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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, 2001
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.
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, 2000, which are found in the Registrant's Form
10-K Report filed with the Securities and Exchange Commission. The
December 31, 2000 balance sheet included herein has been taken from the
Registrant's 2000 Form 10-K Report. Operating results for the three months
ended March 31, 2001 are not necessarily indicative of the results that may
be expected for the full year.
Southwest Partners III, L.P.
(a Delaware limited partnership)
Balance Sheets
March 31, December 31,
2001 2000
---- ----
(Unaudited)
Assets
Current asset:
Cash and cash equivalents $ 406,537 404,112
======= ======
Liabilities and Partners' Equity
Current liabilities:
Payable to General Partner and
$ 341,399 340,107
---------- ----------
Total current liabilities 341,399
340,107
---------- ----------
Partners' equity:
General Partner (907,055) (907,225)
Limited partners 972,193 971,230
---------- ----------
Total partners' equity 65,138
64,005
---------- ----------
$ 406,537 404,112
========== ==========
Southwest Partners III, L.P.
(a Delaware limited partnership)
Statement of Operations
(Unaudited)
Three Months Ended
March 31,
2001 2000
Revenues ---- ----
Interest income $ 2,425 2,805
---------
- ---------
2,425
2,805
---------
- ---------
Expenses
General and administrative 1,292 31,326
---------
- ---------
1,292
31,326
---------
- ---------
Net income (loss) $ 1,133 (28,521)
=========
=========
Net income (loss) allocated to:
General Partner $ 170 (4,278)
=========
=========
Limited partners $ 963 (24,243)
=========
=========
Per limited partner unit $ 6 (142)
=========
=========
Southwest Partners III, L.P.
(a Delaware limited partnership)
Statement of Cash Flows
(Unaudited)
Three Months Ended
March
31,
Cash flows from operating activities: 2001 2000
---- ----
Interest received $ 2,425 2,805
---------
- --------
Net cash provided by operating activities 2,425 2,805
---------
- --------
Net increase in cash and cash equivalents 2,425 2,805
Beginning of period 404,112 392,709
---------
- ---------
End of period $ 406,537 395,514
=========
=========
Reconciliation of net loss to net cash
provided by operating activities:
Net income (loss) $ 1,133 (28,521)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Increase in accounts payable 1,292 31,326
---------
- ---------
Net cash provided by operating activities $ 2,425 2,805
=========
=========
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.
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, 2001, and for the
three months ended March 31, 2001, 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 financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 2000.
3. Investments
Common stock ownership in Basic Energy Services, Inc. was as follows:
December 31, 1997 to March 31, 1999 45.89%
March 31, to December 21, 2000 44.94%
December 21, 2000 to December 31, 2000 10.57%
Southwest Partners III consists entirely of an investment in Basic's
common stock. The investment had been accounted for using the equity
method. Based on the December 21, 2000 transaction discussed below,
the Partnership will be accounting for the investment using the cost
method. Southwest Partners III no longer holds a 20% or more interest
in Basic and exerts no significant influence over Basic's operations.
On December 21, 2000, Basic entered into a refinancing and
restructuring of its debt and equity. Upon the signing of the
documents, the Partnership's percentage of ownership was diluted from
44.94% to 10.57%. A new equity investor, in exchange for 1,441,730
shares of Basic's common stock, purchased and retired $24.5 million of
Basic's debt from its previous lender. The equity investor received a
76% ownership. Additionally, $10.5 million of the debt held by the
previous lender was refinanced with a new lender. The remaining debt
held by the previous lender of approximately $21.7 million was
cancelled.
Basic in March 2000 filed a restated certificate of incorporation
increasing its authorized common shares to 25,000,000 and completed a
400-for-1 stock split. All shares had been restated as if the stock
split had occurred at the beginning of 1998. The 400-for-1 stock
split was reversed during 2000. Basic on December 21, 2000 completed
a 100-for-1 dividend. The Partnership at December 31, 2000 owns 10.57%
or 200,500 shares of Basic's outstanding common stock.
Southwest Partners III, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
3. Investments (continued)
Following is a summary of the financial position and results of
operations of Basic Energy Services, Inc. as of March 31, 2001 and
December 31, 2000 and for the three months ended March 31, 2001 and
the year ended December 31, 2000 (in thousands):
2001 2000
---- ----
Current assets $ 14,714 $ 13,283
Property and equipment, net 43,765 32,780
Other assets, net 10,607 6,955
------ ------
Total assets $ 69,086 $ 53,018
====== ======
Current liabilities $ 15,497 $ 11,322
Long-term debt 15,429 15,390
Deferred income taxes 4,912 5,052
------ ------
$ 35,838 $ 31,764
====== ======
Stockholders' equity $ 33,248 $ 21,254
====== ======
Sales $ 20,000 $ 56,466
====== ======
Net income $ 1,218 $ 13,849
====== ======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Southwest Partners III
General
Southwest Partners III, L.P., a Delaware limited partnership (the
"Partnership"), was formed on March 11, 1997 to invest in Basic Energy
Services, Inc. ("Basic"), 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, 2001, the Partnership owned a 10.57%
interest in Basic, which is accounted for using the cost method of
accounting.
Results of Operations
For the quarter ended March 31, 2001
Revenues
Revenues consisted of interest income of $2,425 for the quarter ended March
31, 2001 as compared to $2,805 for the quarter ended March 31, 2000.
Expenses
Direct expenses totaled $1,292 and $31,326 for the quarters ended March 31,
2001 and 2000, respectively, and consisted of general and administrative
expenses. General and administrative expenses represent management fees
paid to the Managing General Partner for costs incurred to operate the
partnership.
Liquidity and Capital Resources
The proceeds from the sale of partnership units in March 1997 funded the
Partnership's investment in Basic. The Partnership did not sell any
additional partnership units or invest additional amounts in Basic
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 $2,425.
Net Cash Used in Investing Activities. There were no amounts provided by
or used in investing activities for the quarter ended March 31, 2001.
Net Cash Used in Financing Activities. There were no amounts provided by
or used in financing activities for the quarter ended March 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations - continued
Basic Energy Services, Inc.
General
Basic derives its revenues from well servicing, liquids handling, fresh and
brine water supply and disposal and other related services. Well servicing
rigs are billed at hourly rates that are generally determined by the type
of equipment required, market conditions in the region in which the well
servicing rig operates, ancillary equipment and the necessary personnel
provided on the rig. Basic charges its customers for liquids handling and
fresh and brine water supply and disposal services on an hourly or per
barrel basis depending on the services offered. Demand for services
depends substantially upon the level of activity in the oil and gas
industry, which in turn depends, in part, on oil and gas prices,
expectations about future prices, the cost of exploring for, producing and
delivering oil and gas, the discovery rate of new oil and gas reserves in
on-shore areas, the level of drilling and workover activity and the ability
of oil and gas companies to raise capital.
Results of Operations
For the quarter ended March 31, 2001
Revenues
Basic's revenues increased to $20 million, or 55%, for the quarter ended
March 31, 2001 as compared to $12.9 million for the same period in 2000.
The increase was primarily attributable to the rise in oil and gas prices,
which increased Basic's activity and equipment utilization.
Expenses
Operating expenses increased $3.7 million, or 32%, for the quarter ended
March 31, 2001 as compared to the same period for 2000. The increase in
operating expenses is directly associated to the increase in revenues. The
components of operating expenses consisted of increases in cost of revenues
of $2.3 million and general and administrative increases of $1.4 million.
Interest expense for the quarter ended March 31, 2001 decreased to $680,000
from $1.6 million for the same period in 2000. The decrease was directly
associated with Basic's December 21, 2000 refinancing and restructuring of
debt.
Liquidity and Capital Resources
The primary source of cash is from operations, the receipt of income from
well services provided. Liquidity and capital resource information below
is provided in thousands.
Net Cash Provided by Operating Activities. Cash flows provided by
operating activities for the period consisted primarily of net operating
income net of expenses of $1.3 million.
Net Cash Used in Investing Activities. Cash flows used in investing
activities totaled $16.5 million for the period, and consisted primarily of
$12.9 million company acquisitions and $3.4 million purchase of property
and equipment.
Net Cash Provided by Financing Activities. Cash flows provided by
financing activities totaled $12.5 million for the period. The source of
these funds included borrowing $3.3 million from the Revolver, and issuance
of common stock of $9.8 million.
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:
None
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
for which this report is filed.
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
of Southwest Royalties, Inc.
the Managing General Partner
Date: May 15, 2001