<PAGE>
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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 March 31, 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 May 5,1994
---------------------------- ------------------------------
Common Stock, Par Value $.10 25,684,110
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- 1 -<PAGE>
PART I
FINANCIAL INFORMATION
- 2 - <PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ---------
($ in thousands)
<S> <C> <C>
Current Assets
Cash $ 987 $ 834
Accounts receivable 33,876 34,866
Inventories, at average cost 7,256 9,580
Other 1,510 1,525
--------- ---------
Total current assets 43,629 46,805
--------- ---------
Investments 5,191 5,661
--------- ---------
Property, Plant and Equipment, at cost
Gas and oil properties, using the
full cost method 383,733 375,281
Gas distribution systems 168,457 165,443
Gas in underground storage 30,846 37,171
Other 14,941 14,684
--------- ---------
597,977 592,579
--------- ---------
Less: Accumulated depreciation,
depletion and amortization 215,650 205,949
--------- ---------
382,327 386,630
--------- ---------
Other Assets 6,666 6,358
--------- ---------
Total Assets $ 437,813 $ 445,454
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 3 -<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ---------
($ in thousands)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 3,000 $ 3,000
Accounts payable 12,826 16,052
Taxes payable 11,727 6,449
Interest payable 2,125 1,445
Customer deposits 3,991 3,927
Current portion of deferred income taxes 1,426 1,426
Over-recovered purchased gas costs, net 2,388 4,187
Other 2,435 2,211
--------- ---------
Total current liabilities 39,918 38,697
--------- ---------
Long-Term Debt, less current portion above 103,000 124,000
--------- ---------
Other Liabilities
Deferred income taxes 93,659 93,593
Deferred investment tax credits 2,572 2,617
Other 2,754 2,017
--------- ---------
98,985 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 191,923 180,470
Less: Unamortized cost of 22,422
restricted shares in 1994
and 17,447 restricted shares
in 1993, issued under stock
incentive plan 301 228
Common stock in treasury, at cost,
2,053,974 shares 19,717 19,717
--------- ---------
195,910 184,530
--------- ---------
Total Liabilities and Shareholders' Equity $ 437,813 $ 445,454
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1994 1993
---------- ----------
($ in thousands, except per share amounts)
<S> <C> <C>
Operating Revenues
Gas sales $ 62,745 $ 56,715
Oil sales 529 424
Gas transportation 1,219 1,304
Other 937 765
---------- ----------
65,430 59,208
---------- ----------
Operating Costs and Expenses
Purchased gas costs 21,294 18,291
Operating and general 10,206 10,298
Depreciation, depletion and amortization 9,426 8,439
Taxes, other than income taxes 979 921
---------- ----------
41,905 37,949
---------- ----------
Operating Income 23,525 21,259
---------- ----------
Interest Expense 1,933 2,450
---------- ----------
Other Income (Expense) (464) (686)
---------- ----------
Income Before Provision for Income Taxes
and Cumulative Effect of Accounting Change 21,128 18,123
---------- ----------
Income Tax Provision (Benefit)
Current 8,113 6,566
Deferred 21 185
---------- ----------
8,134 6,751
---------- ----------
Income Before Cumulative Effect of Accounting Change 12,994 11,372
Cumulative Effect of Change in Accounting
for Income Taxes - 10,126
---------- ----------
Net Income $ 12,994 $ 21,498
========== ==========
Weighted Average Common Shares Outstanding 25,684,110 25,684,110
========== ==========
Earnings Per Share
Income Before Cumulative Effect of Accounting Change $ .51 $ .44
Cumulative Effect of Change in Accounting
for Income Taxes - .39
----- -----
Net Income $ .51 $ .83
===== =====
Dividends Declared Per Share Payable 5/5/94
and 5/5/93 $ .06 $ .05
===== =====
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 5 -<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1994 1993
-------- --------
($ in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 12,994 $ 21,498
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 9,496 8,509
Deferred income taxes 21 185
Equity in loss of partnership 430 647
Cumulative effect of change in
accounting for income taxes - (10,126)
Change in assets and liabilities:
Decrease in accounts receivable 990 2,924
Decrease in inventories 2,324 1,608
Decrease in accounts payable (3,226) (2,048)
Increase in taxes payable 5,278 6,198
Increase in interest payable 680 2,258
Increase in customer deposits 64 81
Increase (decrease) in over-recovered
purchased gas costs (1,799) 1,669
Net change in other current assets
and liabilities 239 1,320
-------- --------
Net cash provided by operating activities 27,491 34,723
-------- --------
Cash Flows From Investing Activities
Capital expenditures (11,785) (14,311)
Decrease in gas stored underground 6,325 2,228
Other items 663 400
-------- --------
Net cash used in investing activities (4,797) (11,683)
-------- --------
Cash Flows From Financing Activities
Change in revolving long-term debt (21,000) (21,500)
Payments on other long-term debt - (562)
Cash dividends (1,541) (1,284)
-------- --------
Net cash used in financing activities (22,541) (23,346)
-------- --------
Increase (decrease) in cash 153 (306)
Cash at beginning of year 834 1,122
-------- --------
Cash at end of period $ 987 $ 816
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31,
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 May 26, 1993, the shareholders approved an amendment to the
Company's Articles of Incorporation increasing the number of
authorized shares of common stock from 25,000,000 shares to
75,000,000 shares and reducing the par value of common stock
from $2.50 per share to $.10 per share. The reduction in par
value resulted in the transfer of $22,190,000 to the
additional paid-in capital account from the common stock
account.
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 1993 share and per
share information shown on the income statement and the 1993
balances in the Shareholders' Equity section of the balance
sheet have been adjusted to reflect the change in par value
and 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.
- 7 -<PAGE>
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.
4. DIVIDEND PAYABLE
A dividend of $.06 per share was declared April 6, 1994,
payable May 5, 1994.
5. INTEREST AND INCOME TAXES PAID
The following table provides interest and income taxes paid
during each period presented.
Quarter Ended March 31 1994 1993
---------------------------------------------------------
(in thousands)
Interest payments $1,845 $477
Income tax payments $3,191 $1,138
- 8 -
<PAGE>
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 month period
ended March 31, 1994, and the comparable period of 1993.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1994, was $13.0 million, or $.51
per share compared to $11.4 million, or $.44 per share, for the same period in
1993. For the twelve months ended March 31, 1994, net income was $28.7 million,
or $1.12 per share, compared to $24.8 million, or $.97 per share, for the same
period in 1993. Both comparisons to 1993 exclude the cumulative effect of a
change in accounting for income taxes which was recorded in the first quarter of
that year. There were no accounting changes or extraordinary items recorded in
1994.
The $1.6 million increase in net income, excluding in 1993 the cumulative effect
of the accounting change adopted in that year, was the result of increased sales
of the Company's gas production, higher prices received for that production and
increased deliveries of its utility systems. These factors led to improved
operating results in both of the Company's major business segments. The
following tables compare operating revenues and operating income by business
segment for the first three months of 1994 and 1993:
<TABLE>
<CAPTION>
Increase
1994 1993 (Decrease)
--------- ---------- ---------
REVENUES (in thousands)
<S> <C> <C> <C>
Exploration and production $ 24,944 $ 22,760 $ 2,184
Gas distribution 52,906 49,943 2,963
Other 70 64 6
Eliminations (12,490) (13,559) 1,069
--------- --------- --------
$ 65,430 $ 59,208 $ 6,222
========= ========= ========
OPERATING INCOME
Exploration and production $ 14,278 $ 12,909 $ 1,369
Gas distribution 9,281 8,547 734
Corporate and other (34) (197) 163
--------- --------- --------
$ 23,525 $ 21,259 $ 2,266
========= ========= ========
</TABLE>
- 9 -<PAGE>
Revenues of the exploration and production segment for the three months ended
March 31, 1994, reflect increased volumes of gas production sold to
unaffiliated purchasers. Gas production during the first quarter of 1994 was
10.3 billion cubic feet (Bcf), up 5% from 9.8 Bcf for the same period in 1993.
The increase was the result of higher sales to unaffiliated purchasers from the
Company's properties in both Arkansas and the Gulf of Mexico. Sales of
Arkansas production to unaffiliated purchasers totaled 4.0 Bcf for the first
quarter of 1994, up from 3.5 Bcf for the same period in 1993. The additional
sales from Arkansas properties were primarily from wells completed in the last
two years as a part of the Company's development drilling program and were
generally made through the NOARK Pipeline System (NOARK), an intrastate
pipeline in which the Company owns an interest. The Company sold .5 Bcf
directly to transportation customers of its utility subsidiary in the first
three months of 1994, compared to .7 Bcf for the same period in 1993. Sales
from the Company's Gulf of Mexico properties were 1.8 Bcf for the first quarter
of 1994, up from 1.4 Bcf for the same period in 1993. The increase was the
result of the completion of a production platform at the Galveston Block 283
gas field late in 1993.
The Company sold 2.5 Bcf to Arkansas Western Gas Company (AWG), which operates
its northwest Arkansas gas distribution system, during the first three months
of 1994, flat with the same period in 1993. Associated Natural Gas Company
(Associated), which operates the Company's systems in northeast Arkansas and
Missouri, purchased 1.7 Bcf of the Company's gas production during the first
three months of 1994, compared to 2.0 Bcf for the same period in 1993.
The Company's average sales price for its gas production was $2.36 per thousand
cubic feet (Mcf) for the first quarter of 1994, up from $2.26 per Mcf for the
first quarter of 1993. The increase reflected a general improvement in market
prices for natural gas.
The Company's oil production increased to 39,765 barrels for the three months
ended March 31, 1994, up from 22,428 barrels for the same period in 1993. The
increase was due to additional production from properties acquired in Oklahoma
during the first quarter of 1994.
Operating revenues of the gas distribution segment increased 6% in the first
quarter of 1994, as compared to the same period in 1993. This increase was due
primarily to an increase in deliveries to industrial customers and a higher
average rate for sales to all classes of customers. Weather during the quarter
was 2% colder than normal and 3% warmer than in the prior year. Deliveries by
the Company's gas distribution systems to sales and end-use transportation
customers were 12.8 Bcf for the three months ended March 31, 1994, up from 12.6
Bcf for the same period in 1993. While deliveries to industrial customers
improved in 1994, deliveries to residential and commercial customers were flat
as growth of 3% in the average number of customers was offset by the effect of
weather which was warmer than in the prior year. AWG delivered a total of 8.1
Bcf to its sales and end-use transportation customers during the first quarter
of 1994, up from 8.0 Bcf for the same period in 1993. AWG also transported 2.2
Bcf for delivery off its system to NOARK during the first quarter of 1994, up
from 1.7 Bcf for the
- 10 -<PAGE>
same period in 1993. Associated delivered a total of 4.7 Bcf during the first
quarter of 1994, up from 4.6 Bcf for the same period in 1993.
The Company's average rate for its utility sales increased slightly during the
first quarter of 1994, to $4.45 per Mcf, up from $4.39 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 increased 10% in the first quarter of 1994, as
compared to the same period in 1993. The increase was primarily caused by
higher purchased gas costs of the Company's gas distribution systems and higher
depreciation, depletion and amortization expense which resulted from the
increase in gas production, as discussed above.
Total interest expense for the three months ended March 31, 1994, was down 21%,
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.
The change in other income for the first quarter of 1994, as compared to the
same period of 1993, relates primarily to the Company's share of the operating
loss of the NOARK Pipeline System. The Company's share of NOARK's pre-tax loss
included in other income was $430,000 for the three months ended March 31,
1994, as compared to $647,000 for the same period in 1993. The improvement in
NOARK's pre-tax loss resulted primarily from revenue generated by an increase
in volumes transported and from a favorable variance in interest expense.
The changes in the provisions for current and deferred income taxes recorded
in the three month period ended March 31, 1994, as compared to the same period
in 1993, 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. These 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 March
31, 1994, were well below the "ceiling" level to which costs are limited under
the full cost method.
CHANGES IN FINANCIAL CONDITION
Changes in the Company's financial condition at March 31, 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 three months of 1994 were
$11.8 million, compared to $14.3 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
- 11 -<PAGE>
Company's gas storage facilities. The Company's current budget calls for
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 three
months of 1994 and 1993, net cash provided by operating activities was $27.5
million and $34.7 million, respectively, and exceeded the total of these
routine requirements. The decrease in net cash provided by operating
activities during the first quarter 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 of 1994 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.
At March 31, 1994, the Company had access to $49.0 million of medium to long-
term capital at or below prime lending rates through two floating rate credit
facilities. Of this amount, $10.0 million was outstanding at March 31, 1993,
all of which was classified as long-term debt. Subsequent to March 31, 1994,
the Company replaced one of its credit facilities with a new $40.0 million
revolving line of credit. As a result, the Company currently has access to
$80.0 million of medium to long-term capital under revolving credit
facilities. The Company also has available short-term lines of credit totaling
$3.5 million, none of which was outstanding at March 31, 1994. During the
first quarter of 1994, the Company's revolving long-term debt was reduced by
$21.0 million, due to the increased cash flow generated by seasonally high
utility revenues and increased gas production. As a result, long-term debt at
March 31, 1994, accounted for 35% 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 slightly since December 31, 1993, as
seasonally lower gas deliveries of the gas distribution segment were partially
offset by amounts due from unaffiliated purchasers of gas production from the
exploration and production segment. Accounts payable has declined since
December 31, 1993, due primarily to seasonally lower gas purchases of the gas
distribution segment. The decrease in inventories since December 31, 1993, is
primarily the result of withdrawals of gas stored underground to meet seasonal
requirements in the gas distribution segment, as discussed above. Other
changes in current assets and current liabilities between periods resulted
primarily from the timing of expenditures.
The Company had over-recovered $2.4 million of purchased gas costs at March 31,
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.
- 12 -<PAGE>
PART II
OTHER INFORMATION
Items 1 - 6(b)
- - --------------
No developments required to be reported under Items 1 - 6(b) occurred during
the quarter ended March 31, 1994, 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: May 13, 1994 /s/ GREGORY D. KERLEY
------------ --------------------------
Gregory D. Kerley
Vice President - Treasurer and Secretary,
and Chief Accounting Officer
- 13 -
