-----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, HDs5rf/n0k/ozMXNyr+j6iuCoDRbjSfL2NAyLx5e9lMmQPyhrkODSEYJVkNrie+K L9cXY5ZDO4QeySFOQkYy1w== 0000007332-97-000021.txt : 19970815 0000007332-97-000021.hdr.sgml : 19970815 ACCESSION NUMBER: 0000007332-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97663106 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, 1997 =========================================================================== 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, 1997 ------------- or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______ Commission 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, 1997 ---------------------------- ---------------------------- Common Stock, Par Value $.10 24,742,332 =========================================================================== - 1 - PART I FINANCIAL INFORMATION - 2 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS
June 30, December 31, 1997 1996 --------- --------- ($ in thousands) Current Assets Cash $ 3,456 $ 2,297 Accounts receivable 22,826 39,928 Income taxes receivable - 6,623 Inventories, at average cost 16,460 17,571 Under-recovered purchased gas costs, net 8,908 3,030 Other 2,695 3,484 --------- --------- Total current assets 54,345 72,933 --------- --------- Investments 7,021 6,557 --------- --------- Property, Plant and Equipment, at cost Gas and oil properties, using the full cost method 670,654 637,100 Gas distribution systems 208,522 203,070 Gas in underground storage 23,408 25,636 Other 22,884 22,031 --------- --------- 925,468 887,837 Less: Accumulated depreciation, depletion and amortization 343,071 319,135 --------- --------- 582,397 568,702 --------- --------- Other Assets 13,021 11,998 --------- --------- Total Assets $ 656,784 $ 660,190 ========= =========
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, 1997 1996 --------- --------- ($ in thousands) Current Liabilities Current portion of long-term debt $ 3,071 $ 3,071 Accounts payable 26,363 25,644 Taxes payable 7,571 3,290 Interest payable 1,910 1,628 Customer deposits 4,864 4,904 Other 2,744 3,285 --------- --------- Total current liabilities 46,523 41,822 --------- --------- Long-Term Debt, less current portion above 256,314 275,214 --------- --------- Other Liabilities Deferred income taxes 130,381 128,895 Deferred investment tax credits 1,731 1,791 Other 4,412 4,527 --------- --------- 136,524 135,213 --------- --------- 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 21,372 21,336 Retained earnings 227,271 217,889 Less: Common stock in treasury, at cost 2,995,752 shares in 1997 and 3,019,200 shares in 1996 33,340 33,603 Unamortized cost of 60,187 restricted shares in 1997 and 40,020 restricted shares in 1996, issued under stock incentive plan 654 455 --------- --------- 217,423 207,941 --------- --------- Total Liabilities and Shareholders' Equity $ 656,784 $ 660,190 ========= =========
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, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- ($ in thousands, except per share amounts) Operating Revenues Gas sales $ 32,180 $ 31,130 $ 101,442 $ 91,836 Gas marketing 14,020 2,163 28,023 3,231 Oil sales 3,667 1,635 7,683 2,951 Gas transportation and other 1,377 1,454 3,015 3,228 ---------- ---------- ---------- --------- 51,244 36,382 140,163 101,246 ---------- ---------- ---------- --------- Operating Costs and Expenses Gas purchases - utility 4,993 3,023 27,276 23,117 Gas purchases - marketing 13,602 2,078 26,714 3,080 Operating and general 14,388 12,039 28,736 23,793 Depreciation, depletion and amortization 11,543 10,015 23,829 21,232 Taxes, other than income taxes 1,629 1,154 3,425 2,433 ---------- ---------- ---------- --------- 46,155 28,309 109,980 73,655 ---------- ---------- ---------- --------- Operating Income 5,089 8,073 30,183 27,591 ---------- ---------- ---------- --------- Interest Expense 3,745 2,790 7,731 6,005 ---------- ---------- ---------- --------- Other Income (Expense) (1,296) (745) (2,373) (1,871) ---------- ---------- ---------- --------- Income Before Provision for Income Taxes 48 4,538 20,079 19,715 ---------- ---------- ---------- --------- Income Tax Provision (Benefit) Current (243) (662) 6,298 2,721 Deferred 262 2,409 1,433 4,869 ---------- ---------- ---------- --------- 19 1,747 7,731 7,590 ---------- ---------- ---------- --------- Net Income $ 29 $ 2,791 $ 12,348 $ 12,125 ========== ========== ========== ========== Weighted Average Common Shares Outstanding 24,736,398 24,701,349 24,728,318 24,701,349 ========== ========== ========== ========== Earnings Per Share $ .00 $ .11 $ .50 $ .49 ===== ===== ===== ===== Dividends Declared Per Share Payable 8/5/97 and 8/5/96 $ .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, 1997 1996 -------- -------- ($ in thousands) Cash Flows From Operating Activities Net income $ 12,348 $ 12,125 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 23,969 21,372 Deferred income taxes 1,433 4,869 Equity in loss of partnership 2,014 1,601 Change in assets and liabilities: Decrease in accounts receivable 17,102 15,888 Decrease in income taxes receivable 11,584 7,412 (Increase) decrease in inventories 1,111 (91) Increase (decrease) in accounts payable 719 (2,895) Decrease in taxes payable (680) (371) Increase (decrease) in interest payable 282 (195) Increase in under-recovered purchased gas costs (5,878) (5,623) Net change in other current assets and liabilities 208 1,085 -------- -------- Net cash provided by operating activities 64,212 55,177 -------- -------- Cash Flows From Investing Activities Capital expenditures (41,482) (41,486) Investment in partnership (2,496) - Decrease in gas stored underground 2,228 31 Other items 563 (576) -------- -------- Net cash used in investing activities (41,187) (42,031) -------- -------- Cash Flows From Financing Activities Decrease in revolving long-term debt (78,900) (10,700) Issuance of long-term debt 60,000 - Cash dividends (2,966) (2,964) -------- -------- Net cash used in financing activities (21,866) (13,664) -------- -------- Increase (decrease) in cash 1,159 (518) Cash at beginning of year 2,297 1,498 -------- -------- Cash at end of period $ 3,456 $ 980 ======== ========
The accompanying notes are an integral part of the financial statements. - 6 - SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 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 1996 Annual Report to Shareholders, Notes to Financial Statements. Certain reclassifications have been made to the June 30, 1996, financial statements in order to conform with the 1997 presentation. These reclassifications had no effect on previously reported net income. 2. DIVIDEND PAYABLE A dividend of $.06 per share was declared July 9, 1997, payable August 5, 1997. 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 1997 1996 1997 1996 --------------------------------------------------------------------------------------- (in thousands) Interest payments $7,276 $7,039 $8,845 $7,360 Income tax payments $219 $2,512 $384 $2,521
4. RECENT PRONOUNCEMENT In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share (SFAS No. 128), which establishes new standards for computing and presenting earnings per share. The provisions of SFAS No. 128 are effective for earnings per share calculations for periods ending after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share. At June 30, 1997 and 1996, the provisions of SFAS No. 128 would have had no impact on the Company's reported earnings per share. - 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, 1996, and analyzes the changes in the results of operations between the three and six month periods ended June 30, 1997, and the comparable periods of 1996. RESULTS OF OPERATIONS Net income for the three months ended June 30, 1997, was $29,000, or $.00 per share, down from $2.8 million, or $.11 per share, for the same period in 1996. For the six months ended June 30, 1997, net income was $12.3 million, or $.50 per share, compared to $12.1 million, or $.49 per share, for the same period in 1996. Results for the second quarter 1997 were unfavorably impacted by lower oil and gas prices, higher depreciation, depletion and amortization expense, and higher interest costs. The following tables compare operating revenues and operating income by business segment for the three and six month periods ended June 30, 1997 and 1996:
Quarter Ended Six Months Ended ------------------------ ------------------------ June 30, June 30, ------------------------ ------------------------ 1997 1996 1997 1996 ----------- ----------- ----------- ---------- (in thousands) Revenues Exploration and production $ 20,633 $ 20,711 $ 49,915 $ 43,817 Gas distribution 24,280 22,767 85,179 77,042 Energy services and other 18,553 6,500 35,536 9,923 Eliminations (12,222) (13,596) (30,467) (29,536) ---------- ----------- ----------- ---------- $ 51,244 $ 36,382 $ 140,163 $ 101,246 =========== =========== =========== ========== Operating Income Exploration and production $ 4,667 $ 8,540 $ 17,102 $ 18,409 Gas distribution 229 (432) 12,194 9,207 Energy services and other 193 (35) 887 (25) ----------- ----------- ----------- ---------- $ 5,089 $ 8,073 $ 30,183 $ 27,591 =========== =========== =========== ==========
Revenues of the exploration and production segment were flat for the three month period ended June 30, 1997, and were up 14% for the six month period ended June 30, 1997, both as compared to the same periods in 1996. Operating income of this segment was down $3.9 million for the three months ended June 30, 1997, and was down $1.3 million for the six months ended June 30, 1997, as compared to the same periods in 1996. - 8 - Gas and oil production during the second quarter of 1997 was 9.1 billion cubic feet (Bcf) equivalent, up from 8.8 Bcf equivalent for the same period in 1996. For the six months ended June 30, 1997, gas and oil production was 19.0 Bcf equivalent, even with the same period in 1996. Gas production for the three month period ended June 30, 1997 was 7.9 Bcf, compared to 8.3 Bcf for the same period in 1996. For the six months ended June 30, 1997, gas production was 16.6 Bcf, compared to 18.2 Bcf for the same period in 1996. The decreased production in both the second quarter and year-to-date was primarily the result of lower sales to the Company's utility distribution systems. Sales to the utility were 3.0 Bcf during the second quarter of 1997 and 7.6 Bcf during the first six months of 1997, down from 3.6 Bcf and 9.5 Bcf for the same periods in 1996. The declines were the result of weather which was 10% warmer than in 1996. In 1996, the colder weather created higher demand by the Company's utility distribution systems and that demand continued into the summer as the utility injected increased volumes of gas into storage. Sales of gas production to unaffiliated purchasers were 4.9 Bcf during the second quarter of 1997 and 9.0 Bcf for the first six months of 1997, up from 4.7 Bcf and 8.7 Bcf, respectively, for the same periods in 1996. The Company's average sales price for its gas production was $2.13 per thousand cubic feet (Mcf) for the second quarter of 1997, down from $2.31 per Mcf for the same period in 1996. The average price was $2.54 per Mcf for the first six months of 1997, up from $2.25 per Mcf for the same period of 1996. The changes in the average sales prices received primarily reflect fluctuations in spot market prices for natural gas. The Company's oil production increased to 398 thousand barrels (MBbls) for the six months ended June 30, 1997, up from 150 MBbls for the same period in 1996. The increase was due primarily to production from properties acquired during the fourth quarter of 1996. Operating revenues of the gas distribution segment increased 7% in the second quarter of 1997 and 11% in the six months ended June 30, 1997, both as compared to the same periods in 1996. Operating income of this segment increased $.7 million for the second quarter of 1997 and $3.0 million for the first six months of 1997, as compared to the same periods in 1996. The increases primarily reflect a rate increase implemented in late 1996 partially offset by the effect of lower weather-related deliveries to sales and end-use transportation customers. Deliveries by the Company's utility systems to sales and end-use transportation customers were 5.8 Bcf for the second quarter of 1997 and 18.7 Bcf for the six months ended June 30, 1997, compared to 5.6 Bcf and 20.2 Bcf, respectively, for the same periods in 1996. The Company's average rate for its utility sales increased during the first half of 1997 to $5.22 per Mcf, up from $4.24 per Mcf for the same period in 1996. The increase reflected higher prices paid for purchases of natural gas, which are passed through to customers under automatic adjustment clauses, and the effects of the rate increase. Operating income for the energy services segment was $.2 million on revenues of $18.5 million for the second quarter of 1997, compared to break-even on revenues of $6.4 million for the same period in 1996. For the six months ended June 30, 1997, operating income for this segment was $.9 million on revenues of $35.4 million, compared to $.1 million on revenues of $9.8 million for the same period in 1996. The Company marketed 16.4 Bcf of gas in the first - 9 - six months of 1997, compared to 4.1 Bcf for the same period in 1996. The Company increased its activities in this area in mid-1996 when it formed an energy services group to better enable the Company to capture downstream opportunities which arise through marketing and transportation activity. Operating costs and expenses increased 63% in the second quarter of 1997 and increased 49% for the first six months of 1997, both as compared to the comparable periods in 1996. The increases were primarily caused by higher purchased gas costs of the Company's gas distribution segment, increased gas purchases by the energy services segment, and increased expenses related to producing properties acquired in 1996. Most of those acquisitions were oil properties which produce through secondary recovery methods. As a result, the operating costs are higher than those associated with the Company's average gas producing property. The increase in depreciation, depletion and amortization expense was due to an increase in the amortization rate per unit of production. The proved reserves owned by the Company and the costs associated with adding those reserves are both components of the amortization rate. The Company currently has a margin, or cushion, between its ceiling under the full cost method of accounting for oil and gas producing activities and the financial statement carrying value of its oil and gas properties, although that cushion has been significantly reduced since December 31, 1996. The change in the amount of cushion was due primarily to the drop in gas prices which occurred during the first half of 1997. The Company's full cost ceiling is evaluated at the end of each quarter. If gas prices decline below current levels in the future without other mitigating circumstances, the Company could incur a write-down of its capitalized costs of oil and gas properties and a noncash charge against earnings in a later quarter. Interest expense, net of capitalization, for the six months ended June 30, 1997, was up 29% compared to the same period in 1996, due to higher average borrowings. 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 second quarter of 1997 and $2.0 million for the six months ended June 30, 1997, compared to $.8 million and $1.6 million, respectively, for the same periods in 1996. 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, 1997, as compared to the same periods in 1996, 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. - 10 - CHANGES IN FINANCIAL CONDITION Changes in the Company's financial condition at June 30, 1997, as compared to December 31, 1996, primarily reflect the seasonal nature of the gas distribution segment of the Company's business. Routine capital expenditures, cash dividends and scheduled debt retirements are predominately funded through cash provided by operations. For the first six months of 1997 and 1996, net cash provided by operating activities was $64.2 million and $55.2 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 1997, as compared to the same period in 1996, was primarily due to the timing of both cash receipts and expenditures. The Company expects its outstanding borrowings to increase during the upcoming months of 1997 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 both 1997 and 1996 were $41.5 million. The Company has 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, $17.6 million was outstanding at June 30, 1997, all of which was classified as long-term debt. During the first six months of 1997, the Company's revolving long-term debt decreased by $78.9 million. Approximately $60.0 million of this decrease resulted from the issuance of the Medium-Term Notes discussed below. The remainder of the decrease resulted from 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, 1997, accounted for 54% of the Company's capitalization, down from 57% at December 31, 1996. In May, 1997, the Company issued $60.0 million of 7.625% Medium-Term Notes due 2027. The notes may be repaid prior to maturity on May 1, 2009, at the noteholder's option. The notes were issued under a supplement to the Company's $250.0 million shelf registration statement filed with the Securities and Exchange Commission in February, 1997, for the issuance of up to $125.0 million of Medium-Term Notes. The Company has $65.0 million of remaining capacity under the shelf registration statement. Accounts receivable has declined since December 31, 1996, due primarily to seasonally lower deliveries of the gas distribution segment. The decrease in income taxes receivable resulted from the receipt of federal income tax refunds related to a 1996 tax net operating loss and an increase in taxes payable resulting from taxable income generated in the first half of 1997. Accounts payable has increased slightly since December 31, 1996 as the seasonal decrease related to gas purchases for the gas distribution segment was more than offset by increased gas purchases for the energy services segment and by the timing of expenditures. Other changes in current assets and current liabilities between periods resulted primarily from the timing of expenditures and receipts. - 11 - The Company had under-recovered $8.9 million of purchased gas costs at June 30, 1997, which will be collected from its utility customers through automatic cost of gas adjustment clauses included in its filed rate tariffs. At December 31, 1996, the Company had net under-recovered purchased gas costs in the amount of $3.0 million. These amounts are classified as current assets. - 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, 1997. Item 4 - Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Shareholders on May 22, 1997, for the purpose of electing Directors of the Company for the ensuing year. Holders of 21,138,091 shares voted, with 21,055,752 shares voted for the election of directors and 82,339 shares voted as withheld. The Directors were elected with the number of shares voted as follows: Voted For Withheld ---------- -------- John Paul Hammerschmidt 21,038,654 99,437 Robert L. Howard 21,055,252 82,839 Kenneth R. Mourton 21,055,452 82,639 Charles E. Sanders 21,042,442 95,649 Charles E. Scharlau 21,044,526 93,565 Items 5 - 6(b) No developments required to be reported under Items 5 - 6(b) occurred during the quarter ended June 30, 1997 that have not previously been 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: August 14, 1997 /s/ GREGORY D. KERLEY --------------------- -------------------------------- Gregory D. Kerley Vice President - Treasurer and Secretary, and Chief Accounting Officer - 13 - EX-27 2 FINANCIAL DATA SCHEDULE FOR 2ND QTR - 1997
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 3,456 0 22,826 0 16,460 54,345 925,468 (343,071) 656,784 46,523 256,314 0 0 2,774 214,649 656,784 137,148 140,163 0 109,980 0 0 7,731 20,079 7,731 12,348 0 0 0 12,348 .50 0
-----END PRIVACY-ENHANCED MESSAGE-----