<PAGE> 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
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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
<PAGE> 2
KCS ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in thousands except per share data) June 30, June 30,
------------------------ ------------------------
Unaudited 1997 1996 1997 1996
- -------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
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
===============================================================================================================================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
<PAGE> 3
KCS ENERGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands except per share data) 1997 1996
--------- ---------
Unaudited
<S> <C> <C>
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
=====================================================================================
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
<PAGE> 4
KCS ENERGY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
(Dollars in thousands) Unaudited 1997 1996
- ------------------------------------------------------- ---------- ---------
<S> <C> <C>
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
=========================================================================================
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
June 30, December 31,
(Thousands of dollars) 1997 1996
- ------------------------------------------------------------------
<S> <C> <C>
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
======= =======
</TABLE>
5
<PAGE> 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:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
(Thousands of dollars) 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
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 -
===================================================================================
</TABLE>
* 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
<PAGE> 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
------- -------- ------- --------
<S> <C> <C> <C> <C>
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
====================================================
</TABLE>
7
<PAGE> 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
<PAGE> 9
KCS ENERGY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 14
EXHIBIT INDEX
Exhibit 11 - Statement re computation of per share earnings.
Exhibit 27 - Financial Data Schedule.
<PAGE> 1
Exhibit 11
Statement Re Computation of Per Share Earnings
Primary earnings per share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
(Amounts in thousands except per share amounts) 1997 1996 1997 1996
------- -------- ------- --------
<S> <C> <C> <C> <C>
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
=======================================================================================================
</TABLE>
14
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0
0
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