-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JIy4d8mrV4tKunwxs2zbjaLj+sLJ+LSFflgA5Q/RI91+gxxppeBqmPIo0+WRF1is 6d6YO2sT5XS73mwImvP5Zg== 0000092122-97-000054.txt : 19970814 0000092122-97-000054.hdr.sgml : 19970814 ACCESSION NUMBER: 0000092122-97-000054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOBILE ENERGY SERVICES CO LLC CENTRAL INDEX KEY: 0000948362 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 631148953 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-92776-01 FILM NUMBER: 97659474 BUSINESS ADDRESS: STREET 1: 900 ASHWOOD PKWY STREET 2: SUITE 300 CITY: ATLANTA STATE: GA ZIP: 30338 BUSINESS PHONE: 770-673-77 MAIL ADDRESS: STREET 1: 900 ASHWOOD PARKWAY STREET 2: SUITE 300 CITY: ATLANTA STATE: GA ZIP: 30338 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOBILE ENERGY SERVICES HOLDINGS INC CENTRAL INDEX KEY: 0000945979 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 582133689 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-92776 FILM NUMBER: 97659475 BUSINESS ADDRESS: STREET 1: 900 ASHWOOD PARKWAY STREET 2: SUITE 450 CITY: ATLANTA STATE: GA ZIP: 30338 BUSINESS PHONE: 770-673-7730 MAIL ADDRESS: STREET 1: 900 ASHWOOD PARKWAY STREET 2: SUITE 450 CITY: ATLANTA STATE: GA ZIP: 30338 10-Q 1 FORM 10-Q ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter 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 Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 33-92776 Mobile Energy Services Company, L.L.C. 63-1148953 (An Alabama Limited Liability Company) 900 Ashwood Parkway, Suite 300 Atlanta, Georgia 30338 (770) 379-7781 33-92776 Mobile Energy Services Holdings, Inc. 58-2133689 (An Alabama Corporation) 900 Ashwood Parkway, Suite 450 Atlanta, Georgia 30338 (770) 379-7730 Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No ___
Description of Shares Outstanding Registrant Common Stock at July 31, 1997 Mobile Energy Services Company, L.L.C. Not Applicable Mobile Energy Services Holdings, Inc. Par Value $1 Per Share 1,000
Each of the registrants meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this form with reduced disclosure as permitted by such General Instruction H. 2 Table of Contents PAGE PART I Selected Definitions 4 Item 1. Financial Statements 9 Mobile Energy Services Company, L.L.C. Management's Opinion as to Fair Statement of Results 9 Statements of Income 10 Statements of Cash Flows 11 Balance Sheets 12 Mobile Energy Services Holdings, Inc. Management's Opinion as to Fair Statement of Results 13 Consolidated Statements of Income 14 Consolidated Statements of Cash Flows 15 Consolidated Balance Sheets 16 Notes to the Condensed Financial Statements 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 PART II Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 3 SELECTED DEFINITIONS When used in this report, the following terms will have the meanings indicated. "Air Compressors" means the air compressors and related facilities that service the compressed air needs of the Mills and the Energy Complex that are owned by Scott/Kimberly-Clark and located on the property leased by Scott/Kimberly-Clark to Mobile Energy. "Cluster Rule" means a regulation proposed by the EPA in December 1993 that includes (1) certain effluent limitation guidelines and standards for the control of waste water pollutants from pulp and paper industry facilities and (2) a national emission standard for hazardous air pollutants emitted from mills that chemically pulp wood fiber using kraft, sulfite, soda, or semi-chemical methods. "Combustion Rule" means the regulation that the EPA has indicated it expects to propose applicable to the pulp and paper industry facilities, consisting of effluent guidelines and emission standards for combustion sources. "Common Services Agreement" means the Common Services Agreement dated December 12, 1994 among Mobile Energy, Scott/Kimberly-Clark, the Paper Mill Owner, the Tissue Mill Owner and the Pulp Mill Owner, including any amendments thereto. "Demand" means with respect to a particular Processing Service, and a particular Mill, the quantity of the Energy Complex's capacity to provide such Processing Service that Mobile Energy is obligated to dedicate to such Mill pursuant to the Energy Services Agreements and the Master Operating Agreement. "Demand Charges" means the fixed capacity charges each Mill Owner is obligated to pay, based upon formulas set forth in the Master Operating Agreement, to Mobile Energy based upon the level of such Mill Owner's Demand for each Processing Service. "Energy Services Agreements" means the three separate Energy Services Agreements dated December 12, 1994, including any amendments thereto, between Mobile Energy and each of (1) the Tissue Mill Owner, (2) the Pulp Mill Owner, and (3) the Paper Mill Owner. "Financing Documents" means all agreements, documents and instruments evidencing and/or securing the senior indebtedness of Mobile Energy. "First Mortgage Bonds" means $255,210,000 principal amount of 8.665% First Mortgage Bonds due 2017 issued by Mobile Energy and unconditionally guaranteed by Holdings. 4 "Holdings" means Mobile Energy Services Holdings, Inc. "IDB"means Industrial Development Board of the City of Mobile, Alabama. "Indenture" means the Trust Indenture dated as of August 1, 1995 among Mobile Energy, Holdings, and First Union National Bank of Georgia, as trustee. "Intercreditor Agreement" means the Intercreditor and Collateral Agency Agreement dated as of August 1, 1995 among Bankers Trust (Delaware) as the collateral agent, Mobile Energy, Holdings, First Union National Bank of Georgia as trustee under the Indenture, First Union National Bank of Georgia as trustee under the Tax-Exempt Indenture, the IDB, and Banque Paribas as the Working Capital Facility Provider. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. "Maintenance Expenditures" means all costs and expenses of operating and maintaining the Energy Complex and, when Mobile Energy is exercising the Mobile Energy Step-In Rights, the Pulp Mill Step-In Equipment, other than (i) fuel costs and expenses, (ii) labor and employee expenses, including fringe benefits and labor relations expense, (iii) payments for insurance premiums and like insurance-related expenses, (iv) costs and expenses of consumable items such as process or cleaning chemicals and lubricants, (v) equipment rental, small tools and vehicle maintenance expenses, (vi) costs and expenses associated with legal, accounting and other office and administrative functions, (vii) permitting fees, (viii) costs and expenses of safety supplies, office supplies and other office expenses, (ix) property taxes and payments made in lieu of taxes, (x) computer maintenance expenses, (xi) any amounts payable for services rendered under the Common Services Agreement, (xii) ash disposal costs, (xiii) certain liquidated damages payable to the Mill Owners under the Master Operating Agreement, (xiv) amounts payable to the Mill Owners for reimbursement of costs incurred in connection with the exercise of Mill Owner Step-In Rights, (xv) any amounts required to be rebated to the United States government pursuant to Section 148 of the Internal Revenue Code in connection with any of the Tax-Exempt Indenture Securities and (xvi) payments to the IDB, including payments required to be made by Mobile Energy with respect to the 1994 Bonds, in each case to the extent the foregoing costs or expenses are not customarily treated as capital expenditures. "Master Operating Agreement" means the amended and restated Master Operating Agreement (including any amendments thereto or restatements thereof) dated as of July 13, 1995 among Mobile Energy, Scott/Kimberly-Clark, the Tissue Mill Owner, the Pulp Mill Owner, and the Paper Mill Owner. "Mill Environmental Indemnity Agreements" means three separate environmental indemnity agreements dated December 12, 1994, including any amendments thereto, between Mobile Energy and each of (1) the Pulp Mill Owner, (2) the Paper Mill Owner, and (3) the Tissue Mill Owner. 5 "Mill Owner Maintenance Reserve Account Agreement" means the Mill Owner Maintenance Reserve Account Agreement dated as of August 1, 1995 among Mobile Energy, Southern, the Pulp Mill Owner, the Paper Mill Owner, and the Tissue Mill Owner. "Mill Owners" means the Paper Mill Owner, the Pulp Mill Owner, and the Tissue Mill Owner. "Mill Owner Step-In Rights" means the rights granted to the Mill Owners by the Master Operating Agreement to assume operational responsibility for the Energy Complex under certain circumstances where Mobile Energy fails to meet the needs of the Mills for Processing Services and that failure is not excused under the Master Operating Agreement. "Mobile Energy" means Mobile Energy Services Company, L.L.C. "Mobile Energy Step-In Rights" means the right granted to Mobile Energy under the Master Operating Agreement to assume operational responsibility for the Pulp Mill Step-In Equipment if the Pulp Mill Owner fails to perform its obligations under the Water Agreement (and if certain other conditions are satisfied). "1994 Bonds" means $117,000,000 principal amount of Industrial Development Revenue Bonds 1994 Series A due December 1, 2014 issued by the IDB and Scott. "Operation and Maintenance Costs" means all costs and expenses of operating and maintaining the Energy Complex and, when Mobile Energy is exercising the Mobile Energy's Step-In Rights, the Pulp Mill Step-In Equipment, including and together with, without limitation, Maintenance Expenditures and any costs and expenses specified in clauses (i) through (xvi) of the definition of Maintenance Expenditures (other than rent payments under the lease agreement between the IDB and Mobile Energy that secures the Tax-Exempt Bonds and payments of principal, premium and interest on the 1994 Bonds). "Paper Mill Owner" means S.D. Warren acting in its capacity as the owner of the Paper Mill. "Processing Sales" means the usage charges that the Mill Owners are required to pay to Mobile Energy under the Energy Services Agreements based upon formulas set forth in the Master Operating Agreement and which vary from month to month in accordance with the amount of Processing Services required by, and provided to, such Mill Owner and Mobile Energy's efficiency with respect to fuel usage. "Process Water Plant" means the plant owned by the Pulp Mill Owner which supplies water to the Energy Complex and the Mills. "Processing Services" means Power Processing Services, Steam Processing Services and Liquor Processing Services. 6 "Pulp Mill Owner" means Scott/Kimberly-Clark acting in its capacity as the owner of the Pulp Mill. "Pulp Mill Step-In Equipment" means the Process Water Plant, the Waste Water Treatment Plant, the Air Compressors (if any of the Mill Owners are operating the Air Compressors) and the Pulp Mill's truck scales. "Scott" means Scott Paper Company. "Scott/Kimberly Clark" means Scott, the wholly owned subsidiary of Kimberly-Clark, Inc. "S.D. Warren" means S.D. Warren Company. "SEC" means the Securities and Exchange Commission. "Shared Services" means Steam Processing Services, Power Processing Services, process water, and compressed air. "Services" means any one or more (as the context may require) of Liquor Processing Services and the Shared Services. "Southern" means The Southern Company. "Southern Energy" means Southern Energy, Inc. (formerly known as Southern Electric International, Inc.) "Step-In Rights" means Mill Owner Step-In Rights or Mobile Energy Step-In Rights, as the context may require. "Tax-Exempt Bonds" means $85,000,000 principal amount of 6.95% Solid Waste Revenue Refunding Bonds (Mobile Energy Services Company, L.L.C. Project) Series 1995 due 2020 issued by the IDB. "Tax-Exempt Indenture" means the Amended and Restated Trust Indenture dated as of August 1, 1995 between the IDB and First Union National Bank of Georgia, as trustee under which the Tax-Exempt Bonds were issued in August 1995. "Tax-Exempt Indenture Securities" means the Tax-Exempt Bonds and any additional senior indebtedness issued pursuant to the Tax-Exempt Indenture. "Tissue Mill Owner" means Scott/Kimberly-Clark acting in its capacity as the owner of the Tissue Mill. 7 "Waste Water Treatment Plant" means the treatment plant owned by the Pulp Mill Owner and used to treat waste water from the Energy Complex and the Mills. "Water Agreement" means the Water Procurement and Effluent Services Agreement dated December 12, 1994 among Mobile Energy, the Pulp Mill Owner, the Tissue Mill Owner, and the Paper Mill Owner, including any amendments thereto. 8 Item 1. FINANCIAL STATEMENTS MOBILE ENERGY SERVICES COMPANY, L.L.C. MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed financial statements of Mobile Energy included herein have been prepared by Mobile Energy without audit, pursuant to the rules and regulations of the SEC. In the opinion of Mobile Energy's management, the information furnished herein reflects all adjustments (which included only normal recurring adjustments) necessary to present fairly the results for the periods ended June 30, 1996 and June 30, 1997. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC, although Mobile Energy 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 Mobile Energy's Report on Form 10-K for the year ended December 31, 1996. 9
MOBILE ENERGY SERVICES COMPANY, L.L.C. STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Demand charges $14,396 $14,718 $28,482 $28,926 Processing sales 6,210 6,036 14,187 12,741 Other 180 175 360 443 ------- ------- ------- ------- Total operating revenues 20,786 20,929 43,029 42,110 ------- ------- ------- ------- OPERATING EXPENSES: Operations and maintenance 6,402 5,873 13,194 12,152 Fuel 1,613 1,998 4,536 3,909 Depreciation and amortization 3,271 3,137 6,512 6,205 ------- ------- ------- ------- Total operating expenses 11,286 11,008 24,242 22,266 ------- ------- ------- ------- OPERATING INCOME 9,500 9,921 18,787 19,844 INTEREST EXPENSE (7,361) (7,544) (14,774) (15,125) OTHER INCOME 189 278 321 469 ------- ------- ------- ------- NET INCOME $ 2,328 $ 2,655 $ 4,334 $ 5,188 ======= ======= ======= ======= The accompanying notes as they relate to Mobile Energy are an integral part of these condensed statements.
10
MOBILE ENERGY SERVICES COMPANY, L.L.C. STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months For the Six Months Ended June 30, 1997 Ended June 30, 1996 ------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,334 $ 5,188 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,203 6,868 Change in operating assets and liabilities: Accounts receivable 488 (50) Prepaid expenses and other current assets 16,738 (4,044) Accounts payable (3,687) (5,622) Accrued interest and other current liabilities (4,205) 443 -------- -------- Total adjustments 16,537 (2,405) -------- -------- Net cash provided by operating activities 20,871 2,783 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant, and equipment (669) (7,030) -------- -------- Net cash used in investing activities (669) (7,030) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of notes payable, net (14,252) 2,608 Equity contributions 7,071 0 Repayment of long-term debt (17,270) (12,265) Payment of member distributions (12,782) (23,004) -------- -------- Net cash used in financing activities (37,233) (32,661) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (17,031) (36,908) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,896 40,990 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,865 $ 4,082 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of amount capitalized $ 14,215 $ 10,220 ======== ======== The accompanying notes as they relate to Mobile Energy are an integral part of these condensed statements.
11
MOBILE ENERGY SERVICES COMPANY, L.L.C. BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- --------------- CURRENT ASSETS Cash and cash equivalents $ 2,865 $ 19,896 Restricted deposits 17,438 17,414 Trade accounts receivable 13,979 14,467 Materials and supplies 2,809 2,854 Prepaid expenses and other 583 30 ------- --------- Total current assets 37,674 54,661 ------- --------- PROPERTY, PLANT AND EQUIPMENT 377,364 374,988 Less accumulated depreciation (29,725) (23,667) Construction work in process 1,861 3,568 -------- -------- Property, plant and equipment, net 349,500 354,889 -------- -------- DEFERRED LOAN COST Net of accumulated amortization of $1,310 and $968 at June 30, 1997 and December 31, 1996 respectively 13,847 14,188 -------- -------- Total assets $401,021 $423,738 ======== ======== LIABILITIES AND MEMBERS' EQUITY At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- -------------- CURRENT LIABILITIES Trade accounts payable $ 1,468 $ 2,006 Account payable - associated company 867 4,016 Distribution payable 0 12,782 Note payable 8,593 22,845 Current portion - long-term debt 7,670 7,350 Accrued interest 13,646 13,846 Other 1,147 1,524 --------- -------- Total current liabilities 33,391 64,369 --------- -------- LONG-TERM DEBT 293,318 296,461 COMMITMENTS AND CONTINGENCIES MEMBERS' EQUITY 74,312 62,908 -------- -------- Total liabilities and members' equity $401,021 $423,738 ======== ======== The accompanying notes as they relate to Mobile Energy are an integral part of these condensed statements.
12 MOBILE ENERGY SERVICES HOLDINGS, INC. AND SUBSIDIARY MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS The condensed consolidated financial statements of Holdings included herein have been prepared by Holdings without audit, pursuant to the rules and regulations of the SEC. In the opinion of Holdings' management, the information furnished herein reflects all adjustments (which included only normal recurring adjustments) necessary to present fairly the results for the periods ended June 30, 1996 and June 30, 1997. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC, although Holdings believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in Holdings Report on Form 10-K for the year ended December 31, 1996. 13
MOBILE ENERGY SERVICES HOLDINGS, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Stated in Thousands of Dollars) For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------- ------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- OPERATING REVENUES: Demand charges $14,396 $14,718 $28,482 $28,926 Processing sales 6,210 6,036 14,187 12,741 Other 180 175 360 443 ------- ------- ------- ------- Total operating revenues 20,786 20,929 43,029 42,110 ------- ------- ------- ------- OPERATING EXPENSES: Operations and maintenance 6,402 5,873 13,194 12,152 Fuel 1,613 1,998 4,536 3,909 Depreciation and amortization 3,271 3,137 6,512 6,205 ------- ------- ------- ------- Total operating expenses 11,286 11,008 24,242 22,266 ------- ------- ------- ------- OPERATING INCOME 9,500 9,921 18,787 19,844 INTEREST EXPENSE (7,361) (7,544) (14,774) (15,125) OTHER INCOME 224 295 339 486 MINORITY INTEREST (23) (27) (43) (52) ------- ------- ------- ------- INCOME BEFORE TAXES 2,340 2,645 4,309 5,153 PROVISION FOR INCOME TAXES 895 1,012 1,648 1,971 ------- ------- ------- ------- NET INCOME $ 1,445 $ 1,633 $ 2,661 $ 3,182 ======= ======= ======= ======= The accompanying notes as they relate to Holdings are an integral part of these condensed statements.
14
MOBILE ENERGY SERVICES HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Stated in Thousands of Dollars) For the Six Months For the Six Months Ended June 30, 1997 Ended June 30, 1996 --------------------- --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,661 $ 3,182 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,203 6,868 Deferred income taxes 6,334 5,721 Changes in operating assets and liabilities: Accounts receivable 488 (50) Prepaid expenses and other current assets 15,668 (4,043) Accounts payable (112) (5,622) Accrued interest and other current liabilities (3,252) 2,062 -------- -------- Total adjustments 26,329 4,936 -------- -------- Net cash providedby operating activities 28,990 8,118 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant, and equipment (669) (7,030) -------- -------- Net cash used in investing activities (669) (7,030) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) of notes payable (14,252) 2,608 Repayment of long-term debt (17,270) (12,265) Payment of dividends & return of capital (16,012) (23,004) -------- -------- Net cash used in financing activities (47,534 (32,661) -------- -------- DECREASE IN CASH AND CASH EQUIVALENTS (19,213) (31,573) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,679 41,118 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,466 $9,545 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest, net of amount capitalized $ 14,215 $ 10,201 ======== ======== Cash received during period for: Cash received from income tax refunds $ 4,353 $ 5,318 ======== ======== The accompanying notes as they relate to Holdings are an integral part of these condensed statements.
15
MOBILE ENERGY SERVICES HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (Stated in Thousands of Dollars) ASSETS At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- --------------- CURRENT ASSETS Cash and cash equivalents $ 7,466 $ 26,679 Restricted deposits 17,438 17,414 Trade accounts receivable 13,979 14,467 Materials and supplies 2,809 2,854 Prepaid expenses and other 2,696 1,074 -------- -------- Total current assets 44,388 62,488 -------- -------- PROPERTY, PLANT AND EQUIPMENT 377,364 374,988 Less accumulated depreciation (29,725) (23,667) Construction work in process 1,861 3,568 -------- --------- Property, plant and equipment, net 349,500 354,889 -------- -------- DEFERRED LOAN COST Net of accumulated amortization of $1,310 and $968 at June 30, 1997 and December 31, 1996 respectively 13,847 14,188 -------- -------- Total assets $407,735 $431,565 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY At June 30, 1997 At December 31, (Unaudited) 1996 ---------------- --------------- CURRENT LIABILITIES Trade accounts payable $ 1,468 $ 2,006 Account payable - associated company 1,367 941 Dividends payable 0 16,012 Note payable 8,593 22,845 Current portion - long-term debt 7,670 7,350 Accrued interest 13,646 13,846 Other 1,147 1,454 -------- -------- Total current liabilities 33,891 64,454 -------- -------- DEFERRED INCOME TAXES 45,748 39,414 -------- -------- LONG-TERM DEBT 293,318 296,461 MINORITY INTEREST 743 629 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY Common stock, $1 par value; 1,000 shares authorized and outstanding 1 1 Paid-in capital 31,373 30,623 Retained earnings (deficit) 2,661 (17) -------- -------- Total stockholder's equity 34,035 30,607 -------- -------- Total liabilities and stockholder's equity $407,735 $431,565 ======== ======== The accompanying notes as they relate to Holdings are an integral part of these condensed statements. 16
MOBILE ENERGY SERVICES COMPANY, L.L.C. MOBILE ENERGY SERVICES HOLDINGS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS: (A) Mobile Energy is contractually obligated under three energy service agreements (the "Agreements") to provide Power Processing Services and Steam Processing Services to a tissue mill (the "Tissue Mill"), a pulp mill (the "Pulp Mill"), and a paper mill (the "Paper Mill," and together with the Tissue Mill and the Pulp Mill, the "Mills") and Liquor Processing Services to the Pulp Mill for a period of 25 years beginning December 16, 1994. Under the terms of the Agreements, the Mill Owners are obligated to pay monthly fixed demand charges for dedicated capacity of the Energy Complex and also variable charges for actual amounts purchased. (B) Mobile Energy is subject to dynamic federal, state and local environmental laws and regulations. For example, the Environmental Protection Agency ("EPA") has proposed (1) certain standards for the control of waste water pollutants facilities and (2) a national emission standard for hazardous air pollutants from facilities which would include the Mills (the "Cluster Rule"). If promulgated as proposed, the Cluster Rule (which would principally apply to the Mills) probably will require significant modifications to the Mills. The EPA also plans to propose regulations applicable to combustion sources at pulp and paper facilities. These regulations, collectively referred to as the "Combustion Rule," will likely consist of effluent guidelines and hazardous air pollutant emission standards. The EPA currently plans to propose the Combustion Rule during 1997. Accordingly, the Cluster Rule could have a materially adverse impact on the economic status of the Mills and the amount of processing services they require, and the Combustion Rule could have a materially adverse impact on Mobile Energy directly by requiring Mobile Energy to modify its equipment or operations in order to comply with the Combustion Rule's provisions. Under the Master Operating Agreement, Mobile Energy generally is permitted to charge the Mills the reasonable cost of capital expenditures and operations and maintenance expenses incurred by Mobile Energy as a result of the Cluster Rule or the Combustion Rule. Nevertheless, there can be no assurance that a Mill Owner would not abandon its Mill rather than incur the costs imposed by the Cluster Rule (or any other environmental or nonenvironmental law or regulation) or would have the ability to comply with its obligations under the Master Operating Agreement associated with the Combustion Rule. Either such result could have a materially adverse impact on Mobile Energy's financial condition and results of operations. As regulatory agencies have not yet promulgated final standards for some existing programs, and as some proposed requirements(such as the Cluster Rule) have not yet been enacted or adopted, Mobile Energy cannot at this time reasonably estimate its costs of compliance with these additional programs and requirements (some of which will not take effect for several years or may not be promulgated at all) or the timing of any such costs. 17 (C) In connection with the Acquisition, Mobile Energy entered into noncancelable land leases (the "Leases") with Scott/Kimberly-Clark. Rent expense under the Leases approximates $1 per year from 1995 through 2019. Also contained in the Leases is a right to purchase the land from Scott/Kimberly-Clark at the end of the lease term for $10. However, retention of the property is not under the control of Mobile Energy due to Scott/Kimberly-Clark's superseding option to repurchase the Energy Complex from Mobile Energy at the end of the lease term at fair market value. Accordingly, Mobile Energy's repurchase option is not reasonable assured and therefore is not considered a bargain purchase option under SFAS No. 13, "Accounting for Leases." 18 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background Mobile Energy and Holdings were formed to acquire, own and manage the energy and black liquor recovery complex (the "Energy Complex") located at an integrated pulp, paper and tissue manufacturing facility in Mobile, Alabama (the "Mobile Facility"). Holdings acquired the Energy Complex (the "Acquisition") and commenced operations on December 16, 1994 (the "Acquisition Closing Date"). Holdings transferred all its interests in the Energy Complex to Mobile Energy on July 14, 1995. Mobile Energy's sole business consists exclusively of the ownership and management of the Energy Complex. Holdings, which owns 99% of the equity interests in Mobile Energy, does not conduct any independent operations. Southern Energy owns the remaining equity interest in Mobile Energy. The Mobile Facility is a physically integrated complex that produces tissue and paper products from timber that is processed into bleached and unbleached pulp. The Mobile Facility is comprised of the Energy Complex, a tissue mill (the "Tissue Mill"), a pulp mill (the "Pulp Mill"), and a paper mill (the "Paper Mill," and together with the Tissue Mill and the Pulp Mill, the "Mills"). The Mills currently obtain all of their aggregate steam processing needs and 98 percent of their aggregate power processing needs from the Energy Complex. In addition, the Energy Complex processes weak black liquor delivered by the Pulp Mill Owner into green liquor, a necessary component of the pulp making process (this process, the "Liquor Processing Services"). The conversion of weak black liquor into green liquor involves a combustion process which provides heat that is further used to generate steam (the "Steam Processing Services") and electricity (the "Power Processing Services"). Mobile Energy's revenues are comprised almost entirely of Demand Charges and Processing Charges for services provided to the Mills. Demand Charges represent compensation to Mobile Energy for dedicating a portion of the Energy Complex's capacity to the Mills. Demand Charges are designed generally to cover, among other things, costs that are in the nature of fixed costs, including debt service. Processing Charges are paid by each Mill Owner to Mobile Energy based on formulary usage charges which vary from month to month, based on the amount of Processing Services required by, and provided to, each Mill Owner, and on Mobile Energy's efficiency with respect to fuel usage. Processing Charges are designed generally to cover the balance of Mobile Energy's costs that are not projected to be covered by Demand Charges, including fuel expenses. Results of Operations Because the Energy Complex was not operated as an independent business prior to its acquisition by Holdings, Holdings did not purchase a business from Scott but, rather, purchased assets. Since the Acquisition, Holdings and subsequently Mobile Energy have operated such assets as an independent business. The business with respect to the Energy Complex commenced on December 16, 1994 when Holdings began operations. As a consequence of the relatively short time period Holdings and Mobile Energy have operated the Energy Complex, discussion and analysis of their results of operations is necessarily limited in scope, and may not be indicative of their future results of operations and financial condition. Thus, the financial information contained herein is not necessarily representative of the future results of operations and financial condition of Mobile Energy or Holdings. 19 The relationship between Holdings and Mobile Energy is a parent-subsidiary relationship. Holdings' material assets are comprised solely of its ownership interest in Mobile Energy and its rights in respect of a tax sharing agreement (the "Southern Master Tax Sharing Agreement"), which apportions consolidated income tax among Southern and its corporate subsidiaries, including Holdings. Accordingly, the consolidated financial statements of Holdings reflect the assets, liabilities, and operating results of Mobile Energy. Revenues Operating revenues for the second quarter of 1997 decreased $0.1 million, or 0.7%, compared to the second quarter 1996. The decrease is primarily due to decrease in revenue for Demand Charges offset by increase in Processing Sales. For year to date 1997 versus year to date 1996, operating revenues increased $0.9 million or 2.2% primarily due to increased processing sales revenue and increased gas prices partially offset by Demand Charges. The level of Processing Sales for both periods reflects utilization of the Energy Complex near capacity levels. Demand Charges and Processing Sales for the second quarters of 1997 and 1996, and year to date 1997 1996 in thousands of dollars and expressed as a percent of total revenues, were as follows:
Quarter Ended Year to Date ---------------------------------------- --------------------------------------- June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996 Dollars Percent Dollars Percent Dollars Percent Dollars Percent ------- ------- ------- ------- ------- ------- ------- ------- (in thousands) (in thousands) Demand Charges: Pulp Mill $ 9,267 44.6% $ 9,610 45.9% $18,224 42.4% $18,719 44.5% Tissue Mill 2,533 12.2% 2,523 12.1% 5,067 11.8% 5,040 12.0% Paper Mill 2,596 12.5% 2,585 12.4% 5,191 12.1% 5,167 12.3% ------- ------ ------- ----- ------- ----- ------ ----- 14,396 69.3% 14,718 70.3% 28,482 66.3% 28,926 68.7% Processing Charges: Pulp Mill 1,332 6.4% 1,202 5.7% 3,268 7.6% 2,796 6.6% Tissue Mill 2,399 11.5% 2,463 11.8% 5,377 12.5% 4,982 11.8% Paper Mill 2,479 11.9% 2,371 11.3% 5,542 12.8% 4,963 11.8% ------- ------ ------- ----- ------- ----- ------ ----- 6,210 29.8% 6,036 28.8% 14,187 32.9% 12,741 30.3% Other revenues 180 0.9% 175 0.8% 360 0.8% 443 1.1% ------- ------ ------- ----- ------- ------ ------- ----- Total revenues $20,786 100.0% $20,929 100.0% $43,029 100.0% $42,110 100.0% ======= ====== ======= ===== ======= ====== ======= ====== The Mills' peak usage of Processing Services for year to date of 1997 and 1996 were as follows: YTD 6-30--97 YTD 6-30-96 ------------------------- --------------------- Peak Contractual Peak Contractual Mill Processing Services Usage Demand Usage Demand ----- ------------------- ----- ---------- ------ ----------- Pulp Liquor Conversion MMLBs/week 44.7 42.7 43.6 42.7 Steam MMBTUs/hr 540.0 500.0 618.0 500.0 Electricity MW/hr 31.5 32.0 29.7 32.0
20
Tissue Steam MMBTUs/hr 239.0 280.0 293.0 280.0 Electricity MW/hr 38.4 39.5 38.1 39.5 Paper Steam MMBTUs/hr 439.0 420.0 507.0 420.0 Electricity MW/hr 22.3 22.5 21.9 22.5
Prior to the installation of certain electrical meters, which was completed in February 1996, Mobile Energy could not precisely determine the peak usage of each Mill for Power Processing Services. Expenses Total operating expenses increased $0.3 million, or 2.4%, from $11.0 million to $11.3 million in the three month period ended June 30, 1997 compared to the same period for 1996. Total operating expenses increased $2.0 million or 8.9% from $22.2 million to $24.2 million for the six month period ended June 30, 1997 compared to the prior year period. These increases are primarily due to the increase in Operation and Maintenance Costs and fuel expenses. The Operation and Maintenance Costs increased from $5.9 million in the second quarter of 1996 to $6.4 million the second quarter in 1997, an 8.7% increase. For the six month period ended June 30, 1997, Operation and Maintenance Costs increased $1.0 million or 8.6% from the prior year period. Operation and Maintenance Costs increased due to a 3% salaries increase, an increase in overtime due to training in the utility line of progression, and two unscheduled outages, one related to a power boiler tube failure and the second related to a breaker failure. In addition, fuel expenses increased $0.6 million, or 16.0%, for the six month period ended June 30, 1997 compared to the same period in 1996 as a result of increased gas prices. Fuel expense decreased for 3 month period ended June 30, 1997 $.4 million from $2.0 million to $1.6 million for the same period in 1996. This decrease is attributable to a reduction in the volume of coal used in 1996 versus 1997. Interest expense decreased $.2 million, or 2.4%, in the second quarter 1997 compared to the same period for 1996. Interest expense decreased $.4 million or 2.3% to $14.8 million for the six months ended June 30, 1997 from $15.1 million in the prior year period. The decrease reflects the $8.4 million repayment of short-term notes payable in 1997. Mobile Energy's net income for the second quarter of 1997 was $2.3 million, representing a decrease of $0.3 million, or 12.3%, compared to the second quarter of 1996 which was mainly due to an increase in Operation and Maintenance Costs as explained previously. For the six month period ended June 30, 1997 Mobile Energy's net income was $4.3 million, representing a decrease of $0.9 million or 16.5% from the same period in 1996. Similarly, Holding's net income for the second quarter of 1997 also decreased 11.5%, or $0.2 million, compared to the second quarter of 1996 and reflects comparable decreases in minority interest and income taxes. Holding's net income for the six month period ended June 30, 1997 was $2.7 million representing a $0.5 million or 16.4% decrease from the same period in 1996. Income taxes were provided based on a combined 38.25% state and federal rate applied to pretax income of $2.3 million for the second quarter of 1997, $2.6 million for the second quarter of 1996, $4.3 million for the six month period ended June 30, 1997, and $5.2 million for the six month period ended June 30, 1996. 21 Liquidity and Capital Resources As of June 30, 1997, Holdings had $7.5 million in cash and cash equivalents and total debt of $310.5 million. This level of liquidity (as applied to Mobile Energy) will be affected by Mobile Energy's operating performance, capital expenditures and dividend policies. Mobile Energy's working capital needs generally relate to Operation and Maintenance Costs and debt service. In accordance with the Intercreditor Agreement, Mobile Energy will reserve funds for certain operation and maintenance activities in a separate account (the "Maintenance Reserve Account") before such operation and maintenance activities are performed for Mobile Energy. Operation and Maintenance Costs are budgeted at $30.5 million and $31.4 million for 1997 and 1998, respectively. During the six month period ended June 30, 1997, actual Operation and Maintenance Costs aggregated $13.2 million compared to a budget of $12.9 million due to overtime for the unplanned outage of the a conveyor bucket belt, training in the utility line of progression, and maintenance costs for two unscheduled outages. As of June 30, 1997 Mobile Energy also had spent approximately $23.0 million on the construction and installation of certain facilities and equipment and to purchase inventory, of which approximately $0.6 million was expended during the second quarter of 1997. Mobile Energy's projected accrued obligations for required payments of principal and interest on long-term debt for calendar years 1997 and 1998 are $34.7 million and $34.5 million, respectively. Payments of principal and interest on long-term debt for the six month periods ended June 30, 1997 and 1996 aggregated $17.3 million, and $12.3 million, respectively. Mobile Energy's principal sources of working capital are cash flow from operations, borrowings under a revolving credit facility providing working capital loans to Mobile Energy (which is limited to $15.0 million), balances in the Maintenance Reserve Account and drawings under a Southern guaranty in respect of the Maintenance Reserve Account and/or under any revolving credit facility maintained by Southern to provide liquidity with respect to such Southern guaranty. Since December 31, 1996, Mobile Energy has drawn an aggregate of $8.8 million under such a revolving credit facility maintained by Southern with Banque Paribas. As of June 30, 1997, $7.0 million of this amount had been repaid by Southern. Mobile Energy has established a separate account (the "Mill Owner Maintenance Reserve Account") pursuant to the Master Operating Agreement and the Mill Owner Maintenance Reserve Account Agreement for the benefit of Mobile Energy and, while the Mill Owners are exercising the Mill Owner Step-In Rights, the Mill Owners. The Mill Owner Maintenance Reserve Account is currently funded in an amount equal to $2.0 million. In lieu of funding the Mill Owner Maintenance Reserve Account with cash, Mobile Energy provided capital infusion arrangements executed by Southern in favor of Mobile Energy and the Mill Owners in an amount equal to $2.0 million in the aggregate. The Mill Owner Maintenance Reserve Account and monies on deposit therein, or otherwise credited thereto, do not secure Mobile Energy's senior indebtedness. Nevertheless, given that the Master Operating Agreement and the Mill Owner Maintenance Reserve Account Agreement permit funds on deposit in the Mill Owner Maintenance Reserve Account to be used, under certain limited circumstances, for, among other things, operations and maintenance expenses, amounts on deposit therein, or otherwise credited thereto, will be credited against Mobile Energy's funding obligation in respect of the Maintenance Reserve Account. Cash flow from operations is expected to consist almost exclusively of payments of Demand Charges and Processing Sales by the Mill Owners for Processing Services. Accordingly, the loss of revenues from any one Mill, 22 whether due to a mill closure or otherwise, could have a material adverse impact on Mobile Energy's financial condition. The Energy Services Agreements and the Master Operating Agreement require the Mill Owners to pay Demand Charges and Processing Sa;es. The Demand Charges were designed generally to cover, among other things, Mobile Energy's projected costs that are in the nature of fixed costs (including the payment of debt service), assuming that certain operating performance standards are satisfied. The Processing Charges were designed generally to cover the balance of Mobile Energy's costs that are not projected to be covered by Demand Charges, including variable costs such as fuel related expenses. Under the Energy Services Agreements, the Demand Charges in effect at any given time are due and payable on a monthly basis regardless of whether a Mill Owner actually utilizes any or all of the Processing Services corresponding to its dedicated Demand and are subject to automatic reduction due to a shortfall in the provision of Processing Services by Mobile Energy that is not excused by the Master Operating Agreement. The Processing Sales vary from month to month in accordance with the amount of Processing Services required by, and provided to, the Mill Owners and Mobile Energy's efficiency with regard to fuel usage. For the quarter ended June 30, 1997, 68.8% of Mobile Energy's total operating revenues were attributable to Demand Charges with almost all of the remainder attributable to Processing Sales. The Demand Charges and the Processing Sales, collectively, were designed so as to result in Mobile Energy having net income. There can be no assurance, however, that (i) the assumptions with respect to operating performance standards that underlie the design of the Demand Charges and the Processing Charges will at all times be satisfied, (ii) the Demand Charges will at all times cover Mobile Energy's costs that are in the nature of fixed costs, including debt service payments, (iii) the Processing Sales will at all times cover the costs that are not covered by Demand Charges, including variable costs such as fuel related expenses, or (iv) the payment of Demand Charges and Processing Sales will at all times result in Mobile Energy having net income. Mobile Energy believes that its cash flow from operations, together with its other available sources of liquidity, will be adequate to make all required payments of principal of and interest on its debt, to permit anticipated capital expenditures and to fund working capital and other cash requirements for the foreseeable future. Funding of the Maintenance Reserve Account The Intercreditor Agreement requires Mobile Energy to make certain deposits into the Maintenance Reserve Account, and permits Mobile Energy to make additional, discretionary deposits into the Maintenance Reserve Account. The amount of such required and discretionary deposits in any given fiscal year may be greater than the maintenance expenses actually incurred by Mobile Energy in such fiscal year. For purposes of calculating debt service coverage ratios under Mobile Energy's Financing Documents, deposits into the Maintenance Reserve Account and the Mill Owner Maintenance Reserve Account are deemed to be operating expenses in the fiscal year such deposits are made, rather than in the fiscal year funds are withdrawn from the Maintenance Reserve Account or the Mill Owner Maintenance Reserve Account to pay maintenance expenses. The effect of deeming such deposits to be operating expenses in the fiscal year the deposits are made (together with the funding provisions set forth in the Intercreditor Agreement that may cause or permit such deposits to be higher than actual maintenance expenses in any given fiscal year) is to levelize debt service coverage ratios over the term of the First Mortgage Bonds and the Tax-Exempt Bonds. 23 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit 27 - Financial Data Schedules (a) Mobile Energy (b) Holdings (b) Reports on Form 8-K. Neither registrant filed a Form 8-K during the second quarter of 1997. 24 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MOBILE ENERGY SERVICES COMPANY L.L.C. /s/ Thomas G. Boren By Thomas G. Boren President and Chief Executive Officer (Principal Executive Officer) /s/ Raymond D. Hill By Raymond D. Hill Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 13, 1997 - ------------------------------------------------------------------------------ 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MOBILE ENERGY SERVICES HOLDINGS, INC. /s/ Thomas G. Boren By Thomas G. Boren President and Chief Executive Officer /s/ Raymond D. Hill By Raymond D. Hill Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 13, 1997 EX-27 2 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997 and is qualified in its entirety by reference to such financial statements. 0000948362 MOBILE ENERGY SERVICES CO LLC 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 349,500 0 37,674 13,847 0 401,021 0 0 74,312 74,312 0 0 300,988 0 0 0 (7,670) 0 0 0 25,721 401,021 43,029 0 24,242 24,242 18,787 321 19,108 14,774 4,334 0 4,334 0 0 20,871 0 0
EX-27 3 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from the Form 10-Q for June 30, 1997, and is qualified in its entirety by reference to such financial statements. 0000945979 MOBILE ENERGY SERVICES HOLDINGS, INC 6-MOS DEC-31-1996 JUN-30-1997 PER-BOOK 349,500 0 44,388 13,847 0 407,735 1 31,373 2,661 34,035 0 0 300,988 0 0 0 (7,670) 0 0 0 72,712 407,735 43,029 1,648 24,285 25,933 17,096 339 17,435 14,774 2,661 0 2,661 0 0 28,990 2,661 2,661
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