-----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, QMk7DtG25WcjguQfNujG9lDoAQ3BpM/Fdh8rXzLe6iAlLbG7T1hj7fF4gjPxz5Ju fVQPuueaC49v0nJ/5DPoYQ== 0000007332-96-000025.txt : 19961115 0000007332-96-000025.hdr.sgml : 19961115 ACCESSION NUMBER: 0000007332-96-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96661547 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 SEPTEMBER 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 September 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 November 5, 1996 ---------------------------- ---------------------------- Common Stock, Par Value $.10 24,708,444 =========================================================================== - 1 - PART I FINANCIAL INFORMATION - 2 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
September 30, December 31, 1996 1995 --------- --------- ($ in thousands) Current Assets Cash $ 1,465 $ 1,498 Accounts receivable 19,430 35,541 Income taxes receivable 4,412 8,221 Inventories, at average cost 18,056 15,448 Other 3,645 3,188 --------- --------- Total current assets 47,008 63,896 --------- --------- Investments 6,601 9,114 --------- --------- Property, Plant and Equipment, at cost Gas and oil properties, using the full cost method 591,957 527,149 Gas distribution systems 200,912 193,258 Gas in underground storage 27,199 23,446 Other 20,997 19,717 --------- --------- 841,065 763,570 Less: Accumulated depreciation, depletion and amortization 308,319 277,751 --------- --------- 532,746 485,819 --------- --------- Other Assets 12,019 10,264 --------- --------- Total Assets $ 598,374 $ 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
September 30, December 31, 1996 1995 --------- --------- ($ in thousands) Current Liabilities Current portion of long-term debt $ 3,071 $ 3,071 Accounts payable 16,175 23,989 Taxes payable 2,081 2,422 Interest payable 4,781 1,376 Customer deposits 4,584 4,619 Over-recovered purchased gas costs, net - 7,327 Other 2,170 2,606 --------- --------- Total current liabilities 32,862 45,410 --------- --------- Long-Term Debt, less current portion above 233,357 207,757 --------- --------- Other Liabilities Deferred income taxes 123,478 115,461 Deferred investment tax credits 1,869 2,103 Other 4,314 3,858 --------- --------- 129,661 121,422 --------- --------- 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 212,522 204,632 Less: Common stock in treasury, at cost, 3,036,840 shares in 1996 and 3,036,735 shares in 1995 33,799 33,795 Unamortized cost of 30,099 restricted shares in 1996 and 34,807 restricted shares in 1995, issued under stock incentive plan 275 379 --------- --------- 202,494 194,504 --------- --------- Total Liabilities and Shareholders' Equity $ 598,374 $ 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 Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- ($ in thousands, except per share amounts) Operating Revenues Gas sales $ 27,177 $ 22,769 $ 119,013 $ 100,053 Oil sales 1,617 1,135 4,568 2,830 Gas transportation 1,035 1,264 3,212 3,806 Other 423 286 1,625 1,158 ---------- ---------- ---------- ---------- 30,252 25,454 128,418 107,847 ---------- ---------- ---------- ---------- Operating Costs and Expenses Purchased gas costs 2,490 3,031 25,607 24,364 Operating and general 12,310 10,660 36,103 32,243 Depreciation, depletion and amortization 9,813 8,861 31,045 27,169 Taxes, other than income taxes 1,379 947 3,812 3,099 ---------- ---------- ---------- ---------- 25,992 23,499 96,567 86,875 ---------- ---------- ---------- ---------- Operating Income 4,260 1,955 31,851 20,972 ---------- ---------- ---------- ---------- Interest Expense 3,092 2,894 9,097 8,040 ---------- ---------- ---------- ---------- Other Income (Expense) (823) (818) (2,694) (2,418) ---------- ---------- ---------- ---------- Income Before Provision for Income Taxes 345 (1,757) 20,060 10,514 ---------- ---------- ---------- ---------- Income Tax Provision (Benefit) Current (3,431) (2,773) (710) (733) Deferred 3,564 2,097 8,433 4,781 ---------- ---------- ---------- ---------- 133 (676) 7,723 4,048 ---------- ---------- ---------- ---------- Net Income (Loss) $ 212 $ (1,081) $ 12,337 $ 6,466 ========== ========== ========== ========== Weighted Average Common Shares Outstanding 24,707,412 24,741,437 24,703,385 25,277,762 ========== ========== ========== ========== Earnings Per Share $ .01 $(.04) $ .50 $ .26 ===== ===== ===== ===== Dividends Declared Per Share Payable 11/5/96 and 11/3/95 $ .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)
Nine Months Ended September 30, 1996 1995 -------- -------- ($ in thousands) Cash Flows From Operating Activities Net income $ 12,337 $ 6,466 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 31,255 27,379 Deferred income taxes 8,433 4,781 Equity in loss of partnership 2,478 2,595 Change in assets and liabilities: Decrease in accounts receivable 16,111 14,175 (Increase) decrease in income taxes receivable 3,809 (2,367) Increase in inventories (2,608) (5,708) Decrease in accounts payable (7,814) (3,223) Increase in interest payable 3,405 2,213 Increase (decrease) in over-recovered purchased gas costs (7,426) 3,120 Net change in other current assets and liabilities (1,170) (1,395) -------- -------- Net cash provided by operating activities 58,810 48,036 -------- -------- Cash Flows From Investing Activities Capital expenditures (75,411) (68,291) Investment in partnership - (3,660) (Increase) decrease in gas stored underground (3,753) 774 Other items (832) 1,961 -------- -------- Net cash used in investing activities (79,996) (69,216) -------- -------- Cash Flows From Financing Activities Net increase in revolving long-term debt 25,600 39,800 Purchase of treasury stock - (14,179) Cash dividends (4,447) (4,557) -------- -------- Net cash provided by financing activities 21,153 21,064 -------- -------- Decrease in cash (33) (116) Cash at beginning of year 1,498 1,152 -------- -------- Cash at end of period $ 1,465 $ 1,036 ======== ========
The accompanying notes are an integral part of the financial statements. - 6 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 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 September 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 October 9, 1996, payable November 5, 1996. 3. INTEREST AND INCOME TAXES PAID The following table provides interest and income taxes paid during each period presented. Three months Nine months Periods Ended September 30 1996 1995 1996 1995 ----------------------------------------------------------------------- (in thousands) Interest payments $415 $1,390 $7,775 $6,899 Income tax payments $593 $95 $3,114 $895 - 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 nine month periods ended September 30, 1996, and the comparable periods of 1995. RESULTS OF OPERATIONS Net income for the three months ended September 30, 1996, was $.2 million, or $.01 per share, on revenues of $30.3 million, compared to a net loss of $1.1 million, or $.04 per share, on revenues of $25.5 million, for the same period in 1995. For the nine months ended September 30, 1996, net income was $12.3 million, or $.50 per share, on revenues of $128.4 million, compared to $6.5 million, or $.26 per share, on revenues of $107.8 million, for the same period in 1995. The comparative increases in net income for the third quarter and year to date 1996 were primarily the result of higher gas prices for the quarter and higher gas prices and colder weather for the year to date. The following tables compare operating revenues and operating income by business segment for the three and nine month periods ended September 30, 1996 and 1995: Quarter Ended Nine Months Ended September 30, September 30, -------------- ----------------- 1995 1996 1995 1996 ---- ---- ---- ---- (in thousands) Revenues Exploration and production $ 18,279 $ 13,695 $ 62,228 $ 45,901 Gas distribution 17,934 16,347 94,976 82,740 Other 22 69 168 262 Eliminations (5,983) (4,657) (28,954) (21,056) -------- -------- -------- -------- $ 30,252 $ 25,454 $128,418 $107,847 ======== ======== ======== ======== Operating Income Exploration and production $ 6,196 $ 3,311 $ 24,829 $ 14,184 Gas distribution (1,617) (1,220) 7,724 7,177 Other (319) (136) (702) (389) -------- -------- -------- -------- $ 4,260 $ 1,955 $ 31,851 $ 20,972 ======== ======== ======== ======== Revenues of the exploration and production segment were up 33% and 36%, respectively, for the three and nine month periods ended September 30, 1996, as compared to the same periods in 1995. Gas production during the third quarter of 1996 was 7.9 billion cubic feet (Bcf), down - 8 - from 8.4 Bcf for the same period in 1995. For the nine months ended September 30, 1996, gas production was 26.1 Bcf, even with the same period in 1995. Sales to Arkansas Western Gas Company (AWG), which operates the Company's northwest Arkansas gas distribution system, increased to 7.5 Bcf during the nine months ended September 30, 1996, compared to 5.9 Bcf for the same period in 1995. The Company sold 1.4 Bcf to AWG during the third 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 1.1 Bcf of the Company's gas production during the third quarter of 1996 and 4.5 Bcf during the first nine months of 1996, up from .8 Bcf and 3.6 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 nine months of 1996. The increase in sales to the Company's gas distribution system were offset by a reduction in sales to unaffiliated purchasers. Sales of gas production to unaffiliated purchasers were 5.4 Bcf during the third quarter of 1996 and 14.1 Bcf for the first nine months of 1996, down from 6.3 Bcf and 16.6 Bcf, respectively, for the same periods in 1995. The lower sales to unaffiliated purchasers also reflected a decrease in production from the Company's Fort Chaffee and Gulf of Mexico properties, partially offset by increased production from acquisitions made in the previous twelve months. The Company's average sales price for its gas production was $2.09 per thousand cubic feet (Mcf) for the third quarter of 1996, up from $1.49 per Mcf for the same period in 1995. The average price was $2.20 per Mcf for the first nine months of 1996, up from $1.65 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 229,351 barrels for the nine months ended September 30, 1996, up from 164,022 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 10% in the third quarter of 1996 and 15% in the nine months ended September 30, 1996, both as compared to the same periods in 1995. The increase for the quarter was due to an increase in the average utility rate. The increase for the nine months was due both to an increase in the average utility rate and colder weather. Weather for the first nine months of 1996 was 8% colder than normal and 12% colder than in the same period of the prior year. Operating income of the gas distribution segment for the third quarter of 1996 was a loss of $1.6 million, compared to a loss of $1.2 million in 1995. The third quarter historically represents the seasonal low for the utility and the higher loss reflects another year of attrition since the utility's last rate increase. Deliveries by the Company's gas distribution systems to sales and end-use transportation customers were 4.4 Bcf for the third quarter of 1996 and 24.6 Bcf for the nine months ended - 9 - September 30, 1996, compared to 4.2 Bcf and 22.1 Bcf, respectively, for the same periods in 1995. The increased deliveries were the result of both the colder weather discussed above, and growth of 2% in the average number of utility customers. AWG delivered a total of 16.1 Bcf to its sales and end-use transportation customers during the first nine months of 1996, up from 14.7 Bcf in 1995. AWG also transported 3.2 Bcf for delivery off its system during the first nine months of 1996, down from 8.5 Bcf for the same period in 1995. Associated delivered a total of 8.5 Bcf to its customers during the first nine months of 1996, up from 7.4 Bcf for the same period in 1995. The Company's average rate for its utility sales increased to $4.38 per Mcf for the first nine months of 1996, up from $4.24 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. A utility rate increase of $5.1 million annually is pending approval of the Arkansas Public Service Commission (APSC). A stipulated settlement was reached in July, 1996 with the Staff of the APSC and an industrial intervenor group on a rate increase application for its northwest Arkansas system. 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. Operating costs and expenses increased $2.5 million, or 11%, in the third quarter of 1996 and increased $9.7 million, or 11%, for the nine months ended September 30, 1996, both as compared to the same periods in 1995. The comparative increases were due primarily to increased operating and general expenses and increased depreciation, depletion and amortization expense. Increased operating and general expenses primarily relate to the Company's exploration and production segment. The higher costs in large part represent increased operating costs in geographical areas that the Company has expanded into versus the lower level of operating costs related to the Company's historical operating areas. The increase in depreciation, depletion and amortization expense in both the third quarter and year to date was due to an increase in the amortization rate per unit of production. Interest expense, net of capitalization, for the nine months ended September 30, 1996, was up 13%, compared to the same period in 1995. The increase was due to higher average borrowings, 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 $.9 million for the third quarter of 1996 and $2.5 million for the nine months ended September 30, 1996, compared to $.9 million and $2.6 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. - 10 - The changes in the provisions for current and deferred income taxes recorded in the three and nine month periods ended September 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 September 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 nine months of 1996 and 1995, net cash provided by operating activities was $58.8 million and $48.0 million, respectively, and provided 90% and 76%, respectively, of these routine requirements. The increase in net cash provided by operating activities during the first nine months of 1996, as compared to the same period in 1995, was primarily due to higher net income and an increase in the noncash expense components of net income. The Company expects its outstanding borrowings to increase from the September 30, 1996 level during the remainder of 1996 due to a recent acquisition of oil and gas producing properties discussed below and because cash generated from operations will be less than the requirements for routine capital expenditures, cash dividends and scheduled debt retirements. The Company's capital expenditures for the first nine months of 1996 were $75.4 million, compared to $68.3 million for the same period in 1995. Capital expenditures for the first nine months of 1996 and 1995 included $14.6 million and $9.2 million, respectively, to purchase oil and gas producing properties, primarily in the Gulf Coast areas of Texas and Louisiana. The Company currently anticipates that its exploration and production capital spending for 1996 will exceed its original budget by approximately $35 to $40 million. The Company's original estimate for this segment was $71.0 million, consisting of $51.0 million for exploration and development and $20.0 million for producing property acquisitions. The Company now expects to spend approximately $65.0 million on exploration and development, with most of the increase incurred to acquire additional seismic data and leasehold acreage. The balance of the increase in exploration and production spending relates to acquisitions of producing properties. On November 1, 1996, the Company acquired substantially all of the oil and gas properties owned by L.B. Simmons Energy, Inc. ("Simmons") for $32.0 million. This purchase brought the Company's total expenditures in 1996 for acquisitions of oil and gas producing properties - 11 - to $46.6 million. The properties acquired from Simmons are located principally in Oklahoma and West Texas. Current net production from the acquired interests approximates 1,400 barrels of oil and 5.5 million cubic feet of natural gas per day. Proved reserves acquired were estimated to be approximately 6.0 million barrels of oil and 17 billion cubic feet of gas. The Company has implemented a hedging strategy to protect anticipated production over the next five years against significant declines in oil prices. The Company maintains two floating rate revolving credit facilities that provide $80.0 million of medium to long-term capital at current market lending rates. These facilities have been temporarily expanded to $120 million to provide additional debt financing to fund the Company's capital spending program. The Company also has $125.0 million of available capacity under a shelf registration statement filed with the Securities and Exchange Commission in November, 1995, for the issuance of up to $250.0 million of unsecured debt securities. At September 30, 1996, $48.5 million was outstanding under the Company's revolving credit facilities, all of which was classified as long-term debt. During the first nine months of 1996, the Company's revolving long-term debt increased by $25.6 million. The increase was primarily a result of increased exploration and production capital expenditures and acquisitions of producing properties. As a result, long-term debt at September 30, 1996, accounted for 54% of the Company's capitalization, up from 52% at December 31, 1995. At November 12, 1996, the outstanding balance under the Company's revolving credit facilities had increased to $85.5 million due primarily to the acquisition of the Simmons producing properties. The Company expects to refinance a portion of this outstanding balance on a long-term basis, but has not yet developed definite plans for the refinancing. 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. Inventories have increased since December 31, 1995 due to gas injected into storage facilities for use during the upcoming heating season. 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 has under-recovered $.1 million of purchased gas costs at September 30, 1996, which will be recovered from its utility customers through automatic cost of gas adjustment clauses included in its filed rate tariffs. This amount is classified as a current asset. At December 31, 1995, the Company had over-recovered purchased gas costs in the amount of $7.3 million. This amount is classified as a current liability. - 12 - PART II OTHER INFORMATION Items 1 - 6(b) No developments required to be reported under Items 1 - 6(b) occurred during the quarter ended September 30, 1996, that have not been previously reported. 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: November 13, 1996 /s/ GREGORY D. KERLEY --------------------------- Gregory D. Kerley Vice President - Treasurer and Secretary, and Chief Accounting Officer - 13 - EX-27 2 FINANCIAL DATA SCHEDULE FOR 3RD QTR - 1996
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 1,465 0 19,430 0 18,056 47,008 841,065 (308,319) 598,374 32,862 233,357 0 0 2,774 199,720 598,374 123,581 128,418 0 96,567 0 0 9,097 20,060 7,723 12,337 0 0 0 12,337 .50 0
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