and
other obligations or obtain additional financing as may be required, (2)
maintain compliance with all debt covenants, (3) generate sufficient cash
flow to meet its obligations on a timely basis, and (4) achieve
satisfactory levels of future earnings. If the Company is unsuccessful in
its efforts, it may be unable to meet its obligations on the 10.5% Senior
Notes, as well as other obligations, making it necessary to undertake such
other actions as may be appropriate to preserve asset values.
3. Commitments and Contingencies
The Company is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Company to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their
future economic benefit. Expenditures that relate to an existing condition
caused by past operations and that have no future economic benefits are
expensed. Liabilities for expenditures of a noncapital nature are expensed
when environmental assessment and/or remediation is probable and the costs
can be reasonably estimated.
Management recognizes a financial exposure that may require future
expenditures presently existing for oil and gas properties and other
operations. As of June 30, 1999, the Company has not been fined, cited or
notified of any environmental violations which would have a material
adverse effect upon capital expenditures, earnings or the competitive
position in the oil and gas industry. However, management does recognize
that by the very nature of its business, significant costs could be
incurred to bring the Company into total compliance. The amount of such
future expenditures is not readily determinable due to several factors,
including the unknown magnitude of possible contaminations, the unknown
timing and extent of the corrective actions which may be required, the
determination of the Company's liability in proportion to other responsible
parties and the extent to which such expenditures are recoverable from
insurance or indemnifications from prior owners of the Company's
properties. It is reasonably possible this estimate could change materially
in the near term.
In the normal course of its business, the Company is subject to pending
or threatened legal actions; in the opinion of management, any such matters
will be resolved without material effect on the Company's operations, cash
flows or financial position.
4. Commodity Hedging and Derivative Financial Instruments
The Company, from time to time, uses option contracts to mitigate the
volatility of price changes on commodities the Company produces and sells
as well as to lock in prices to protect the economics related to certain
capital projects.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Commodity Hedging and Derivative Financial Instruments - continued
On March 15, 1999, Southwest entered into a commodity swap agreements to
hedge a portion of its crude oil sales. The agreement is for a notional
amount of 1,000 BBls of oil a day, approximately 30% of total current oil
production, with a strike price of $14.67, based on West Texas Intermediate
- - NYMEX. The contract is for the period April 1, 1999 through June 30,
1999, but can be extended to September 30, 1999, at the option of the
counter-party. The contract period was extended until September 30, 1999.
The Company entered into three additional commodity swap agreements
subsequent to June 30, 1999 (See Note 7).
5. Long-term Debt
Long-term debt consists of the following (in thousands):
June 30, December 31,
1999 1998
----- -----
10.5% Senior Notes, interest payable semi-annually due
October 15, 2004, net of $1,979 and $2,116 discount,
respectively $198,021 $197,884
13.5% Notes payable, due April 2000. Cash interest of
10.5% payable monthly with additional interest payable
based on excess cash flow or through the issuance of
additional notes. Collateralized by real estate. -
72,273
Revolving line of credit, variable interest, due February
1999. Collateralized by oil and gas properties 1
40
Capital lease obligations - 418
Variable Rate Notes Payables:
Notes payable due July 2001. Variable interest due and
payable monthly with additional 1% payable based on
lock box agreement. Net of $1,278 and $1,611 discount 14,230
13,891
Note payable due December 2001. Variable interest due and
payable monthly with additional 1% payable based on
lock box agreement. Net of $3,222 and $3,889 discount 22,613
21,806
Note payable due July 2002. Variable interest due and
payable monthly with additional 1% payable based on
lock box agreement. Net of $4,740 discount 97,635 -
Other 11,018 28,772
------- -------
343,518 335,084
Less current maturities 6,913 12,716
------- -------
$336,605 $322,368
======= =======
10.5% Senior Notes
In October 1997, the Company issued $200 million aggregate principal
amount of 10.5% Senior Notes due October 15, 2004 (the "Notes"). The Notes
were sold at a discount and interest is payable April 15 and October 15 of
each year, commencing April 15, 1998. The Notes are general unsecured
senior obligations of the Company and rank equally in right of payment with
all other senior indebtedness of the Company and senior in right of payment
of all existing future subordinated indebtedness of the issuer. Net
proceeds from the issuance of the Notes were used primarily to repay
existing debt of approximately $84 million, purchase oil and gas properties
for approximately $72 million, purchase additional stock in Red Oak for
approximately $10 million, invest $1.7 million in an affiliate, with the
remaining balance used for working capital.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term Debt - continued
The Indenture imposes certain limitations on the ability of the Company
and its restricted subsidiaries to, among other things, incur additional
indebtedness or issue disqualified capital stock, make payments in respect
to capital stock, enter into transactions with affiliates, incur liens,
sell assets, change the nature of its business, merge or consolidate with
any other person and sell, lease, transfer or otherwise dispose of
substantially all of its properties or assets. The indenture requires the
issuer to repurchase notes under certain circumstances with the excess cash
of certain asset sales. The limitations are subject to a number of
important qualifications and exceptions. The issuer must report to the
Trustee on compliance with such limitations on a quarterly basis.
13.5% Note Payable
In April 1997 MRO Properties Inc. ("MROP"), a 100% owned subsidiary of
Red Oak entered into a $42 million credit facility maturing in April 2000
with an institutional lender (the "MROP Facility"). The MROP Facility was
executed in order to consolidate nine mortgage loans, originally incurred
to complete the acquisition of certain Red Oak properties and to finance
the acquisition of an additional real estate property. Borrowings under
the facility bear interest at a rate of 13%, with 10% payable in cash and
the remaining 3% payable in cash or additional notes. The facility
contains a number of covenants that, among other things, restrict the
ability of MROP to incur additional indebtedness and dispose of assets.
The facility is secured by a first lien on substantially all of MROP's
properties. In September 1997, the Company negotiated an additional $30.5
million in loan proceeds which was used to acquire a retail shopping center
and office building in Oklahoma City, Oklahoma and a retail shopping center
in San Antonio, Texas. The loan is collateralized by the properties
purchased, and by properties contributed by the Company. This note was
repaid with a portion of the proceeds from the June 1999 Variable Rate Note
Payable.
Revolving Line of Credit
Southwest Credit Facility. The Southwest Credit Facility was amended to
provide for a $75 million revolving line of credit due upon demand, subject
to semi-annual borrowing base redetermination. The initial borrowing base
of $40 million is subject to a $15 million available sub-limit for oil and
gas acquisitions, with the balance of the borrowing base available for
general corporate purposes. Borrowings accrue interest at LIBOR plus a
margin ranging from 1.75% to 2.50% and the facility incurs a quarterly
commitment fee of three-eighths of one percent (3/8%) per annum on the
daily average of the unadvanced amount of the borrowing base. The
Southwest Credit Facility is secured by substantially all of Southwest's
proved oil and gas properties. The facility contains a number of covenants
that limit loans and advances, investments, and dividends, as well as
setting a minimum interest coverage ratio for SRH. During the second
quarter, in response to the sustained low oil price environment, the lender
issued lower pricing parameters for the computation of the borrowing base
for all of its oil and gas customers. Using the new price parameters,
Southwest has no current availability under its line of credit. The lender
schedules quarterly reviews of its pricing policy and should oil prices
strengthen, the Company can request a redetermination at that time. At
June 30, 1999, Southwest is in violation of the minimum interest coverage
ratio. Southwest will not seek a waiver as the violation does not create a
cross default on any other debt and the $1,000 outstanding on the credit
facility is already classified as current on the Company's balance sheet.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term Debt - continued
Variable Rate Notes Payable
In June 1998, MRO N Cross, Inc., a wholly owned subsidiary of Red Oak
negotiated two notes payable in the amount of $13.5 million, net of a $2
million discount, and $2.5 million. The $13.5 million note was used for the
acquisition of rental property in the amount of $12.9 million with the
remaining $600,000 to be used for capital improvements to the rental
property purchased. The $2.5 million note is for capital improvements to
the rental property purchased and has not been utilized as of June 30,
1999. The notes are collateralized by the property purchased.
In December 1998, MRO Commercial, Inc., a wholly owned subsidiary of Red
Oak negotiated two notes payable in the amount of $21.7 million, net of a
$4 million discount, and $9.7 million. The $21.7 million note was used for
the acquisition of rental property. The $9.7 million note is for capital
improvements to the rental property purchased and has not been utilized as
of December 31, 1998. The notes are collateralized by the property
purchased.
In June 1999, MRO Southwest, Inc., a wholly owned subsidiary of Red Oak
negotiated two notes payable in the amount of $97.5 million, net of a $4.9
million discount, and $8.0 million. Borrowings for both notes accrue
interest in arrears at a rate per annum equal to the greater of 8.6% or
LIBOR plus 360 basis points. The interest rate includes a servicing fee of
10 basis points per annum. Approximately $93.6 million of the $97.5
million note was used to retire existing debt, on properties contributed to
MRO Southwest by Red Oak, $1.5 million was deposited into various
restricted cash accounts and the remaining proceeds were used for general
corporate purposes. The $8.0 million note is for capital improvements to
rental property and has not been utilized as of June 30, 1999. The notes
are collateralized by the properties owned by MRO Southwest. The notes
impose certain restrictive covenants such as to incur additional
indebtedness, to dissolve, terminate or liquidate all or substantially all
of the assets, change legal structure of the assets, make any loans or
advances to any third party and commingle its assets with the assets of any
of its affiliates or of any other person or entity.
As of June 30, 1999, Red Oak was in technical default on two term notes
payable and one debenture, for failure to pay principal and interest
payments on the stated due dates. These notes are classified as current in
the Company's consolidated balance sheet at June 30, 1999. Subsequent to
June 30, 1999 the principal and interest payments have been made and
therefore the technical defaults have been cured.
Extinguishment of Debt
In June 1999, the Company repaid certain notes payable with proceeds
from the aforementioned Variable Note Payable issued in June of 1999.
Prepayment penalties and the remaining unamortized deferred debt costs
associated with these notes resulted in an extraordinary charge of $1,593
million or $(1.48) per share. Since there is no recorded income tax
benefits on continuing operations there is no income tax benefits recorded
on the extraordinary loss.
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-term Debt - continued
Aggregate maturities of all long-term debt as of June 30, 1999,
including capital leases, are as follows (in thousands):
For the twelve
months ended
--------------
June 30, 2000 $ 6,913
June 30, 2001 14,478
June 30, 2002 23,378
June 30, 2003 98,039
June 30, 2004 89
Thereafter 200,621
-------
$343,518
=======
6. Lines of Business
The Company operates in two major segments: Oil and Gas Activities (oil
and gas acquisition, development, exploration and production, as well as
organizing and serving as managing general partner for various public and
private limited partnerships engaged in oil and gas development and
production) and Real Estate Investment and Management (owns and manages
retail shopping centers and office buildings). Other items include
eliminations, manufacturing, computer service and the holding Company.
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
----- ----- ----- -----
(in thousands) (in thousands)
(unaudited) (unaudited)
Operating profit (loss)
Oil and gas $ 2,564 $(30,428) $ 3,673 $(30,974)
Real estate 1,755 1,702 4,350 3,680
Other and eliminations (46) (68) 12 (23)
------- ------ ------ ------
$ 4,273 $(28,794) $ 8,035 $(27,317)
======= ====== ====== ======
Interest Expense
Oil and gas $ 5,601 $ 5,569 $11,128 $11,127
Real Estate 4,831 2,965 10,039 5,746
Other and eliminations (57) 31 (104) 45
------- ------ ------ ------
$ 10,375 $ 8,565 $21,063 $16,918
======= ====== ====== ======
Depreciation, depletion and
amortization
Oil and gas $ 1,308 $ 4,478 $ 2,979 $ 8,169
Real Estate 1,198 698 2,222 1,226
Other and eliminations 36 47 85 93
------- ------ ------ ------
$ 2,542 $ 5,223 $ 5,286 $ 9,488
======= ====== ====== ======
<PAGE>
SOUTHWEST ROYALTIES HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Lines of Business - continued
Three months ended Six months ended
June 30, June 30,
------------------ -----------------
1999 1998 1999 1998
----- ----- ----- -----
(in thousands) (in thousands)
(unaudited) (unaudited)
Capital expenditures
Oil and gas $ 513 $ 2,537 $ 784 $ 6,955
Real Estate 1,003 25,043 1,597 25,868
Other and eliminations - 110 - 194
------- ------ ------ ------
$ 1,516 $27,690 $ 2,381 $33,017
======= ====== ====== ======
June 30,December 31,
1999 1998
--------------------
Identifiable assets
Oil and gas $102,445 $111,876
Real estate 149,938 148,340
Other and eliminations (2,788) (2,666)
------- -------
$249,595 $257,550
======= =======
7. Subsequent Events
On July 9, 1999, Southwest entered into a commodity swap agreement to
hedge a portion of its crude oil sales. The agreement is for a notional
amount of 1,000 BBls of oil a day, approximately 30% of total current oil
production, with a strike price of $20.22, based on West Texas Intermediate
- - NYMEX. The contract is for the period August 1, 1999 through October 31,
1999, but can be extended to January 31, 2000, at the option of the counter-
party.
On July 28, 1999, Southwest entered into a commodity swap agreement to
hedge a portion of its natural gas sales. The agreement is for a notional
amount of 2,250 MMBtu of gas a day, approximately 25% of total current gas
production, with a strike price of $2.78, based on Henry Hub - NYMEX. The
contract is for the period September 1, 1999 through November 30, 1999, but
can be extended to February 28, 2000, at the option of the counter-party.
On July 29, 1999, Southwest entered into a commodity swap agreement to
hedge a portion of its natural gas sales. The agreement is for a notional
amount of 2,250 MMBtu of gas a day, approximately 25% of total current gas
production, with a strike price of $2.64, based on Henry Hub - NYMEX. The
contract is for the period September 1, 1999 through November 30, 1999.
On August 17, 1999, Midland Red Oak Realty, Inc. sold two office
buildings for approximately $2.1 million. Approximately $1.5 million of
the sales proceeds were used to pay off mortgaged debt associated with
these properties and approximately $500,000 were available for working
capital.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
Southwest Royalties Holdings, Inc., a Delaware corporation, was formed
in 1997 to serve as a holding company for Southwest Royalties, Inc., Sierra
Well Service, Inc. and Midland Red Oak Realty, Inc. SRH is an independent
oil and gas company engaged in the acquisition, development and production
of oil and gas properties, primarily in the Permian Basin of West Texas and
southeastern New Mexico, through its wholly-owned subsidiary, Southwest.
Since 1983, Southwest has grown primarily through selective acquisitions of
producing oil and gas properties, both directly and through the oil and gas
partnerships it manages. SRH also participates in the well servicing
industry through its affiliate, Sierra, and owns and manages real estate
properties through its subsidiary, Red Oak.
Results of Operations
Three months and six months ended June 30, 1999 compared to three months
and six months June 30, 1998
The following table summarizes production volumes, average sales prices
and period to period comparisons for the Company's oil and gas operations,
including the effect on revenues, for the periods indicated:
Three months ended Six months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
----- ----- ----- -----
(in thousands) (in thousands)
(unaudited) (unaudited)
Production volumes:
Oil and condensate (MBbls) 333 460 689
929
Natural gas (MMcf) 988 1,488 2,139 3,010
Average sales prices:
Oil and condensate (per Bbl) $ 14.99 $ 12.99 $ 13.08 $
13.66
Natural gas (per Mcf) $ 1.94 $ 1.95 $ 1.88 $ 1.94
Revenues. Revenues for the Company decreased 3% to $14.9 million for the
three months ended June 30, 1999 and 3% to $29.5 million for the six months
ended June 30, 1999, as compared to $15.4 million and $30.4 million for the
same periods in 1998.
Oil and gas revenues decreased 24% to $7.0 million for the three months
ended June 30, 1999 and 31% to $13.1 million for the six months ended June
30, 1999, as compared to $9.1 million and $18.8 million for the same
periods in 1998. For the three and six months ended June 30, 1999,
decreased production contributed $2.6 million and $5.0 million,
respectively to the decline in oil and gas revenues. Oil and gas
production decreased 30%, or approximately 2,313 BOEPD, for the three
months ended June 30, 1999 and 27%, or approximately 2,130 BOEPD, for the
six months ended June 30, 1999, as compared to the same periods in 1998. In
an ongoing effort to increase the Company's cash position and reduce the
number of high operating expense properties in its oil and gas portfolio,
management has sold oil and gas properties for approximately $7.9 million
since July 1, 1998. The production decline resulting from oil and gas
property sales was approximately 1,100 BOEPD, or 14% of the total
production decline for the three months ended June 30, 1999 and
approximately 900 BOEPD, or 11% of the total production decline for the six
months ended June 30, 1999. The remainder of the production decline for the
three and six months ended June 30, 1999 are the results of natural decline
and production being shut-in due to the devastating drop in oil and gas
prices experienced by the Industry throughout 1998 and the first quarter of
1999.
<PAGE>
Real estate revenues increased 32% to $7.7 million for the three months
ended June 30, 1999 and 48% to $16.0 million for the six months ended June
30, 1999, as compared to $5.9 million and $10.8 million for the same
periods in 1998. The increase in revenues is due primarily to several
acquisitions which were made subsequent to June 30, 1998.
Operating Expenses. Operating expenses, before general and
administrative expense, impairment of oil and gas properties and
depreciation, depletion and amortization, decreased 14% to $7.4 million and
11% to $14.7 million for the three and six months ended June 30, 1999,
respectively, as compared to $8.7 million and $16.6 million for the same
periods in 1998.
Oil and gas operating expense decreased approximately 47% to $2.8 for
the three months ended June 30, 1999 and approximately 47% to $5.6 for the
six months ended June 30, 1999, due primarily to management's efforts to
cut expenses through more efficient operations, and by selectively
eliminating high operating expense properties from its oil and gas
portfolio. The average operating expense decreased 24% to $5.55 per BOE for
the three months ended June 30, 1999 and 28% to $5.39 per BOE for the six
months ended June 30, 1999 from $7.35 and $7.45 per BOE for the same
periods in 1998.
Real estate operating expense increased 42% to $4.4 million for the
three months ended June 30, 1999 and 65% to $8.6 million for the six months
ended June 30, 1999, as compared to $3.1 million and $5.3 million for the
same periods in 1998. These increases were due primarily to several
acquisitions, which were made subsequent to June 30, 1998.
General and Administrative (''G&A'') Expense. G&A expense for the
Company decreased 46% to $673,000 for the three months ended June 30, 1999
and 44% to $1.5 million for the six months ended June 30, 1999, as compared
to $1.3 million and $2.6 million for the same periods in 1998. Oil and gas
G&A expense per BOE decreased 45% to $.68 for the three months ended June
30, 1999 from $1.24 per BOE for the same period in 1998. For the six
months ended June 30, 1999, G&A expense per BOE decreased 46% to $.76 from
$1.42 per BOE for the same period in 1998, due primarily to reductions in
oil and gas technical and administrative staff in response to the
significant decrease in oil and gas prices experienced throughout 1998.
Real estate G&A expense increased 1% to $371,000 and 15% to $731,000 for
the three and six months ended June 30, 1999, respectively from $369,000
and $636,000 for the comparable periods of 1998. The increases are
directly related to administrative staff increases necessitated by
acquisitions completed in 1998.
Depreciation, Depletion and Amortization (''DD&A'') Expense. DD&A
expense for the Company decreased 51% to $2.5 million and 44% to $5.3
million for the three and six months ended June 30, 1999, respectively, as
compared to $5.2 million and $9.5 million for the same periods in 1998.
Oil and gas depletion expense on a BOE basis, decreased 61% to $2.37 per
BOE for the three months ended June 30, 1999 from $6.13 per BOE for the
same period in 1998. For the six months ended June 30, 1999, depletion
expense per BOE decreased 53% to $2.60 from $5.53 per BOE for the same
period in 1998. The decrease in DD&A expense on an overall basis and per
BOE is due primarily to the reduction in the carrying value of the
Company's oil and gas properties because of the impairment, of
approximately $64 million, which was recorded during 1998. Real estate
DD&A expense increased 72% to $1.2 million and 81% to $2.2 million for the
three and six months ended June 30, 1999, respectively from $698,000 and
$1.2 million for the three and six months ended June 30, 1998,
respectively, due to the impact of acquisitions.
Interest Expense. Interest expense for the Company increased 21% and 25%
to $10.4 million and $21.1 million for the three and six months ended June
30, 1999, respectively, as compared to $8.6 million and $16.9 million for
the same periods in 1998. The increase results from increased borrowings
incurred to fund a portion of the Company's acquisitions and oil and gas
development. Oil and gas interest expense remained constant at $5.6
million and $11.1 million for the three and six months ended June 30, 1999
and 1998 respectively. Real estate interest expense increased 63% to $4.8
million for the three months ended June 30, 1999 and 75% to $10.0 million
for the six months ended June 30, 1999, as compared to $3.0 million and
$5.7 million for the same periods in 1998. The increases were due to
additional debt used to finance real estate acquisitions during 1998.
<PAGE>
Equity in Loss of Subsidiary. Equity in Loss of Subsidiary resulted in
a charge of $931,000 for the six months ended June 30, 1999. This amount
relates to the Company's 30% investment in Sierra.
Net Income. Due to the factors described above, net loss for the Company
decreased 79% and 64% to $7.7 million and $15.1 million for the three and
six months ended June 30, 1999, respectively, as compared to a net loss of
$37.0 million and $41.7 million for the same periods in 1998, respectively.
Liquidity and Capital Resources
Management is constantly monitoring its cash position and its ability to
meet financial obligations as they become due, and as part of this effort,
is exploring various strategies for addressing its current and future
liquidity needs. As of June 30, 1999, SRH's consolidated cash balance was
approximately $14.2 million, of which approximately $13.0 million was
available to Southwest.
SRH financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The consolidated financial
statements do not include any adjustments relating to the recoverability
and classification of liabilities that might be necessary should SRH be
unable to continue as a going concern.
SRH has a highly leveraged capital structure with $21.0 million of
interest payments due by April 15, 2000 on its 10.5% Senior Notes and
approximately $6.9 million of principal and approximately $10.9 million of
cash interest payments due by June 30, 2000 on its other obligations
(principally related to Red Oak). Due to severely depressed commodity
prices experienced by the oil and gas industry during the last quarter of
1997, throughout 1998 and continuing through the first quarter of 1999 and
lagging rental property utilization, SRH is experiencing difficulty in
generating sufficient cash flow to meet its obligations and sustain its
operations. Management is currently in the process of renegotiating the
terms of SRH's various obligations with its note holders and/or attempting
to seek new lenders or equity investors. Additionally, management would
consider disposing of certain assets in order to meet its obligations.
There can be no assurance that SRH's debt restructuring efforts will be
successful or that the note holders will agree to a course of action
consistent with SRH's requirements in restructuring the obligations. Even
if such agreement is reached, it may require approval of additional note
holders, or possibly, agreements of other creditors of SRH, none of which
is assured. Furthermore, there can be no assurance that the sales of
assets can be successfully accomplished on terms acceptable to SRH. Under
current circumstances, SRH's ability to continue as a going concern depends
upon its ability to (1) successfully restructure its 10.5% Senior Notes and
other obligations or obtain additional financing as may be required, (2)
maintain compliance with all debt covenants, (3) generate sufficient cash
flow to meet its obligations on a timely basis, and (4) achieve
satisfactory levels of future earnings. If SRH is unsuccessful in its
efforts, it may be unable to meet its obligations on the 10.5% Senior
Notes, as well as other obligations, making it necessary to undertake such
other actions as may be appropriate to preserve asset values.
<PAGE>
Net Cash Used In Operating Activities
Net cash used in operating activities was $7.3 million and $6.5 million
for the three and six months ended June 30, 1999, respectively, as compared
to net cash used in operating activities of $5.8 million and $2.0 million
for the same periods in 1998. The increase in cash used in operating
activities, is primarily attributable to decreases in oil and gas
production and commodity prices as well as increased interest expense,
offset by lower operating costs.
Net Cash Provided By Investing Activities
Net cash provided by (used in) investing activities by the Company were
$7.4 million and $4.8 million for the three and six months ended June 30,
1999, as compared to $(23.4) million and $(30.8) for the comparable periods
in 1998. Oil and gas property sales were the primary sources of funds for
both periods.
In response to the substantial decrease in oil prices during 1998, SRH
has initiated a short-term alternate business plan that delays certain
development and exploratory projects until oil and gas industry conditions
improve. Based on this plan, SRH has tentatively budgeted $8 million in
capital expenditures at Southwest for oil and gas development projects.
This budget is subject to change based on financial strategies currently
being developed, including hedging strategies, divestitures and debt
restructuring, as well as the level of oil and gas prices in the future.
Net Cash Provided by (Used in) Financing Activities.
Net cash provided by (used in) the Company's financing activities was
$(544,000) and $2.1 million for the three and six months ended June 30,
1999 and $23.6 million and $24.9 million for the same period in 1998,
respectively. Net cash provided by financing activities, were from debt
refinancing and were mainly used to fund real estate operations in 1999.
Other Issues
The information included in "Other Issues" in Item 7 of SHR's 1998 Form
10-K regarding Information Systems for the year 2000 is incorporated herein
by reference. As of June 30, 1999, there have been no material changes in
SRH's Year 2000 disclosure.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7A of SRH's 1998 Form 10-K is incorporated
herein by reference. Such information includes a description of SHR's
potential exposure to market risks, including commodity price risk and
SHR's interest rate risk. As of June 30, 1999, there have been no material
changes in SRH's market risk exposure from that disclosed in the 1998 Form
10-K (see Note 4 and Note 7).
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. REPORTS ON FORM 8K AND EXHIBITS
Reports on Form 8-K
None.
Exhibits
The following instruments and documents are included as Exhibits to this
Report. Exhibits incorporated by reference are so indicated by
parenthetical information.
Exhibit Number Description
- -------------- -----------
27* Financial Data Schedule.
* Filed herewith.
<PAGE>
SIGNATURES
SOUTHWEST ROYALTIES, INC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.
SOUTHWEST ROYALTIES, INC.
By:/s/ H. H. Wommack, III
-----------------------------
H.H. Wommack, III, Chairman, President,
and Chief Executive Officer
Date: August 20, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ H.H. Wommack, III
- -----------------------------
H. H. Wommack, III Chairman/President/
Chief Executive Officer August 20, 1999
/s/ Bill E. Coggin
- -----------------------------
Bill E. Coggin Vice President/Chief
Financial Officer August 20, 1999
/s/ H. Allen Corey
- -----------------------------
H. Allen Corey Director/Secretary August 20, 1999
<PAGE>
SIGNATURES
SOUTHWEST ROYALTIES HOLDINGS, INC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereto duly authorized.
SOUTHWEST ROYALTIES HOLDINGS, INC.
By:/s/ H. H. Wommack, III
-----------------------------
H.H. Wommack, III, Chairman, President,
and Chief Executive Officer
Date: August 20, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ H.H. Wommack, III
- -----------------------------
H. H. Wommack, III Chairman/President/
Chief Executive Officer August 20, 1999
/s/ Bill E. Coggin
- -----------------------------
Bill E. Coggin Vice President/Chief
Financial Officer August 20, 1999
/s/ H. Allen Corey
- -----------------------------
H. Allen Corey Director/Secretary August 20, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at June 30, 1999 (Unaudited) and the Statement of Operations
for the Six Months Ended June 30, 1999 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,210,000
<SECURITIES> 0
<RECEIVABLES> 7,584,000
<ALLOWANCES> (97,000)
<INVENTORY> 246,048
<CURRENT-ASSETS> 22,706,000
<PP&E> 339,953,000
<DEPRECIATION> (134,416,000)
<TOTAL-ASSETS> 249,595,000
<CURRENT-LIABILITIES> 22,749,000
<BONDS> 336,605,000
11,343,000
0
<COMMON> 116,000
<OTHER-SE> 122,759,000
<TOTAL-LIABILITY-AND-EQUITY> 249,595,000
<SALES> 13,054,000
<TOTAL-REVENUES> 29,513,000
<CGS> 5,631,000
<TOTAL-COSTS> 14,732,000
<OTHER-EXPENSES> 1,460,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,063,000
<INCOME-PRETAX> (15,059,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,059,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,593,000)
<CHANGES> 0
<NET-INCOME> (15,059,000)
<EPS-BASIC> (14.00)
<EPS-DILUTED> (14.00)
</TABLE>
