ITEM 1. BUSINESS
GENERAL
Gartner Group, Inc. ("Gartner Group" or the "Company"), founded in 1979, is the leading independent provider of research and analysis on the computer hardware, software, communications and related information technology ("IT") industries. The Company's core business is researching and analyzing significant IT industry trends and developments, packaging such analysis into annually renewable subscription-based products and distributing such products through print and electronic media. The Company's primary clients are business professional users, purchasers and vendors of IT products and services. With more then 500 sales professionals in 72 locations, Gartner Group product offerings collectively provide comprehensive coverage of the IT industry to nearly 7,500 client organizations.
The Company's business is also comprised of the following entities: Dataquest, a provider of IT market research and consulting; Real Decisions, a provider of benchmarking, continuous improvement and best practices services; and Gartner Group Learning, a developer and publisher of more than 300 software education training products and services for computer desktop and technical applications professionals.
MARKET OVERVIEW
The explosion of complex IT products and services creates a growing demand for independent research and analysis. Furthermore, IT is increasingly important to organizations' business strategies as the pace of technological change has accelerated and the ability of an organization to integrate and deploy new information technologies is critical to its competitiveness. Companies planning their IT needs must stay abreast of rapid technological developments in a dynamic market where vendors continually introduce new products with a wide variety of standards and ever-shorter life cycles. As a result, IT professionals are making substantial financial commitments to IT systems and products and require independent, third-party research in order to make purchasing and planning decisions for their organization.
BUSINESS STRATEGY
The Company's objective is to maintain and enhance its market position as a global leader providing in-depth, value-added, proprietary research and analysis of the IT industry. The Company has adopted the following strategies to maintain its market position and expand its core business:
Focus on the IT Professional. The Company targets as its clients corporate entities and other large users and vendors of information technologies. Users of Gartner Group's products and services include senior decision makers such as chief executive, chief financial and chief information officers, purchasing and data processing managers as well as desktop end-users. Vendors use market research data in order to evaluate competitive products and market opportunities.
Maintain Research and Analysis Excellence. Gartner Group's global network of research analysts is comprised of more than 400 IT professionals averaging 10 to 15 years of industry experience. Clients rely on Gartner Group's proven research methodology to ensure consistent and comprehensive analysis in all areas of IT. The Company maintains five primary research centers in the following locations: Stamford, CT; San Jose, CA; Egham, England; Brisbane, Australia; and Tokyo, Japan and a number of smaller, local research centers throughout the world.
New Product Development and Acquisitions. The Company has introduced 61 new continuous service products since fiscal 1991 and actively reviews new product ideas through a multi-functional product strategy committee. Recent investments and acquisitions include: Productivity Management Group (8/96), a consulting firm that complements the Company's benchmarking business with project management; CJ Singer (7/96), a research and consulting firm focused on IT trends, strategies and solutions in the healthcare industry; Gartner Group Learning, created from the acquisitions of Relational Courseware (9/96), J3 Learning, Inc. ("J3") (7/96) and Mindware Technologies (7/96), a publisher of software education and training products for computer desktop and technical applications professionals; Dataquest, Inc. (12/95), a provider of market research and forecasting data; and Nomos Ricerca (11/95), an Italian-based consulting services firm.
Increase Market Penetration. The Company has made substantial investments in the development of new markets by establishing a global network of direct sales personnel, independent sales representatives, distributors and joint venture partners. This initiative is on-going and will continue to evolve with the expansion of the Company's product and service offerings and delivery options. Interactive delivery initiatives include the Internet Learning Center, @vantage(TM) on the World Wide Web, GartnerWeb(TM), Dataquest Interactive, @xpo and GG IntraWeb.
The Company believes that successful execution of these strategies will enable the Company to expand its client base in domestic and international markets and to penetrate its client base more effectively through a broader range of product offerings.
PRODUCTS AND SERVICES
Continuous Services
The Company's principal products are annually renewable subscription services, called continuous services, which highlight industry developments, review new products and technologies and analyze industry trends within a particular technology or market sector. The Company currently offers over 80 principal continuous services products. Each service is supported by a team of research staff members with substantial experience in the covered segment or topic of the IT industry. The Company's staff researches and prepares published reports and responds to telephone and E-mail inquiries from clients. Clients receive Gartner Group research and analysis on paper and through state-of-the-art delivery mechanisms such as CD-ROM, Lotus Notes(TM), GartnerWeb(TM), and @vantage(TM).
The Company provides a number of other complementary products and services including:
Consulting Services. Gartner Group consulting services provide customized project consulting on IT deployment issues. Principal practices of consulting services include Technical Architecture, Outsourcing Decision Support, Evolving High Technology Areas, Retainer Consulting Services and Vendor Consulting.
Events. Industry conferences and events provide comprehensive coverage of IT issues and forecasts of key IT industry segments. The conference season begins each year with Symposia, held in the United States, Europe and the Asia/Pacific rim. These events are held in conjunction with ITxpo(TM), a high technology learning lab. Additionally, the Company sponsors other conferences, seminars and briefings. Certain events are offered as part of a continuous services subscription, however, the majority of events are individually paid for prior to attendance.
Technology-based Training. Gartner Group Learning publishes software education training products for computer desktop and technical applications professionals. With more than 300 existing titles, the Company will focus on the addition of training titles in the next few years by investing significantly in product development and strategic alliances with IT vendors.
The Company measures its continuous service business based on contract value. The Company calculates contract value as the annualized subscription fees under all continuous service contracts in effect at a given point in time, without regard to the duration of the contracts outstanding at such time. Historically, the Company has experienced that a substantial portion of client companies have renewed subscriptions for an equal or higher level of total subscription services each year, and annual continuous services revenues in any fiscal year have closely correlated to contract value at the beginning of the fiscal year. As of September 30, 1996, approximately 85 percent of the Company's clients have renewed one or more subscriptions in the last twelve months. However, this renewal rate is not necessarily indicative of the rate of retention of the Company's revenue base, and contract value at any time may not be indicative of future continuous services revenues or cash flows if the rate of renewal of continuous services contracts or the timing of new business were to significantly change during the following twelve months compared to historic patterns. Deferred revenues, as presented in the Company's balance sheet, represent unamortized revenues from continuous services contracts at the balance sheet date plus unamortized revenues of certain other products and noncontinuous services. Therefore, deferred revenues do not directly correlate to contract value as of the same date because the annualized calculation is made without regard to the duration of the contracts outstanding at such time, and contract value is limited to continuous service contracts.
There can be no assurance that the Company will be able to sustain such high renewal rates. Any deterioration in the Company's ability to generate significant new business would impact future growth in the Company's business. Moreover, a significant portion of the Company's new business in any given year has historically been generated in the last portion of the year. Accordingly, any such situation might not be apparent until late in the Company's fiscal year.
COMPETITION
The Company believes that the principal competitive factors in its industry are quality of research and analysis, timely delivery of information, customer service, the ability to offer products that meet changing market needs for information and analysis and price. The Company believes it competes favorably with respect to each of these factors.
The Company experiences competition in the market for information products and services from other independent providers of similar services as well as the internal marketing and planning organizations of the Company's clients. The Company also competes indirectly against other information technology providers, including electronic and print media companies and consulting firms. The Company's indirect competitors, many of whom have substantially greater financial, information gathering and marketing resources than the Company, could choose to compete directly against the Company in the future. In addition, although the Company believes that it has established a significant market presence, there are few barriers to entry into the Company's market and new competitors could readily seek to compete against the Company in one or more market segments addressed by the Company's continuous service products. Increased competition, direct and indirect, could adversely affect the Company's operating results through pricing pressure and loss of market share. There can be no assurance that the Company will be able to continue to provide the products and services that meet client needs as the IT market rapidly evolves, or that the Company can otherwise continue to compete successfully.
The Company has expanded its presence in the technology-based training industry with the acquisition of J3. The success of the Company in the technology-based training industry will depend on its ability to compete with other technology-based training vendors and other vendors of IT products and services including a range of education and training specialists, hardware and system manufacturers, software vendors, system integrators, dealers, value-added resellers and network/communications vendors. There can be no assurance that the Company will be able to provide products that compare favorably with new competitive products or that competitive pressures will not require the Company to reduce prices. Future success will also depend on the Company's ability to develop new training products that are released timely with the introductions of the underlying software products.
EMPLOYEES
As of September 30, 1996, the Company employed 2,129 persons. Of the 2,129 employees, 801 are located at the Company's headquarters in Stamford, CT area, 783 are located at other domestic facilities and 545 are located outside of the United States. None of the Company's employees is represented by a collective bargaining arrangement. The Company has experienced no work stoppages and considers its relations with employees to be favorable.
The Company's future success will depend in large measure upon the continued contributions of its senior management team, professional analysts and experienced sales personnel. Accordingly, future operating results will be largely dependent upon the Company's ability to retain the services of these individuals and to attract additional qualified personnel. The Company experiences intense competition for professional personnel with, among others, producers of IT products, management consulting firms and financial services companies. Many of these firms have substantially greater financial resources than the Company to attract and compensate qualified personnel. The loss of the services of key management and professional personnel could have a material adverse effect on the Company's business.
ITEM 2.

ITEM 2. PROPERTIES
The Company's headquarters are located in approximately 229,000 square feet of leased office space in four buildings located in Stamford, CT. These facilities accommodate research and analysis, marketing, sales, client support, production and corporate administration. The leases on these facilities expire in 2010. The Company also leases office space in 37 domestic and 35 international locations to support its research and analysis, domestic and international sales efforts and other functions. The Company believes its existing facilities and expansion options are adequate for its current needs and that additional facilities are available for lease to meet future needs.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings and litigation arising in the ordinary course of business. The Company believes the outcome of all current proceedings, claims and litigation will not have a material effect on the Company's financial position or results of operations when resolved in a future period.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS
Listed below are the executive officers of the Company as of November 30, 1996:
Mr. Fernandez has served as chairman of the board since April 1995, as chief executive officer since April 1991 and as president and director since January 1991. Prior to joining the Company, he was president and chief executive officer of Dataquest, Inc. Before joining Dataquest, Mr. Fernandez was president and chief executive officer of Gavilan Computer Corporation, a laptop computer manufacturer, and Zilog, Incorporated, a semiconductor manufacturing company. Mr. Fernandez holds a bachelor's degree in electrical engineering from University of Florida, and completed post-graduate work in solid state engineering at University of Florida and in business administration at the Florida Institute of Technology.
Mr. Carter has been president, Gartner Group distribution since October 1995, chief marketing officer since April 1995 and executive vice president, sales and marketing since July 1993. From April 1991 to July 1993, he was senior vice president, sales and marketing; from May 1990 to March 1991, he was vice president, sales; and from November 1988 to April 1990, he was vice president and service director of electronic output strategies. Prior to joining Gartner Group, Mr. Carter was manager of systems marketing at Xerox Corporation from January 1987 to October 1988. Mr. Carter holds a bachelor's degree from Case Western Reserve, and an M.B.A. degree in finance and marketing from Columbia University.
Mr. Halligan has been executive vice president, chief financial officer, treasurer and corporate secretary since September 1991. Prior to joining Gartner Group, Mr. Halligan spent more than 22 years at General Electric Company in a variety of financial management roles, including staff vice president, finance at GE Communications and Services from May 1988 to September 1991, and manager of marketing, sales and service finance operations at GE Appliances from November 1984 to May 1988. Mr. Halligan holds a bachelor's degree in economics from Providence College.
Mr. Clifford has been president, Gartner Group research since October 1995, chief operating officer since April 1995 and executive vice president, operations since October 1993. Prior to joining Gartner Group, Mr. Clifford served as president, central division and senior IT executive for product development for ADP Corp., a payroll service provider. Previously, Mr. Clifford was executive vice president and chief operating officer of Applied Data Research, a supplier of computer software. Mr. Clifford holds a bachelor's degree in economics from the University of Connecticut.
Mr. Fleisher has been executive vice president and president Gartner Group emerging businesses since November 1996. From October 1995, he was senior vice president, emerging businesses; from October 1994 to October 1995, he was vice president worldwide events; and from April 1993 to October 1995 he was vice president of business development and focused primarily on the Company's initial public offering and subsequent acquisitions. Mr. Fleisher's previous business experience includes working as an associate at Information Partners, a venture capital firm, from 1990 to 1993 and as a consultant at Bain & Company, a strategy consulting firm, from 1987 to 1990. Mr. Fleisher holds a bachelor's degree in economics from Wharton School of Business. Mr. Fleisher was named an executive officer of the Company in November 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company effected an initial public offering of its Class A Common Stock in October 1993 at a price to the public of $2.75 per share. As of November 30, 1996, there were approximately 271 holders of record of the Company's Class A Common Stock and all of the Company's Class B Common Stock was held by Cognizant Corporation ("Cognizant"). The Company's Class A Common Stock is listed for quotation in the Nasdaq National Market under the symbol "GART."
The Company has not paid any cash dividends on its common stock and currently intends to retain any future earnings for use in its business. Accordingly, the Company does not anticipate that any cash dividends will be declared or paid on the common stock in the foreseeable future.
The quarterly market price is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Common Stock Information.
ITEM 6.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The presentation under "Selected Consolidated Financial Data" is included in Item 8. Consolidated Financial Statements and Supplementary Data - Selected Financial Data.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
See Exhibit 13.
ITEM 8.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Exhibit 13.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Change in Accountants
(a) Previous independent accountants
(i) On September 25, 1996, Price Waterhouse LLP resigned as the independent accountants the Company. Price Waterhouse LLP advised the Company that it was resigning as the Company's independent accountants due to a planned business relationship with the Company that may impair the independence of Price Waterhouse LLP.
(ii) The reports of Price Waterhouse LLP on the financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.
(iv) In connection with its audits for the two most recent fiscal years and through September 25, 1996, there have been no disagreements with Price Waterhouse LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Price Waterhouse LLP would have caused them to make reference thereto in their report on the financial statements for such years.
(v) During the two most recent fiscal years and through September 25, 1996, there have been no reportable events (as defined in Regulation S-K Item 304 (a)(1)(v) ).
(vi) The Company has requested that Price Waterhouse LLP furnish it with a letter addressed to the SEC stating whether or not it agrees with the above statements. A copy of such letter, dated October 1, 1996, is filed as Exhibit 1 to the Current Report on Form 8-K dated October 1, 1996.
(b) New independent accountants
(i) The Company engaged KPMG Peat Marwick LLP as its new independent accountants as of September 25, 1996. During the two most recent fiscal years and through September 25, 1996, the Company has not consulted with KPMG Peat Marwick LLP regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and either a written report was provided to the Company or oral advice was provided that KPMG Peat Marwick LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (2) any matter that was either the subject of a disagreement, as that term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304 (a)(1)(v) of Regulation S-K.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors is set forth under the caption "Proposal One: Election of Directors" on pages 3 through 10 in the Proxy Statement for Annual Meeting of Stockholders of Registrant to be held January 23, 1997 and is incorporated herein by reference. Certain information regarding Executive Officers of the Registrant is presented after Item 4 in Part I of this 1996 Annual Report on Form 10-K.
Information relating to Section 16(a) of the Exchange Act is set forth under the caption "Section 16(a) Reporting Delinquencies " on page 13 in the Proxy Statement for Annual Meeting of Stockholders of Registrant to be held January 23, 1997 and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth under the caption "Executive Compensation" on pages 6 through 9 of the Proxy Statement for Annual Meeting of Stockholders of Registrant to be held January 23, 1997 and is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial Owners and Management is set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" on page 11 in the Company's Proxy Statement for Annual Meeting of Stockholders of Registrant to be held January 23, 1997 and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions is set forth under the caption "Certain Relationships and Transactions" of the Proxy Statement for Annual Meeting of Stockholders of Registrant to be held January 23, 1997 on page 12 and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The presentation under "Financial Statements" is included in Item 8. Consolidated Financial Statements and Supplementary Data.
2. Supplemental Schedules
II. Valuation and qualifying accounts (see attached).
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
3. Exhibits
Exhibit Number Description of Document
3.1(4) Restated Certificate of Incorporation 3.2(1) Bylaws as amended 4.1(1) Article III of Restated Certificate of Incorporation (see Exhibit 3.1) 4.2(1) Form of Certificate for Common Stock 10.1(1) Form of Indemnification Agreement 10.2(1) Amended and Restated Registration Agreement dated March 19, 1993 among the Registrant, Dun & Bradstreet Corporation and D&B Enterprises, Inc. 10.3(1) Stockholder's Agreement dated as of March 19, 1993 by and between the Registrant and Dun & Bradstreet Corporation 10.4(4) Lease dated December 29, 1994 by and between Soundview Farms and the Registrant related to premises at 56 Top Gallant Road, 70 Gatehouse Road, and 88 Gatehouse Road, Stamford, Connecticut
10.6(1)* Long Term Incentive Plan (Tenure Plan), including form of Employee Stock Purchase Agreement 10.7(2)* 1991 Stock Option Plan, as amended, including form of Stock Option Agreement 10.8(1)* 1993 Director Stock Option Plan 10.9(1)* Employee Stock Purchase Plan 10.10(3)* 1994 Long Term Stock Option Plan 10.11(4) Forms of Master Client Agreement 10.12(1) Commitment Letter dated July 16, 1993 from The Bank of New York 10.13(1) Indemnification Agreement dated April 16, 1993 by and among the Registrant, Cognizant (as successor to the Dun & Bradstreet Corporation) and the Fund 10.14(4) Research Sharing Agreement dated May 17, 1995 between Registrant and SoundView Financial Group 10.15 Commitment Letter dated September 30, 1996 from Chase Manhattan Bank 11.1 Computation of Net Income per Common Share 13 Management's Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and Supplementary Data. 16.1(5) Letter regarding change in certifying accountants 21.1 Subsidiaries of Registrant 23.1 Independent Auditors' Report on Schedule 23.2 Accountants' Consent 23.3 Report of Independent Accountants 23.4 Report of Independent Accountants on Financial Statement Schedule 24.1 Power of Attorney
* Management contract or compensation plan or arrangement required to be filed as an exhibit to this report on Form 10-K pursuant to Item 14(c) this report.
(1) Incorporated by reference from the Registrant's Registration Statement on Form S-1 (File No. 33-67576), as amended, effective October 4, 1993.
(2) Incorporated by reference from Registrant's Registration Statement on Form S-8 as filed on November 3, 1994.
(3) Incorporated by reference from Registrant's Registration Statement on Form S-8 as filed on May 18, 1995.
(4) Incorporated by reference to the Registrant's Registration Statement on Form 10-K as filed on December 21, 1995.
(5) Incorporated by reference to the Current Report on Form 8-K as filed on October 1, 1996.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated October 1, 1996.
(c) Exhibits
See (a) above.
(d) Financial Statement Schedules
See (a) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Stamford, State of Connecticut, on the 17th day of December, 1996.
GARTNER GROUP, INC.
By: /s/ MANUEL A. FERNANDEZ --------------------------------- Manuel A. Fernandez President, Chairman of the Board and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Manuel A. Fernandez and John F. Halligan, and each of them acting individually, as his attorney-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
GARTNER GROUP, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (all amounts in thousands)
(1) Allowances of $121,000, $27,000 and $162,000 assumed upon acquisitions of entities in fiscal 1996, 1995 and 1994, respectively.


Item 1. Business
General Description of Partnership
Swift Energy Operating Partners 1994-D, Ltd., a Texas limited partnership (the "Partnership" or the "Registrant"), is a partnership formed under a public serial limited partnership offering denominated Swift Depositary Interests I (Registration Statement No. 33-37983 on Form S-1, originally declared effective March 19, 1991, and amended effective May 1, 1992, April 1, 1993, April 19, 1994 and May 9, 1995 [the "Registration Statement"]). The Partnership was formed effective December 30, 1994 under a Limited Partnership Agreement dated December 30, 1994. The initial 321 investors made capital contributions of $4,775,604. Investors in the Partnership hold Swift Depositary Interests ("SDIs") representing beneficial ownership interests in the Partnership.
The Partnership is principally engaged in the business of acquiring, developing and, when appropriate, disposing of working interests in proven oil and gas properties within the continental United States. The Partnership does not engage in exploratory drilling. Each working interest held by the Partnership entitles the Partnership to receive, in kind or in value, a share of the production of oil and gas from the producing property, and obligates the Partnership to participate in the operation of the property and to bear its proportionate share of all operating costs associated therewith. The Partnership typically holds less than the entire working interest in its producing properties.
At December 31, 1996, the Partnership had expended or committed to expend 84% of the Interest Holders' commitments in the acquisition and development of producing properties, which properties are described under Item 2, "Properties," below. The Partnership's revenues and profits will be derived almost entirely from the sale of oil and gas produced from its properties and from the sale of acquired oil and gas properties, when the sale of such properties is economically preferable to continued operation.
The Partnership's business and affairs are conducted by its Managing General Partner, Swift Energy Company, a Texas corporation ("Swift"). The Partnership's Special General Partner, VJM Corporation, a California corporation ("VJM"), consults with and advises Swift as to certain financial matters. Swift is the designated operator of many of the properties in which the Partnership owns interests. The remaining properties are operated by industry operators designated by the owners of a majority of the working interest in each property.
The general manner in which the Partnership acquires producing properties and otherwise conducts its business is described in detail in the Registration Statement under "Proposed Activities of the Partnerships," which is incorporated herein by reference. The following is intended only as a summary of the Partnership's manner of doing business and specific activities to date.
Manner of Acquiring Properties; Net Profits and Overriding Royalty Interest Agreement
For the sake of legal and administrative convenience, the producing properties owned by the Registrant have typically been acquired initially by Swift, which then conveyed ownership of each such property to the Registrant. The Registrant acquires producing properties from Swift at the property acquisition cost of such properties to Swift, as adjusted for intervening operations.
The Registrant entered into a Net Profits and Overriding Royalty Interest Agreement dated December 31, 1994 (the "NP/OR Agreement") with Swift Energy Pension Partners 1994-D, Ltd. (the "Pension Partnership"). The Pension Partnership is a Texas limited partnership that is also managed by Swift and VJM. The Pension Partnership was formed to acquire nonoperating interests, such as net profits, royalty and overriding royalty interests, in producing oil and gas properties.
I-1
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
Under the NP/OR Agreement, the Registrant and the Pension Partnership have, in effect, combined their funds in acquiring producing properties; using funds committed to the NP/OR Agreement by both partnerships, the Registrant acquires producing properties, then promptly conveys nonoperating interests therein to the Pension Partnership. The Registrant initially committed $4,775,604 and the Pension Partnership initially committed $3,032,126 for acquisitions under the NP/OR Agreement. The Registrant is obligated under the NP/OR Agreement to convey to the Pension Partnership a 39% fixed net profits interest and a variable overriding royalty interest in specified depths of every producing property it acquires, except that (i) properties anticipated to require significant development operations, and (ii) nonoperating interests offered to the Registrant by third parties may be purchased by the registrant outside the NP/OR Agreement, without participation by the Pension Partnership. The Registrant is entitled to withdraw up to 30% of its committed funds under the NP/OR Agreement for such acquisitions.
All properties acquired by the Registrant since the date of the NP/OR Agreement have been acquired subject to the NP/OR Agreement and the nonoperating interests created thereby. At December 31, 1996, the Registrant had not made any withdrawals to acquire properties anticipated to require significant development.
In accordance with its obligations under the NP/OR Agreement, as of December 31, 1996 the Registrant had conveyed to the Pension Partnership a net profits interest burdening certain depths of all producing properties acquired by the Registrant since the date of the NP/OR Agreement. Typically, a net profits interest in an oil and gas property entitles the owner to a specified percentage share of the gross proceeds generated by the burdened property, net of operating costs. The 39% net profits interest conveyed to the Pension Partnership under the NP/OR Agreement differs from the typical net profits interest in that it is calculated over the entire group of producing properties acquired under the NP/OR Agreement; i.e., all operating costs attributable to the burdened depths of such properties are aggregated, and the total is then subtracted from the total of all gross proceeds attributable to such depths in order to calculate the net profits to which the Pension Partnership is entitled. The net profits interest conveyed to the Pension Partnership burdens only those depths of each subject property which were evaluated to contain proved reserves at the date of acquisition, to the extent such depths underlie specified surface acreage.
The Registrant has also conveyed to the Pension Partnership under the NP/OR agreement an overriding royalty interest in each property acquired since the date of the NP/OR Agreement. An overriding royalty interest is a fractional interest in the gross production (or the gross proceeds therefrom) of oil and gas from a property, free of any exploration, development, operation or maintenance expenses. Under the NP/OR Agreement, the overriding royalty interest burdens the portions of each producing property that were evaluated at the date of acquisition not to contain proved reserves.
Competition, Markets and Regulations
Competition
The oil and gas industry is highly competitive in all its phases. The Partnership encounters strong competition from many other oil and gas producers, many of which possess substantial financial resources, in acquiring economically desirable Producing Properties.
Markets
The amounts of and price obtainable for oil and gas production from Partnership Properties will be affected by market factors beyond the control of the Partnership. Such factors include the extent of domestic production, the level of imports of foreign oil and gas, the general level of market demand on a regional, national and worldwide basis, domestic and foreign economic conditions that determine levels of industrial production, political events in foreign oil-producing regions, and variations in governmental regulations and tax laws and the imposition of new governmental requirements upon the oil and gas industry. There can be no assurance that oil and gas prices will not decrease in the future, thereby decreasing net Revenues from Partnership Properties.
From time to time, there may exist a surplus of natural gas or oil supplies, the effect of which may be to reduce the amount of hydrocarbons that the Partnerships may produce and sell while such oversupply exists. In recent years, initial steps have been taken to provide additional gas transportation lines from Canada to the United States. If additional Canadian gas is brought to the United States market, it could create downward pressure on United States gas prices.
I-2
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
Regulations
Environmental Regulation
The federal government and various state and local governments have adopted laws and regulations regarding the control of contamination of the environment. These laws and regulations may require the acquisition of a permit by Operators before drilling commences, prohibit drilling activities on certain lands lying within wilderness areas or where pollution arises and impose substantial liabilities for pollution resulting from operations, particularly operations near or in onshore and offshore waters or on submerged lands. These laws and regulations may also increase the costs of routine drilling and operation of wells. Because these laws and regulations change frequently, the costs to the Partnership of compliance with existing and future environmental regulations cannot be predicted. However, the Managing Partner does not believe that the Partnership is affected in a significantly different manner by these regulations than are its competitors in the oil and gas industry.
Federal Regulation of Natural Gas
The transportation and sale of natural gas in interstate commerce is heavily regulated by agencies of the federal government. The following discussion is intended only as a summary of the principal statutes, regulations and orders that may affect the production and sale of natural gas from Partnership Properties. This summary should not be relied upon as a complete review of applicable natural gas regulatory provisions.
FERC Orders
Several major regulatory changes have been implemented by the Federal Energy Regulatory Commission ("FERC") from 1985 to the present that affect the economics of natural gas production, transportation and sales. In addition, the FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural gas industry that remain subject to the FERC's jurisdiction. In April 1992, the FERC issued Order No. 636 pertaining to pipeline restructuring. This rule requires interstate pipelines to unbundle transportation and sales services by separately stating the price of each service and by providing customers only the particular service desired, without regard to the source for purchase of the gas. The rule also requires pipelines to (i) provide nondiscriminatory "no-notice" service allowing firm commitment shippers to receive delivery of gas on demand up to certain limits without penalties, (ii) establish a basis for release and reallocation of firm upstream pipeline capacity and (iii) provide non-discriminatory access to capacity by firm transportation shippers on a downstream pipeline. The rule requires interstate pipelines to use a straight fixed variable rate design. The rule imposes these same requirements upon storage facilities.
FERC Order No. 500 affects the transportation and marketability of natural gas. Traditionally, natural gas has been sold by producers to pipeline companies, which then resold the gas to end-users. FERC Order No. 500 alters this market structure by requiring interstate pipelines that transport gas for others to provide transportation service to producers, distributors and all other shippers of natural gas on a nondiscriminatory, "first-come, first-served" basis ("open access transportation"), so that producers and other shippers can sell natural gas directly to end-users. FERC Order No. 500 contains additional provisions intended to promote greater competition in natural gas markets.
It is not anticipated that the marketability of and price obtainable for natural gas production from Partnership Properties will be significantly affected by FERC Order No. 500. Gas produced from Partnership Properties normally will be sold to intermediaries who have entered into transportation arrangements with pipeline companies. These intermediaries will accumulate gas purchased from a number of producers and sell the gas to end-users through open access pipeline transportation.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
State Regulations
Production of any oil and gas from Partnership Properties will be affected to some degree by state regulations. Many states in which the Partnership will operate have statutory provisions regulating the production and sale of oil and gas, including provisions regarding deliverability. Such statutes, and the regulations promulgated in connection therewith, are generally intended to prevent waste of oil and gas and to protect correlative rights to produce oil and gas between owners of a common reservoir. Certain state regulatory authorities also regulate the amount of oil and gas produced by assigning allowable rates of production to each well or proration unit.
Federal Leases
Some of the Partnership's properties are located on federal oil and gas leases administered by various federal agencies, including the Bureau of Land Management. Various regulations and orders affect the terms of leases, exploration and development plans, methods of operation and related matters.
Employees
The Partnership has no employees. Swift, however, has a staff of geologists, geophysicists, petroleum engineers, landmen, and accounting personnel who administer the operations of Swift and the Partnership. As of December 31, 1996, Swift had 191 employees. Swift's administrative and overhead expenses attributable to the Partnership's operations are borne by the Partnership.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
Item 2.

Item 2. Properties
As of December 31, 1996, the Partnership has acquired interests in producing oil and gas properties which are generally described below.
Principal Oil and Gas Producing Properties
The most valuable fields in the Partnership, based upon year-end engineering estimates of discounted future net revenues using constant pricing and costs, are described below.
1. The Chunchula Unit is located in Mobile County, Alabama, (Parker and Parsley acquisition) and produces from the Smackover horizon. This unit represents 55% of this Partnership's value.
2. Approximately 19% of the Partnership's value is from the AWP Field in McMullen County, Texas (Bracken acquisition). The wells produce from the Olmos formation.
The remaining value in the Partnership is attributable to numerous properties none of which equals or exceeds 15 percent of the total Partnership value.
Title to Properties
Title to substantially all significant producing properties of the Partnership has been examined. The properties are subject to royalty, overriding royalty and other interests customary in the industry. The Managing General Partner does not believe any of these burdens materially detract from the value of the properties or will materially detract from the value of the properties or materially interfere with their use in the operation of the business of the Partnership.
Production and Sales Price
The following table summarizes the sales volumes of the Partnership's net oil and gas production expressed in MCFs. Equivalent MCFs are obtained by converting oil to gas on the basis of their relative energy content; one barrel equals 6,000 cubic feet of gas.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
Net Proved Oil and Gas Reserves
Presented below are the estimates of the Partnership's proved reserves as of December 31, 1996, 1995 and 1994. All of the Partnership's proved reserves are located in the United States.
Revisions of previous quantity estimates are related to upward or downward variations based on current engineering information for production rates, volumetrics and reservoir pressure. Additionally, changes in quantity estimates are the result of the increase or decrease in crude oil and natural gas prices at each year end which have the effect of adding or reducing proved reserves on marginal properties due to economic limitations.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
The following table summarizes by acquisition the Registrant's reserves and gross and net interests in producing oil and gas wells as of December 31, 1996:
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ from those above, audited by H. J. Gruy and Associates, Inc., an independent petroleum consulting firm. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate, and, as a general rule, reserve estimates based upon volumetric analysis are inherently less reliable than those based on lengthy production history. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
In estimating the oil and natural gas reserves, the Registrant, in accordance with criteria prescribed by the Securities and Exchange Commission, has used prices received as of December 31, 1996 without escalation, except in those instances where fixed and determinable gas price escalations are covered by contracts, limited to the price the Partnership reasonably expects to receive. The Registrant does not believe that any favorable or adverse event causing a significant change in the estimated quantity of proved reserves has occurred between December 31, 1996 and the date of this report.
Future prices received for the sale of the Partnership's products may be higher or lower than the prices used in the evaluation described above; the operating costs relating to such production may also increase or decrease from existing levels. The estimates presented above are in accordance with rules adopted by the Securities and Exchange Commission.
Item 3.

Item 3. Legal Proceedings
The Partnership is not aware of any material pending legal proceedings to which it is a party or of which any of its property is the subject.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Interest Holders during the fourth quarter of the fiscal year covered by this report.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
PART II
Item 5.

Item 5. Market Price of and Distributions on the Registrant's SDIs and Related Interest Holder Matters
Market Information
SDIs in the Partnership were initially sold at a price of $1 per SDI. SDIs are not traded on any exchange and there is no established public trading market for the SDIs.
Holders
As of December 31, 1996, there were 321 Interest Holders holding SDIs in the Partnership.
Distributions
The Partnership generally makes distributions to Interest Holders on a quarterly basis, subject to the restrictions set forth in the Limited Partnership Agreement. In the fiscal years ended December 31, 1995 and 1996, the Partnership distributed a total of $248,400 and $508,600, respectively, to the holders of its SDIs. Cash distributions constitute net proceeds from sale of oil and gas production after payment of lease operating expenses and other partnership expenses. Some or all of such amounts or any proceeds from the sale of partnership properties could be deemed to constitute a return of investors' capital.
Oil and gas investments involve a high risk of loss, and no assurance can be given that any particular level of distributions to holders of SDIs can be achieved or maintained. Although it is anticipated that quarterly distributions will continue to be made through 1997, the Partnership's ability to make distributions could be diminished by any event adversely affecting the oil and gas properties in which the Partnership owns interests or the amount of revenues received by the Partnership therefrom.
The Partnership's Limited Partnership Agreement contains various provisions which might serve to delay, defer or prevent a change in control of the Partnership, such as the requirement of a vote of Limited Partners in order to sell all or substantially all of the Partnership's properties or the requirement of consent by the Managing General Partner to transfers of limited partnership interests and provisions prohibiting the transfer of Limited Partnership Units in any fiscal year in excess of a limit which has been established in order to comply with certain federal income tax regulations.
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SWIFT OPERATING PARTNERS 1994-D, LTD.
Item 6.

Item 6. Selected Financial Data
The following selected financial data, prepared in accordance with generally accepted accounting principles for the year ended December 31, 1996,. 1995 and the period from inception (December 30, 1994) through December 31, 1994, should be read in conjunction with the financial statements included in Item 8:
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Partnership has expended approximately 84 percent of the Interest Holders' commitments available for property acquisitions and development by acquiring producing oil and gas properties. The partnership invests primarily in proved producing properties with nominal levels of future costs of development for proven but undeveloped reserves. Significant purchases of additional reserves or extensive drilling activity are not anticipated. Oil and gas reserves are depleting assets and therefore often experience significant production declines each year from the date of acquisition through the end of the life of the property. The primary source of liquidity to the Partnership comes almost entirely from the income generated from the sale of oil and gas produced from ownership interests in oil and gas properties. This source of liquidity and the related results of operations will decline in future periods as the oil and gas produced from these properties also declines.
The Partnership plans to spend in the next two years an estimated $213,000 for capital expenditures needed for the development and enhancement of proved oil and gas reserves. The Managing General Partner anticipates that the Partnership will have adequate liquidity from income from continuing operations to satisfy and future capital expenditure requirements. Funds generated from bank borrowings and proceeds from the sale of oil and gas properties will be used to supplement this effort if deemed necessary.
Results of Operations
Oil and gas sales increased 30 percent in 1996 vs. 1995. Increases in both 1996 gas and oil prices were major contributors to the increased revenues. The Partnership experienced an increase in gas prices of 50 percent or $.94/MCF and an increase in oil prices of 14 percent or $2.25/BBL. The average sales price per equivalent MCF increased 32 percent in 1996. Production volumes decreased 7 percent due to a 9 percent gas production decrease and a 5 percent oil production decline. The production declines partially offset the effect of increased oil and gas prices impacting partnership performance.
Production cost per equivalent MCF increased 25 percent in 1996 compared to 1995 and total production costs increased 16 percent in 1996.
Associated depreciation expense increased 15 percent in 1996 when compared to 1995.
The Partnership was formed effective December 30, 1994, and accordingly, had no results of operation prior to that date, as such, 1995 is the first year of production for the oil and gas properties acquired by the Partnership.
During 1997, Partnership revenues and costs are expected to be shared between the Interest Holders and general partners in a 85:15 ratio. Based on current oil and gas prices, anticipated levels of oil and gas production and expected cash distributions during 1997, the Managing General Partner anticipates that the Partnership sharing ratio will continue to be 85:15.
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SWIFT OPERATING PARTNERS 1994-D, LTD.
Item 8.

Item 8. Financial Statements and Supplementary Data
See Part IV, Item 14(a) for index to financial statements.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure
None.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
As a limited partnership, the Registrant has no directors or executive officers. The business and affairs of the Registrant are managed by Swift as Managing General Partner. Set forth below is certain information as of March 17, 1996, regarding the directors and executive officers of Swift.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
From time to time, Swift as Managing General Partner of the Partnership purchases Units in the Partnership from investors who offer the Units pursuant to their right of presentment, which purchases are made pursuant to terms set out in the Partnership's original Limited Partnership Agreement. Due to the frequency and large number of these transactions, Swift reports these transactions under Section 16 of the Securities Exchange Act of 1934 on an annual rather than a monthly basis. In some cases such annual reporting may constitute a late filing of the required Section 16 reports under the applicable Section 16 rules.
Item 11.

Item 11. Executive Compensation
As noted in Item 10, "Directors and Executive Officers of the Registrant," above, the Partnership has no executive officers. The executive officers of Swift and VJM are not compensated by the Partnership.
Certain fees and allowances contemplated by the Limited Partnership Agreement were paid by the Partnership to Swift and VJM. See Note (4) in Notes To Financial Statements (Related-Party Transactions) for further discussion.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
No single Interest Holder is known to the Partnership to be the beneficial owner of more than five percent of the Partnership's SDIs.
Swift and VJM are not aware of any arrangement, the operation of which may at a subsequent date result in a change in control of the Partnership.
Item 13.

Item 13. Certain Relationships and Related Transactions
As noted in Item 10, "Directors and Executive Officers of the Registrant," above, the Partnership has no executive officers or directors, and thus has not engaged in any transactions in which any such person had an interest. The Partnership is permitted to engage in certain transactions with Swift as Managing General Partner and VJM as Special General Partner, subject to extensive guidelines and restrictions described in the "Conflicts of Interest" section of the Prospectus contained in the Registration Statement, which is incorporated herein by reference.
Summarized below are the principal transactions that occurred between the Partnership and Swift, VJM and their affiliates.
1. The oil and gas properties acquired by the Partnership, as described in Item 2, "Properties" above, were typically acquired initially by Swift from the seller thereof and subsequently transferred to the Partnership. Such transfers were made by Swift at its Property Acquisition Costs (as defined in the Limited Partnership Agreement), less any amounts received from sale of production between the time of acquisition by Swift and the time of sale to the Partnership.
2. Swift acts as operator for many of the wells in which the Partnership has acquired interests and during 1994 received compensation for such activities in accordance with standard industry operating agreements.
3. The Partnership paid to Swift and VJM certain fees as contemplated by the Limited Partnership Agreement. See Note (4) in Notes To Financial Statements (Related-Party Transactions) for further discussion.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
PART IV
a(2) FINANCIAL STATEMENT SCHEDULES
All schedules required by the SEC are either inapplicable or the required information is included in the Financial Statements, the Notes thereto, or in other information included elsewhere in this report.
a(3) EXHIBITS
3.1 Limited Partnership Agreement of Swift Energy Operating Partners 1994-D, Ltd., dated December 30, 1994. (Form 10-K for year ended December 31, 1994, Exhibit 3.1).
3.2 Certificate of Limited Partnership of Swift Energy Operating Partners 1994-D, Ltd., as filed December 30, 1994, with the Texas Secretary of State. (Form 10-K for year ended December 31, 1994, Exhibit 3.2).
10.1 Net Profits and Overriding Royalty Interest Agreement between Swift Energy Operating Partners 1994-D, Ltd. and Swift Energy Pension Partners 1994-D, Ltd. dated December 31, 1994. (Form 10-K for year ended December 31, 1994, Exhibit 10.1).
10.2 Purchase and Sale Agreement dated May 31, 1994 between Swift Energy Company ("Swift") and Parker and Parsley Development Company and P&P Producing, Inc. ("Parker and Parsley") covering working interests in properties in Mobile County, Alabama and Cameron Parish, Louisiana. (Form 10-K for year ended December 31, 1994, Exhibit 10.2).
10.3 Letter Agreement dated December 31, 1994 between Swift Energy Company ("Swift") and Swift Energy Operating Partners 1994-D Ltd. covering the purchase and sale of certain working interests in properties acquired from Parker and Parsley in Mobile County, Alabama and Cameron Parish, Louisiana. (Form 10-K for year ended December 31, 1994, Exhibit 10.3).
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
99.1 A copy of the following section of the Prospectus dated April 19, 1994, contained in Post-Effective Amendment No. 4 to Registration Statement No. 33-37983 on Form S-1 for Swift Energy Depositary Interests I, as filed on April 19, 1994, which have been incorporated herein by reference: "Proposed Activities" (pp 25 - 35) and "Conflicts of Interests" (pp 92 - 96). (Form 10-K for year ended December 31, 1994, Exhibit 99.1).
b(1) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter ended December 31, 1996.
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
No annual report to security holders covering the Partnership's 1996 fiscal year, or proxy statement, form of proxy or other proxy soliciting material has been sent to Interest Holders of the Partnership.
IV-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swift Energy Operating Partners 1994-D, Ltd.:
We have audited the accompanying balance sheets of Swift Energy Operating Partners 1994-D, Ltd., (a Texas limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' capital and cash flows for the years ended December 31, 1996, 1995 and the period from inception (December 30, 1994) through December 31, 1994. These financial statements are the responsibility of the general partner's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Swift Energy Operating Partners 1994-D, Ltd., as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1996, 1995 and the period from inception (December 30, 1994) through December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas February 10, 1997
IV-3
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. BALANCE SHEETS DECEMBER 31, 1996 AND 1995
See accompanying notes to financial statements.
IV-4
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND THE PERIOD FROM INCEPTION (DECEMBER 30, 1994) THROUGH DECEMBER 31, 1994
See accompanying notes to financial statements.
IV-5
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND THE PERIOD FROM INCEPTION (DECEMBER 30, 1994) THROUGH DECEMBER 31, 1994
See accompanying notes to financial statements.
IV-6
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND THE PERIOD FROM INCEPTION (DECEMBER 30, 1994) THROUGH DECEMBER 31, 1994
See accompanying notes to financial statements.
IV-7
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. NOTES TO FINANCIAL STATEMENTS
(1) Organization and Terms of Partnership Agreement -
Swift Energy Operating Partners 1994-D, Ltd., a Texas limited partnership (the Partnership), was formed on December 30, 1994, for the purpose of purchasing and operating producing oil and gas properties within the continental United States and Canada. Swift Energy Company ("Swift"), a Texas corporation, and VJM Corporation ("VJM"), a California corporation, serve as Managing General Partner and Special General Partner of the Partnership, respectively. The sole limited partner of the Partnership is Swift Depositary Company, which has assigned all of its beneficial (but not of record) rights and interests as limited partner to the investors in the Partnership ("Interest Holders"), in the form of Swift Depositary Interests ("SDIs").
The Managing General Partner has paid or will pay out of its own corporate funds (as a capital contribution to the Partnership) $799,914, which includes all selling commissions, offering expenses, printing, legal and accounting fees and other formation costs incurred in connection with the offering of SDIs and the formation of the Partnership, for which the Managing General Partner will receive an interest in continuing costs and revenues of the Partnership. The 321 interest holders made total capital contributions of $4,775,604.
Generally, all continuing costs (including development costs, operating costs, general and administrative reimbursements and direct expenses) and revenues are allocated 85 percent to the Interest Holders and 15 percent to the general partners. After partnership payout, as defined in the Partnership Agreement, continuing costs and revenues will be shared 75 percent by the Interest Holders, and 25 percent by the general partners. Payout had not occurred as of December 31, 1996.
(2) Significant Accounting Policies -
Use of Estimates --
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.
Oil and Gas Properties --
For financial reporting purposes, the Partnership follows the "full-cost" method of accounting for oil and gas property costs. Under this method of accounting, all productive and nonproductive costs incurred in the acquisition and development of oil and gas reserves are capitalized. Such costs include lease acquisitions, geological and geophysical services, drilling, completion, equipment and certain general and administrative costs directly associated with acquisition and development activities. General and administrative costs related to production and general overhead are expensed as incurred. No general and administrative costs were capitalized during the years ended December 31, 1996, 1995 and 1994.
Future development, site restoration, dismantlement and abandonment costs, net of salvage values, are estimated on a property-by-property basis based on current economic conditions and are amortized to expense as the Partnership's capitalized oil and gas property costs are amortized.
The unamortized cost of oil and gas properties is limited to the "ceiling limitation", (calculated separately for the Partnership, limited partners, and general partners). The "ceiling limitation" is calculated on a quarterly basis and represents the estimated future net revenues from proved properties using current prices, discounted at ten percent, and the lower of cost or fair value of unproved properties. Proceeds from the sale or disposition of oil and gas properties are treated as a reduction of oil and gas property costs with no gains or losses being recognized except in significant transactions.
IV-8
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership computes the provision for depreciation, depletion and amortization of oil and gas properties on the units-of-production method. Under this method, the provision is calculated by multiplying the total unamortized cost of oil and gas properties, including future development, site restoration, dismantlement and abandonment costs, by an overall amortization rate that is determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves at the beginning of the period.
The calculation of the "ceiling limitation" and the provision for depreciation, depletion, and amortization is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
Statement of Cash Flows --
Highly liquid debt instruments with an initial maturity of three months or less are considered to be cash equivalents.
(3) Oil and Gas Capitalized Costs -
The following table sets forth capital expenditures related to the Partnership's oil and gas operations:
All oil and gas property acquisitions are made by Swift on behalf of the Partnership. The costs of the properties include the purchase price plus any costs incurred by Swift in the evaluation and acquisition of properties.
In 1996, 1995 and 1994, the Partnership acquired interests in producing oil and gas properties for $497,143, $1,066,968 and $2,762,428, which included $67,486, $133,943 and $141,243 in 1996, 1995 and 1994, respectively, of costs incurred by Swift in the evaluation and acquisition effort, including costs related to properties not acquired.
During 1996, the limited partners' share of unamortized oil and gas property costs exceeded their "ceiling limitation", resulting in a valuation allowance of $67,500. This amount is included in the income (loss) attributable to the limited partners shown in the statement of partners' capital together with a "combining adjustment" for the difference between the limited partners' valuation allowance and the Partnership's valuation allowance. The "combining adjustment" changes quarterly as the Partnership's total amortization provision is more or less than the combined amortization provision attributable to general and limited partners.
IV-9
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) Related-Party Transactions -
During 1996 and 1995, the Partnership paid Swift $71,634 and $83,573, respectively, as a general and administrative overhead allowance.
During 1996 and 1995, the Partnership also paid Swift an incentive amount, as defined in the Partnership Agreement, for services rendered to the Partnership. Such amounts totaled $11,142 in 1996 and $71,634 in 1995 and are included in general and administrative expenses.
Effective December 31, 1994, the Partnership entered into a Net Profits and Overriding Royalty Interest Agreement ("NP/OR Agreement") with Swift Energy Pension Partners 1994-D, Ltd. (Pension Partnership), managed by Swift for the purpose of acquiring interests in producing oil and gas properties. Under the terms of the NP/OR Agreement, the Partnership has conveyed to the Pension Partnership a nonoperating interest in the aggregate net profits (i.e., oil and gas sales net of related operating costs) of the properties acquired equal to its proportionate share of the property acquisition costs.
(5) Federal Income Taxes -
The Partnership is not a tax-paying entity. No provision is made in the accounts of the Partnership for federal or state income taxes, since such taxes are liabilities of the individual partners, and the amounts thereof depend upon their respective tax situations.
The tax returns and the amount of distributable Partnership income are subject to examination by the federal and state taxing authorities. If the Partnership's ordinary income for federal income tax purposes is ultimately changed by the taxing authorities, the tax liability of the Interest Holders could be changed accordingly. Ordinary income reported on the Partnership's federal return of income for the years ended December 31, 1996, 1995 and the period from inception (December 30, 1994) through December 31, 1994 was $660,106, $450,899 and $0, respectively. The difference between ordinary income for federal income tax purposes reported by the Partnership and net income or loss reported herein primarily results from the exclusion of depletion (as described below) from ordinary income reported in the Partnership's federal return of income.
For federal income tax purposes, depletion with respect to production of oil and gas is computed separately by the partners and not by the Partnership. Since the amount of depletion on the production of oil and gas is not computed at the Partnership level, depletion is not included in the Partnership's income for federal income tax purposes but is charged directly to the partners' capital accounts to the extent of the cost of the leasehold interests, and thus is treated as a separate item on the partners' Schedule K-1. Depletion for federal income tax purposes may vary from that computed for financial reporting purposes in cases where a ceiling adjustment is recorded, as such amount is not recognized for tax purposes.
(6) Gas Imbalances -
The gas imbalance receivable and deferred revenues represent imbalances assumed as part of property acquisitions. The imbalances are accounted for on the entitlements method, whereby the Partnership records its share of revenue, based on its entitled amount. Any amounts over or under the entitled amount are recorded as an increase or decrease to the gas imbalance receivable or deferred revenues as applicable.
(7) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales of its oil and natural gas production. Market prices of oil and natural gas may fluctuate and adversely affect operating results.
IV-10
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership extends credit to various companies in the oil and gas industry which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in economic or other conditions and may accordingly impact the Partnership's overall credit risk. However, the Managing General Partner believes that the risk is mitigated by the size, reputation, and nature of the companies to which the Partnership extends credit. In addition, the Partnership generally does not require collateral or other security to support customer receivables.
(8) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and cash equivalents and short-term receivables and payables. The carrying amounts approximate fair value due to the highly liquid nature of the short-term instruments.
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SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. (Registrant)
By: SWIFT ENERGY COMPANY General Partner
Date: March 17, 1997 By: s/b A. Earl Swift -------------- ---------------------------------- A. Earl Swift President
Date: March 17, 1997 By: s/b John R. Alden -------------- ---------------------------------- John R. Alden Principal Financial Officer
Date: March 17, 1997 By: s/b Alton D. Heckaman, Jr. -------------- ---------------------------------- Alton D. Heckaman, Jr. Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD. (Registrant)
By: SWIFT ENERGY COMPANY General Partner
Date: March 17, 1997 By: s/b A. Earl Swift -------------- ---------------------------------- A. Earl Swift Director and Principal Executive Officer
Date: March 17, 1997 By: s/b Virgil N. Swift -------------- ---------------------------------- Virgil N. Swift Director and Executive Vice President - Business Development
IV-12
SWIFT ENERGY OPERATING PARTNERS 1994-D, LTD.
Date: March 17, 1997 By: s/b G. Robert Evans -------------- ----------------------------------- G. Robert Evans Director
Date: March 17, 1997 By: s/b Raymond O. Loen -------------- ----------------------------------- Raymond O. Loen Director
Date: March 17, 1997 By: s/b Henry C. Montgomery -------------- ----------------------------------- Henry C. Montgomery Director
Date: March 17, 1997 By: s/b Clyde W. Smith, Jr. -------------- ----------------------------------- Clyde W. Smith, Jr. Director
Date: March 17, 1997 By: s/b Harold J. Withrow -------------- ----------------------------------- Harold J. Withrow Director
IV-13