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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, 1994
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 5,1994
---------------------------- ------------------------------
Common Stock, Par Value $.10 25,684,110
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- 1 -
PART I
FINANCIAL INFORMATION
- 2 -
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1994 1993
--------- ---------
($ in thousands)
Current Assets
Cash $ 297 $ 834
Accounts receivable 19,065 34,866
Inventories, at average cost 8,906 9,580
Other 1,310 1,525
--------- ---------
Total current assets 29,578 46,805
--------- ---------
Investments 4,662 5,661
--------- ---------
Property, Plant and Equipment, at cost
Gas and oil properties, using the
full cost method 392,896 375,281
Gas distribution systems 172,877 165,443
Gas in underground storage 34,172 37,171
Other 16,666 14,684
--------- ---------
616,611 592,579
--------- ---------
Less: Accumulated depreciation,
depletion and amortization 224,468 205,949
--------- ---------
392,143 386,630
--------- ---------
Other Assets 6,681 6,358
--------- ---------
Total Assets $ 433,064 $ 445,454
========= =========
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,
1994 1993
--------- ---------
($ in thousands)
Current Liabilities
Current portion of long-term debt $ 3,000 $ 3,000
Accounts payable 13,936 16,052
Taxes payable 5,484 6,449
Interest payable 1,305 1,445
Customer deposits 3,860 3,927
Current portion of deferred income taxes 1,426 1,426
Over-recovered purchased gas costs, net 672 4,187
Other 2,088 2,211
--------- ---------
Total current liabilities 31,771 38,697
--------- ---------
Long-Term Debt, less current portion above 101,900 124,000
--------- ---------
Other Liabilities
Deferred income taxes 94,646 93,593
Deferred investment tax credits 2,517 2,617
Other 3,010 2,017
--------- ---------
100,173 98,227
--------- ---------
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 21,231 21,231
Retained earnings 195,217 180,470
Less: Unamortized cost of 22,422
restricted shares in 1994
and 17,447 restricted shares
in 1993, issued under stock
incentive plan 285 228
Common stock in treasury, at cost,
2,053,974 shares 19,717 19,717
--------- ---------
199,220 184,530
--------- ---------
Total Liabilities and Shareholders' Equity $ 433,064 $ 445,454
========= =========
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,
1994 1993 1994 1993
---------- ---------- ---------- ----------
($ in thousands, except per share amounts)
Operating Revenues
Gas sales $ 32,026 $ 31,651 $ 94,771 $ 88,366
Oil sales 790 384 1,319 808
Gas transportation 1,183 1,446 2,519 2,750
Other 606 509 1,426 1,274
---------- ---------- ---------- ---------
34,605 33,990 100,035 93,198
---------- ---------- ---------- ---------
Operating Costs and Expenses
Purchased gas costs 4,276 7,245 25,570 25,536
Operating and general 10,414 9,839 20,620 20,137
Depreciation, depletion and amortization 8,544 7,372 17,970 15,811
Taxes, other than income taxes 900 796 1,879 1,717
---------- ---------- ---------- ---------
24,134 25,252 66,039 63,201
---------- ---------- ---------- ---------
Operating Income 10,471 8,738 33,996 29,997
---------- ---------- ---------- ---------
Interest Expense 2,120 2,283 4,053 4,733
---------- ---------- ---------- ---------
Other Income (Expense) (490) (476) (954) (1,162)
---------- ---------- ---------- ---------
Income Before Provision for Income Taxes
and Cumulative Effect of Accounting Change 7,861 5,979 28,989 24,102
---------- ---------- ---------- ---------
Income Tax Provision (Benefit)
Current 2,094 (103) 10,207 6,463
Deferred 933 2,386 954 2,571
---------- ---------- ---------- ---------
3,027 2,283 11,161 9,034
---------- ---------- ---------- ---------
Income Before Cumulative Effect of Accounting Change 4,834 3,696 17,828 15,068
Cumulative Effect of Change in Accounting
for Income Taxes - - - 10,126
---------- ---------- ---------- ---------
Net Income $ 4,834 $ 3,696 $ 17,828 $ 25,194
========== ========== ========== ==========
Weighted Average Common Shares Outstanding 25,684,110 25,684,110 25,684,110 25,684,110
========== ========== ========== ==========
Earnings Per Share
Income Before Cumulative Effect of Accounting Change $ .18 $ .15 $ .69 $ .59
Cumulative Effect of Change in Accounting
for Income Taxes - - - .39
----- ----- ----- -----
Net Income $ .18 $ .15 $ .69 $ .98
===== ===== ===== =====
Dividends Declared Per Share Payable 8/5/94
and 8/5/93 $ .06 $ .06 $ .06 $ .06
===== ===== ===== =====
The accompanying notes are an integral part
of the financial statements.
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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1994 1993
-------- --------
($ in thousands)
Cash Flows From Operating Activities
Net income $ 17,828 $ 25,194
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 18,109 15,950
Deferred income taxes 954 2,571
Equity in loss of partnership 928 1,101
Cumulative effect of change in
accounting for income taxes - (10,126)
Change in assets and liabilities:
Decrease in accounts receivable 15,801 10,372
Decrease in inventories 674 227
Increase (decrease) in accounts payable (2,116) 22
Decrease in taxes payable (965) (262)
Decrease in interest payable (140) (78)
Increase (decrease) in customer deposits (67) 9
Increase (decrease) in over-recovered
purchased gas costs (3,515) 2,863
Net change in other current assets
and liabilities 92 1,425
-------- --------
Net cash provided by operating activities 47,583 49,268
-------- --------
Cash Flows From Investing Activities
Capital expenditures (27,132) (30,949)
Decrease in gas stored underground 2,999 4,583
Other items 1,195 1,614
-------- --------
Net cash used in investing activities (22,938) (24,752)
-------- --------
Cash Flows From Financing Activities
Decrease in revolving long-term debt (22,100) (22,200)
Payments on other long-term debt - (573)
Cash dividends (3,082) (2,568)
-------- --------
Net cash used in financing activities (25,182) (25,341)
-------- --------
Decrease in cash (537) (825)
Cash at beginning of year 834 1,122
-------- --------
Cash at end of period $ 297 $ 297
======== ========
The accompanying notes are an integral part
of the financial statements.
- 6 -
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
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 1993 Annual Report to
Shareholders, Notes to Financial Statements.
Certain reclassifications have been made to the June 30, 1993,
financial statements in order to conform with the 1994
presentation. These reclassifications had no effect on
previously reported net income.
2. SHAREHOLDERS' EQUITY
On July 8, 1993, the Company's Board of Directors declared a
three-for-one stock split to be effected through the
distribution of two additional common shares for each share
outstanding. The additional shares were distributed on August
5, 1993, to shareholders of record at the close of business on
July 20, 1993. The Company issued 18,492,056 shares of common
stock, including 1,369,316 shares of additional treasury
stock, in connection with the stock split. The Company also
transferred $1,849,000, the amount equal to the par value of
the shares issued, to the common stock account from the
additional paid-in capital account. The share and per share
information shown on the income statement and the balances in
the Shareholders' Equity section of the balance sheet have
been adjusted to reflect the effect of the stock split.
3. ADOPTION OF ACCOUNTING STANDARDS
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." The recognition of the cumulative effect,
through December 31, 1992, of this change in accounting
increased net income in the first quarter of 1993 by $10.1
million or $.39 per share.
The Company also prospectively adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," effective January 1, 1993. Under the prospective
method of adoption of this new standard, the Company is
amortizing the accumulated postretirement benefit obligation
earned by employees prior to the adoption of SFAS 106 over
future periods. The adoption of SFAS No. 106 did not have a
material impact on the results of operations or financial
condition of the Company.
- 7 -
4. DIVIDEND PAYABLE
A dividend of $.06 per share was declared July 8, 1994,
payable August 5, 1994.
5. 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 1994 1993 1994 1993
(in thousands)
Interest payments $3,009 $4,273 $4,854 $4,750
Income tax payments $7,481 $3,428 $10,672 $4,566
- 8 -
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, 1993, and analyzes the changes in the results of
operations between the three and six month periods ended June 30,
1994, and the comparable periods of 1993.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1994, was $4.8
million, or $.18 per share, compared to $3.7 million, or $.15 per
share, for the same period in 1993. For the six months ended June
30, 1994, net income was $17.8 million, or $.69 per share, compared
to $15.1 million, or $.59 per share, for the same period in 1993.
The comparison to 1993 of the six months ended June 30, 1994,
excludes the cumulative effect of a change in accounting for income
taxes which was recorded in the first quarter of 1993. There were
no accounting changes or extraordinary items recorded in 1994.
The comparative increases in net income were primarily the result
of increased sales of the Company's gas production combined with
higher prices received for that production. Deliveries of the
Company's utility systems during the first half of 1994 to sales
and end-use transportation customers reflected the net effect of
strong customer growth and weather which was colder than normal,
but warmer than in the comparable period of 1993. The following
tables compare operating revenues and operating income by business
segment for the three and six month periods ended June 30, 1994 and
1993:
Quarter Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
-------- ------- -------- -------
(in thousands)
Revenues
Exploration and
production $ 19,687 $16,971 $ 44,631 $39,731
Gas distribution 23,134 22,132 76,040 72,075
Other 81 64 151 128
Eliminations (8,297) (5,177) (20,787) (18,736)
-------- ------- -------- -------
$ 34,605 $33,990 $100,035 $ 3,198
======== ======= ======== =======
Operating Income
Exploration and
production $ 10,047 $ 7,917 $ 24,325 $20,826
Gas distribution 616 836 9,897 9,383
Corporate expenses (192) (15) (226) (212)
-------- ------- -------- -------
$ 10,471 $ 8,738 $ 33,996 $29,997
======== ======= ======== =======
- 9 -
Revenues of the exploration and production segment for the three
and six month periods ended June 30, 1994, reflect increased
volumes of gas production sold to both unaffiliated purchasers and
to the Company's own gas distribution systems. Gas production
during the second quarter of 1994 increased 8% to 8.7 billion cubic
feet (Bcf), up from 8.1 Bcf for the same period in 1993. For the
six months ended June 30, 1994, gas production was 19.0 Bcf, up
from 17.9 Bcf for the same period in 1993. The increases were the
result of higher sales from the Company's properties in both
Arkansas and the Gulf Coast areas of Texas and Louisiana.
Sales of Arkansas production totaled 6.6 Bcf during the second
quarter of 1994 and 14.8 Bcf for the six months ended June 30,
1994, compared to 6.2 Bcf and 14.2 Bcf, respectively, for the same
periods in 1993. A decrease in gas production from the Fort
Chaffee military reservation offset a portion of the increase in
production from other Arkansas properties. Sales from Fort Chaffee
were 1.1 Bcf during the second quarter of 1994 and 2.3 Bcf during
the first six months of 1994, compared to 1.3 Bcf and 2.9 Bcf,
respectively, for the same periods in 1993. The timing of drilling
operations at Fort Chaffee has been slowed by scheduling conflicts
with military training activities, but additional drilling could
take place later in 1994. The increase in sales from other
Arkansas properties for the first six months of 1994 as compared to
1993 was primarily the result of wells completed in the last two
years as a part of the Company's development drilling program.
These sales were generally made through the NOARK Pipeline System
(NOARK), an intrastate pipeline in which Southwestern owns an
interest. Sales of gas production from the Company's Gulf Coast
properties were 1.7 Bcf for the second quarter of 1994 and 3.6 Bcf
for the first six months of 1994, up from 1.6 Bcf and 2.9 Bcf,
respectively, for the same periods in 1993. The increases were
primarily the result of the completion of a production platform at
the Galveston Block 283 gas field late in 1993 and first production
from the Earl Chauvin No. 1 well, a late 1993 gas discovery in
southeast Louisiana.
Requirements of the Company's gas distribution systems for storage
injection caused an increase during the second quarter of 1994 in
demand for system supply provided from the Company's gas
production. The Company sold 1.6 Bcf to Arkansas Western Gas
Company (AWG), which operates its northwest Arkansas gas
distribution system, during the second quarter of 1994, up from 1.1
Bcf for the same period in 1993. The Company sold 4.1 Bcf to AWG
during the first half of 1994, compared to 3.7 Bcf for the same
period in 1993. Associated Natural Gas Company (Associated), which
operates the Company's gas distribution system in northeast
Arkansas and parts of Missouri, purchased 1.1 Bcf of the Company's
gas production during the second quarter of 1994 and 2.7 Bcf during
the first six months of 1994, compared to .9 Bcf and 2.9 Bcf,
respectively, for the same periods in 1993.
The Company's average sales price for its gas production was $2.15
per thousand cubic feet (Mcf) for the second quarter of 1994, up
from $2.04 per Mcf for the same period in 1993. The average price
was $2.26 per Mcf for the first six months of 1994, up from $2.16
per Mcf for the same period of 1993. The increases reflected both
a general improvement in market prices for the Company's production
and increased sales under higher priced term contracts.
- 10 -
The Company's oil production increased to 87,703 barrels for the
six months ended June 30, 1994, up from 42,750 barrels for the same
period in 1993. The increase was primarily due to additional
production from properties acquired in Oklahoma during the first
quarter of 1994.
Operating revenues of the gas distribution segment increased 5% in
the second quarter of 1994 and 6% in the six months ended June 30,
1994, both as compared to the same periods in 1993. The increases
were primarily due to an increase in deliveries to industrial
customers and higher average rates for sales to all classes of
customers. Weather during the first half of 1994 was 1% colder
than normal, but 8% warmer 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 5.2 Bcf for the
second quarter of 1994 and 18.0 Bcf for the six months ended June
30, 1994, compared to 5.6 Bcf and 18.2 Bcf, respectively, for the
same periods of 1993. While deliveries to industrial customers
improved in 1994, deliveries to residential and commercial
customers decreased as growth of 3% in the average number of
customers was not enough to offset the effects of weather which was
warmer than in the prior year. AWG delivered a total of 11.7 Bcf
to its sales and end-use transportation customers during the first
half of 1994, down from 11.8 Bcf for the same period in 1993. AWG
also transported 6.3 Bcf for delivery off its system during the
first half of 1994, up from 5.7 Bcf for the same period in 1993.
Associated delivered a total of 6.3 Bcf during the first six months
of 1994, compared to 6.4 Bcf for the same period in 1993.
The Company's average utility rate increased to $4.65 per Mcf
during the first half of 1994, up from $4.51 per Mcf for the same
period in 1993. The increase reflected higher prices paid for
purchases of natural gas which are passed through to customers
under automatic adjustment clauses.
Operating costs and expenses decreased $1.1 million, or 4%, in the
second quarter of 1994 and increased $2.8 million, or 4%, for the
six months ended June 30, 1994, both as compared to the same
periods in 1993. The decrease in the second quarter of 1994 was
due primarily to lower purchased gas costs, partially offset by
increases in both operating and general expenses and depreciation,
depletion and amortization expense that resulted from the increase
in gas production. The decrease in purchased gas costs resulted
from an increase in the elimination of gas sales and gas purchases
related to intercompany transactions. The intercompany sales and
purchases of gas were proportionally higher in 1994 than in 1993.
The increase is related to the utility segment's increase in its
requirements for delivery to storage. The increase in operating
costs and expenses for the six months ended June 30, 1994, was due
primarily to higher depreciation, depletion and amortization
expense which resulted from the increase in gas production.
Total interest expense for the six months ended June 30, 1994, was
down 14%, compared to the same period in 1993. The decrease
primarily resulted from a decrease in the level of debt outstanding
on the Company's revolving credit facilities.
- 11 -
The Company's share of NOARK's pre-tax loss included in other
income was $.5 million for both the second quarter of 1994 and
1993, and $.9 million for the six months ended June 30, 1994, as
compared to $1.1 million for the first six months of 1993. The
Company, through a subsidiary, holds a 47.33% 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, 1994, as
compared to the same periods in 1993, resulted primarily from the
level of taxable income combined with the effects of gas storage
activity and 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. The Company's capitalized costs of gas and oil
properties at June 30, 1994, were well below the "ceiling" level to
which such costs are limited under the full cost method.
CHANGES IN FINANCIAL CONDITION
Changes in the Company's financial condition at June 30, 1994, as
compared to December 31, 1993, primarily reflect the seasonal
nature of the gas distribution segment of the Company's business
and the related demand of the gas distribution segment for gas
production of the Company's exploration and production segment.
The Company's capital expenditures for the first six months of 1994
were $27.1 million, compared to $30.9 million for the same period
in 1993. The comparative decrease resulted from non-routine
expenditures incurred during the first quarter of 1993 to further
develop the Company's gas storage facilities and from lower
expenditures in the Company's exploration and production segment in
the first six months of 1994. The Company expects its rate of
spending in the exploration and production segment to increase in
the second half of 1994 and currently anticipates its total capital
expenditures in 1994 to increase approximately 25% from spending in
1993.
Routine capital expenditures, cash dividends and scheduled debt
retirements are predominately funded through cash provided by
operations. For the first six months of 1994 and 1993, net cash
provided by operating activities was $47.6 million and $49.3
million, respectively, and exceeded the total of these routine
requirements. The decrease in net cash provided by operating
activities during the first half of 1994 was primarily due to the
timing of both cash receipts and expenditures. The Company expects
its outstanding borrowings to increase during the upcoming months
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 has access to $80.0 million of medium to long-term
capital at or below prime lending rates through two floating rate
revolving credit facilities. Of this amount, $8.9 million was
outstanding at June 30, 1994, all of which was classified as long-
term debt. The Company
- 12 -
also has available short-term lines of credit totaling $3.5
million, none of which was outstanding at June 30, 1994. During
the first six months of 1994, the Company's revolving long-term
debt was reduced by $22.1 million due to the increased level of
cash flow generated by seasonally high utility revenues and
increased gas production. As a result, long-term debt at June 30,
1994, accounted for 34% of the Company's capitalization, down from
41% at December 31, 1993. The Company plans to manage the debt
portion of its capital structure over time through its policy of
generally limiting its routine capital spending to internally
generated cash or less, but expects to continue to use additional
debt to address extraordinary needs or opportunities.
Accounts receivable has declined since December 31, 1993, due
primarily to seasonally lower gas deliveries of the gas
distribution segment. The Company's accounts payable balance has
declined since December 31, 1993, due primarily to seasonally lower
gas purchases of the gas distribution segment. The decrease in
inventories is primarily the result of withdrawals of gas stored
underground to meet seasonal requirements in the gas distribution
segment. Other changes in current assets and current liabilities
between periods resulted primarily from the timing of expenditures
and receipts.
The Company had over-recovered $.7 million of purchased gas costs
at June 30, 1994, which will be refunded to its utility customers
through automatic cost of gas adjustment clauses included in its
filed rate tariffs. At December 31, 1993, the Company had over-
recovered purchased gas costs in the amount of $4.2 million. These
amounts are classified as current liabilities.
- 13 -
PART II
OTHER INFORMATION
Items 1 - 6(b)
No developments required to be reported under Items 1 - 6(b)
occurred during the quarter ended June 30, 1994.
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 15, 1994 /s/ GREGORY D. KERLEY
------------------------------
Gregory D. Kerley
Vice President - Treasurer and Secretary,
and Chief Accounting Officer
- 14 -