-----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, KUUTU0E5ggG5U++qztc+2gB6NFqaq98aG5YmsXMWtcxFizAemMZnILx+5R2wlLgr ZirfZ0zCOcKnaGXwqKY+TQ== 0000007332-96-000022.txt : 19960814 0000007332-96-000022.hdr.sgml : 19960814 ACCESSION NUMBER: 0000007332-96-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWESTERN ENERGY CO CENTRAL INDEX KEY: 0000007332 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 710205415 STATE OF INCORPORATION: AR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08246 FILM NUMBER: 96611377 BUSINESS ADDRESS: STREET 1: 1083 SAIN ST STREET 2: P O BOX 1408 CITY: FAYETTEVILLE STATE: AR ZIP: 72702-1408 BUSINESS PHONE: 5015211141 FORMER COMPANY: FORMER CONFORMED NAME: ARKANSAS WESTERN GAS CO DATE OF NAME CHANGE: 19790917 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1996 =========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-Q (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1996 ------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______ Commission file number 1-8246 SOUTHWESTERN ENERGY COMPANY (Exact name of registrant as specified in its charter) Arkansas 71-0205415 (State of incorporation (I.R.S. Employer or organization) Identification No.) 1083 Sain Street, P.O. Box 1408, Fayetteville, Arkansas 72702-1408 (Address of principal executive offices, including zip code) (501) 521-1141 (Registrant's telephone number, including area code) No Change (Former name, former address and former fiscal year; if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at August 5, 1996 ---------------------------- ---------------------------- Common Stock, Par Value $.10 24,707,121 =========================================================================== - 1 - PART I FINANCIAL INFORMATION - 2 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
June 30, December 31, 1996 1995 --------- --------- ($ in thousands) Current Assets Cash $ 980 $ 1,498 Accounts receivable 19,653 35,541 Income taxes receivable 809 8,221 Inventories, at average cost 15,539 15,448 Other 1,317 3,188 --------- --------- Total current assets 38,298 63,896 --------- --------- Investments 7,489 9,114 --------- --------- Property, Plant and Equipment, at cost Gas and oil properties, using the full cost method 551,328 517,979 Gas distribution systems 199,566 193,258 Gas in underground storage 32,585 32,616 Other 20,711 19,717 --------- --------- 804,190 763,570 Less: Accumulated depreciation, depletion and amortization 298,999 277,751 --------- --------- 505,191 485,819 --------- --------- Other Assets 11,791 10,264 --------- --------- Total Assets $ 562,769 $ 569,093 ========= =========
The accompanying notes are an integral part of the financial statements. - 3 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31, 1996 1995 --------- --------- ($ in thousands) Current Liabilities Current portion of long-term debt $ 3,071 $ 3,071 Accounts payable 21,094 23,989 Taxes payable 2,051 2,422 Interest payable 1,181 1,376 Customer deposits 4,539 4,619 Over-recovered purchased gas costs, net 1,704 7,327 Other 1,900 2,606 --------- --------- Total current liabilities 35,540 45,410 --------- --------- Long-Term Debt, less current portion above 197,057 207,757 --------- --------- Other Liabilities Deferred income taxes 120,278 115,461 Deferred investment tax credits 1,947 2,103 Other 4,223 3,858 --------- --------- 126,448 121,422 --------- --------- Commitments and Contingencies Shareholders' Equity Common stock, $.10 par value; authorized 75,000,000 shares, issued 27,738,084 shares 2,774 2,774 Additional paid-in capital 21,272 21,272 Retained earnings 213,793 204,632 Less: Common stock in treasury, at cost 33,795 33,795 Unamortized cost of 31,527 restricted shares in 1996 and 34,807 restricted shares in 1995, issued under stock incentive plan 320 379 --------- --------- 203,724 194,504 --------- --------- Total Liabilities and Shareholders' Equity $ 562,769 $ 569,093 ========= =========
The accompanying notes are an integral part of the financial statements. - 4 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Quarter Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- ($ in thousands, except per share amounts) Operating Revenues Gas sales $ 31,130 $ 28,071 $ 91,836 $ 77,284 Oil sales 1,635 861 2,951 1,695 Gas transportation 1,027 1,361 2,177 2,542 Other 512 349 1,202 872 ---------- ---------- ---------- --------- 34,304 30,642 98,166 82,393 ---------- ---------- ---------- --------- Operating Costs and Expenses Purchased gas costs 3,023 5,738 23,117 21,333 Operating and general 12,039 10,997 23,793 21,583 Depreciation, depletion and amortization 10,015 8,954 21,232 18,308 Taxes, other than income taxes 1,154 1,026 2,433 2,152 ---------- ---------- ---------- --------- 26,231 26,715 70,575 63,376 ---------- ---------- ---------- --------- Operating Income 8,073 3,927 27,591 19,017 ---------- ---------- ---------- --------- Interest Expense 2,790 2,548 6,005 5,146 ---------- ---------- ---------- --------- Other Income (Expense) (745) (655) (1,871) (1,600) ---------- ---------- ---------- --------- Income Before Provision for Income Taxes 4,538 724 19,715 12,271 ---------- ---------- ---------- --------- Income Tax Provision (Benefit) Current (662) (845) 2,721 2,040 Deferred 2,409 1,124 4,869 2,684 ---------- ---------- ---------- --------- 1,747 279 7,590 4,724 ---------- ---------- ---------- --------- Net Income $ 2,791 $ 445 $ 12,125 $ 7,547 ========== ========== ========== ========== Weighted Average Common Shares Outstanding 24,701,349 25,422,842 24,701,349 25,550,370 ========== ========== ========== ========== Earnings Per Share $ .11 $ .02 $ .49 $ .30 ===== ===== ===== ===== Dividends Declared Per Share Payable 8/5/96 and 8/4/95 $ .06 $ .06 $ .06 $ .06 ===== ===== ===== =====
The accompanying notes are an integral part of the financial statements. - 5 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1996 1995 -------- -------- ($ in thousands) Cash Flows From Operating Activities Net income $ 12,125 $ 7,547 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 21,372 18,448 Deferred income taxes 4,869 2,684 Equity in loss of partnership 1,601 1,737 Change in assets and liabilities: Decrease in accounts receivable 15,888 13,247 Decrease in income taxes receivable 7,412 500 Increase in inventories (91) (1,443) Decrease in accounts payable (2,895) (4,431) Decrease in taxes payable (371) (137) Increase (decrease) in interest payable (195) 107 Increase (decrease) in over-recovered purchased gas costs (5,623) 4,445 Net change in other current assets and liabilities 1,085 618 -------- -------- Net cash provided by operating activities 55,177 43,322 -------- -------- Cash Flows From Investing Activities Capital expenditures (41,486) (44,188) Investment in partnership - (2,340) Decrease in gas stored underground 31 2,723 Other items (576) 1,626 -------- -------- Net cash used in investing activities (42,031) (42,179) -------- -------- Cash Flows From Financing Activities Net increase (decrease) in revolving long-term debt (10,700) 9,800 Purchase of treasury stock - (8,326) Cash dividends (2,964) (3,075) -------- -------- Net cash used in financing activities (13,664) (1,601) -------- -------- Decrease in cash (518) (458) Cash at beginning of year 1,498 1,152 -------- -------- Cash at end of period $ 980 $ 694 ======== ========
The accompanying notes are an integral part of the financial statements. - 6 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 1. BASIS OF PRESENTATION The financial statements included herein are unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. The Company's accounting policies are summarized in the 1995 Annual Report to Shareholders, Notes to Financial Statements. Certain reclassifications have been made to the June 30, 1995, financial statements in order to conform with the 1996 presentation. These reclassifications had no effect on previously reported net income. 2. DIVIDEND PAYABLE A dividend of $.06 per share was declared July 10, 1996, payable August 5, 1996. 3. INTEREST AND INCOME TAXES PAID The following table provides interest and income taxes paid during each period presented. Three months Six months Periods Ended June 30 1996 1995 1996 1995 ----------------------------------------------------------------------- (in thousands) Interest payments $7,039 $3,574 $7,360 $5,509 Income tax payments $2,512 $579 $2,521 $800 - 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following updates information as to the Company's financial condition provided in the Company's Form 10-K for the year ended December 31, 1995, and analyzes the changes in the results of operations between the three and six month periods ended June 30, 1996, and the comparable periods of 1995. RESULTS OF OPERATIONS Net income for the three months ended June 30, 1996, was $2.8 million, or $.11 per share, on revenues of $34.3 million, up from $.4 million, or $.02 per share, on revenues of $30.6 million, for the same period in 1995. For the six months ended June 30, 1996, net income was $12.1 million, or $.49 per share, on revenues of $98.2 million, compared to $7.5 million, or $.30 per share, on revenues of $82.4 million, for the same period in 1995. The comparative increases in net income for the second quarter and year to date 1996 were primarily the result of higher gas prices and colder weather. The following tables compare operating revenues and operating income by business segment for the three and six month periods ended June 30, 1996 and 1995: Quarter Ended Six Months Ended June 30, June 30, ------------------ --------------------- 1996 1995 1996 1995 ------- ------- ------- -------- (in thousands) Revenues Exploration and production $20,791 $14,482 $43,949 $32,206 Gas distribution 22,768 21,056 77,042 66,393 Other 67 95 146 193 Eliminations (9,322) (4,991) (22,971) (16,399) ------- ------- ------- ------- $34,304 $30,642 $98,166 $82,393 ======= ======= ======= ======= Operating Income Exploration and production $ 8,662 $ 3,973 $18,633 $10,873 Gas distribution (371) 69 9,341 8,397 Corporate expenses (218) (115) (383) (253) ------- ------- ------- ------- $ 8,073 $ 3,927 $27,591 $19,017 ======= ======= ======= ======= Revenues of the exploration and production segment were up 44% and 36%, respectively, for the three and six month periods ended June 30, 1996, as compared to the same periods in 1995. Gas production during the second quarter of 1996 was 8.3 billion cubic feet (Bcf), down slightly - 8 - from 8.5 Bcf for the same period in 1995. For the six months ended June 30, 1996, gas production was 18.2 Bcf, up 3% from 17.7 Bcf for the same period in 1995. The increase for the first six months of 1996 was primarily the result of higher sales of gas to the Company's distribution segment, partially offset by declines in sales to unaffiliated parties. Sales to Arkansas Western Gas Company (AWG), which operates the Company's northwest Arkansas gas distribution system, increased to 6.1 Bcf during the six months ended June 30, 1996, compared to 4.6 Bcf for the same period in 1995. The Company sold 2.4 Bcf to AWG during the second quarter of 1996, up from 1.3 Bcf for the same period in 1995. Associated Natural Gas Company (Associated), which operates the Company's gas distribution systems in northeast Arkansas and parts of Missouri, purchased 1.2 Bcf of the Company's gas production during the second quarter of 1996 and 3.4 Bcf during the first six months of 1996, up from .9 Bcf and 2.8 Bcf, respectively, for the same periods in 1995. Colder weather in the first quarter of 1996 and the resulting need to replenish the utility's storage facilities caused higher demand by the gas distribution segment throughout the first half of 1996. The higher demand enabled the Company to increase its production of reserves located on the utility's gathering system. Sales of gas production to unaffiliated purchasers were 4.7 Bcf during the second quarter of 1996 and 8.7 Bcf for the first six months of 1996, down from 6.3 Bcf and 10.3 Bcf, respectively, for the same periods in 1995. While this decline was more than offset by the increased sales to the Company's gas distribution segment, it did reflect a decrease in production from the Company's Gulf Coast properties, partially offset by increased production from properties acquired in 1995. The Company's average sales price for its gas production was $2.31 per thousand cubic feet (Mcf) for the second quarter of 1996, up from $1.61 per Mcf for the same period in 1995. The average price was $2.25 per Mcf for the first six months of 1996, up from $1.73 per Mcf for the same period of 1995. The increases reflected the general increase in spot market prices for natural gas. The Company's oil production increased to 149,781 barrels for the six months ended June 30, 1996, up from 95,731 barrels for the same period in 1995. The increase was due primarily to additional production from properties acquired during 1995. Operating revenues of the gas distribution segment increased 8% in the second quarter of 1996 and 16% in the six months ended June 30, 1996, both as compared to the same periods in 1995. The increases were due both to an increase in the average utility rate and colder weather. Weather during the first half of 1996 was 9% colder than normal and 15% colder than in the same period of the prior year. Deliveries by the Company's gas distribution systems to sales and end-use transportation customers were 5.6 Bcf for the second quarter of 1996 and 20.2 Bcf for the six months ended June 30, 1996, compared to 5.4 Bcf and 17.9 Bcf, respectively, for the same periods in 1995. Growth of 2% in the average number of utility customers also impacted deliveries. AWG delivered a total of 13.2 Bcf to its sales and end-use transportation customers during the first half of 1996, up from 11.8 Bcf in 1995. AWG also transported 1.6 Bcf for delivery off its system during the first half of 1996, down from 4.8 Bcf for the same - 9 - period in 1995. Associated delivered a total of 7.0 Bcf to its customers during the first half of 1996, up from 6.1 Bcf for the same period in 1995. The Company's average rate for its utility sales increased to $4.24 per Mcf during the first half of 1996, up from $4.12 per Mcf for the same period in 1995. The increase reflected higher purchase prices for natural gas which are passed through to customers under automatic adjustment clauses. AWG has reached a stipulated settlement with the Staff of the Arkansas Public Service Commission (APSC) and an industrial intervenor group on a rate increase application filed early in 1996 for its northwest Arkansas system. The settlement is pending approval of the APSC and would result in a rate increase of $5.1 million annually. The Office of the Attorney General of the State of Arkansas participated in portions of the stipulation, but recommended that the APSC order an investigation of the allocation of costs between the regulated and non-regulated activities of Southwestern and grant no rate increase until such an investigation is completed. The APSC must act on AWG's rate increase application prior to December 1, 1996. The Company presently plans to file a rate increase application for its northeast Arkansas and Missouri systems in late 1996 or early 1997. In another regulatory matter, the Circuit Court of Cole County, Missouri, on June 12, 1996 overturned and remanded to the Missouri Public Service Commission (MPSC) its order which had disallowed recovery of approximately $2.1 million of gas costs incurred by Associated. The disallowed costs represented amounts paid by Associated under a contract with one of Southwestern's exploration and production subsidiaries and take or pay costs paid to Associated's interstate pipeline suppliers. The Circuit Court found that there was not substantial and competent evidence in the record to disallow recovery of the costs related to the contract with Southwestern's production subsidiary and that the Commission was required by federal law to allow Associated to recover the take or pay costs. The MPSC has appealed the decision of the Circuit Court to the Missouri Court of Appeals. Operating costs and expenses decreased $.4 million, or 2%, in the second quarter of 1996 and increased $7.2 million, or 11%, for the six months ended June 30, 1996, both as compared to the same periods in 1995. The decrease in the second quarter of 1996, as compared to 1995, was due primarily to lower purchased gas costs of the Company's gas distribution systems partially offset by increased operating and general expenses and increased depreciation, depletion and amortization expense. The Company's purchased gas expense reflects the elimination of intercompany sales. The decrease in purchased gas costs during the second quarter of 1996 resulted from an increase in intercompany sales, as discussed above. The increase in operating costs and expenses for the six months ended June 30, 1996, was due primarily to higher purchased gas costs related to higher prices paid for gas supplies, and increases in both operating and general expenses and depreciation, depletion and amortization expense. Interest expense, net of capitalization, for the six months ended June 30, 1996, was up 17%, compared to the same period in 1995. The increase was due to higher average borrowings, - 10 - partially offset by an increase in capitalized interest. Interest is capitalized in the exploration and production segment on costs that are unevaluated and excluded from amortization. The Company's share of the NOARK Pipeline System's (NOARK) pretax loss included in other income was $.8 million for the second quarter of 1996 and $1.6 million for the six months ended June 30, 1996, compared to $.7 million and $1.7 million, respectively, for the same periods in 1995. The Company, through a subsidiary, holds a 47.93% general partnership interest in NOARK and is the pipeline's operator. The changes in the provisions for current and deferred income taxes recorded in the three and six month periods ended June 30, 1996, as compared to the same periods in 1995, resulted primarily from the level of taxable income and from the deduction of intangible drilling costs in the year incurred for tax purposes, netted against the turnaround of intangible drilling costs deducted for tax purposes in prior years. Intangible drilling costs are capitalized and amortized over future years for financial reporting purposes under the full cost method of accounting. CHANGES IN FINANCIAL CONDITION Changes in the Company's financial condition at June 30, 1996, as compared to December 31, 1995, primarily reflect the seasonal nature of the gas distribution segment of the Company's business and changes in prices received for gas production of the Company's exploration and production segment. Routine capital expenditures, cash dividends and scheduled debt retirements are predominately funded through cash provided by operations. For the first six months of 1996 and 1995, net cash provided by operating activities was $55.2 million and $43.3 million, respectively, and exceeded the total of these routine requirements. The increase in net cash provided by operating activities during the first six months of 1996, as compared to the same period in 1995, was primarily due to higher net income and the timing of both cash receipts and expenditures. The Company expects its outstanding borrowings to increase during the upcoming months of 1996 as cash generated from operations will be less than the requirements for routine capital expenditures and cash dividends due to lower levels of heating-generated revenues and seasonally higher capital expenditures resulting from favorable drilling and construction weather. The Company's capital expenditures for the first six months of 1996 were $41.5 million, compared to $44.2 million for the same period in 1995. Capital expenditures in the first half of 1995 included $8.5 million to purchase oil and gas producing properties in the Gulf Coast area. There have been no significant acquisitions of producing oil and gas properties in the first six months of 1996. However, the Company currently expects producing property acquisitions to account for a larger percentage of capital spending in the last half of 1996. The Company may also increase its capital spending plans for the rest of 1996, depending on the results of certain producing properties currently being evaluated for possible acquisition. - 11 - At June 30, 1996, the Company had access to $80.0 million of medium to long-term capital at current market lending rates through two floating rate credit facilities. Of this amount, $12.2 million was outstanding at June 30, 1996, all of which was classified as long-term debt. During the first six months of 1996, the Company's revolving long-term debt decreased by $10.7 million. The decrease was primarily a result of increased cash flow generated by both seasonally high utility revenues and increased prices received for the Company's gas production. As a result, long-term debt at June 30, 1996, accounted for 50% of the Company's capitalization, down from 52% at December 31, 1995. Accounts receivable has declined since December 31, 1995, due primarily to seasonally lower gas deliveries of the gas distribution segment. The decrease in income taxes receivable since December 31, 1995, resulted from the receipt of federal income tax refunds that relate to the carryback of a 1995 tax net operating loss. Accounts payable has declined since December 31, 1995, due primarily to seasonally lower gas purchases of the gas distribution segment. Other changes in current assets and current liabilities between periods resulted primarily from the timing of expenditures. The Company had over-recovered $1.7 million of purchased gas costs at June 30, 1996, which will be refunded to its utility customers through automatic cost of gas adjustment clauses included in its filed rate tariffs. At December 31, 1995, the Company had over-recovered purchased gas costs in the amount of $7.3 million. These amounts are classified as current liabilities. - 12 - PART II OTHER INFORMATION Items 1 - 3 - ----------- No developments required to be reported under Items 1 - 3 occurred during the quarter ended June 30, 1996. Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The Company held its Annual Meeting of Shareholders on May 13, 1996, for the purpose of electing Directors of the Company for the ensuing year and to vote on a proposal to authorize an increase in the Company's "bonded indebtedness" (within the meaning of Article 12, Section 8 of the Constitution of the State of Arkansas). The Directors were elected with the number of shares voted as follows: Voted For Withheld --------- -------- John Paul Hammerschmidt 21,213,547 214,099 Robert L. Howard 21,238,908 188,738 Kenneth R. Mourton 20,978,639 449,007 Charles E. Sanders 21,213,720 213,926 Charles E. Scharlau 21,089,253 338,393 Additionally, the shareholders voted to authorize an increase in the Company's "bonded indebtedness" up to a total aggregate amount of $400,000,000, including $187,929,000 of bonded indebtedness outstanding as of March 14, 1996, and containing such other terms, provisions, and conditions as the Board of Directors shall approve. Holders of 17,120,232 shares voted for the amendment, 679,963 shares voted against the amendment, 459,471 shares abstained from voting, and there were 3,167,980 broker nonvotes. Items 5 - 6(a) - -------------- No developments required to be reported under Items 5 - 6(a) occurred during the quarter ended June 30, 1996. Item 6(b) Reports on Form 8-K - ----------------------------- On July 2, 1996, the Company filed a current report on Form 8-K regarding litigation filed against the Company by certain mineral royalty owners. - 13 - 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. SOUTHWESTERN ENERGY COMPANY Registrant DATE: August 13, 1996 /s/ GREGORY D. KERLEY --------------------- -------------------------------- Gregory D. Kerley Vice President - Treasurer and Secretary, and Chief Accounting Officer - 14 - EX-27 2 FINANCIAL DATA SCHEDULE FOR 2ND QTR - 1996
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 980 0 19,653 0 15,539 38,298 804,190 (298,999) 562,769 35,540 197,057 0 0 2,774 200,950 562,769 94,787 98,166 0 70,575 0 0 6,005 19,715 7,590 12,125 0 0 0 12,125 .49 0
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