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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, 1995
--------------
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 5,1995
---------------------------- ------------------------------
Common Stock, Par Value $.10 25,519,591
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- 1 -
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PART I
FINANCIAL INFORMATION
- 2 -
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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ---------
($ in thousands)
<S> <C> <C>
Current Assets
Cash $ 1,968 $ 1,152
Accounts receivable 26,303 32,325
Inventories, at average cost 10,382 12,199
Other 2,118 2,353
--------- ---------
Total current assets 40,771 48,029
--------- ---------
Investments 4,999 4,877
--------- ---------
Property, Plant and Equipment, at cost
Gas and oil properties, using the
full cost method 451,457 435,570
Gas distribution systems 180,772 176,728
Gas in underground storage 32,636 36,629
Other 18,763 18,541
--------- ---------
683,628 667,468
--------- ---------
Less: Accumulated depreciation,
depletion and amortization 251,719 242,008
--------- ---------
431,909 425,460
--------- ---------
Other Assets 6,299 6,216
--------- ---------
Total Assets $ 483,978 $ 484,582
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 3 -
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<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ---------
($ in thousands)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 6,071 $ 6,071
Accounts payable 15,081 18,670
Taxes payable 4,302 716
Customer deposits 4,254 4,232
Current portion of deferred income taxes 1,482 1,482
Over-recovered purchased gas costs, net 8,580 3,627
Other 4,963 4,345
--------- ---------
Total current liabilities 44,733 39,143
--------- ---------
Long-Term Debt, less current portion above 123,729 136,229
--------- ---------
Other Liabilities
Deferred income taxes 101,892 100,288
Deferred investment tax credits 2,372 2,416
Other 3,439 3,050
--------- ---------
107,703 105,754
--------- ---------
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 21,251 21,231
Retained earnings 204,991 199,430
Less: Unamortized cost of 27,358
restricted shares in 1995
and 21,499 restricted shares
in 1994, issued under stock
incentive plan 329 262
Common stock in treasury, at cost 20,874 19,717
--------- ---------
207,813 203,456
--------- ---------
Total Liabilities and Shareholders' Equity $ 483,978 $ 484,582
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 4 -
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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------------
1995 1994
---------- ----------
($ in thousands, except per share amounts)
<S> <C> <C>
Operating Revenues
Gas sales $ 49,213 $ 62,955
Oil sales 834 530
Gas transportation 1,181 1,336
Other 523 609
---------- ----------
51,751 65,430
---------- ----------
Operating Costs and Expenses
Purchased gas costs 15,595 21,294
Operating and general 10,586 10,206
Depreciation, depletion and amortization 9,354 9,426
Taxes, other than income taxes 1,126 979
---------- ----------
36,661 41,905
---------- ----------
Operating Income 15,090 23,525
---------- ----------
Interest Expense 2,598 1,933
---------- ----------
Other Income (Expense) (945) (464)
---------- ----------
Income Before Provision for Income Taxes 11,547 21,128
---------- ----------
Income Tax Provision
Current 2,885 8,113
Deferred 1,560 21
---------- ----------
4,445 8,134
---------- ----------
Net Income $ 7,102 $ 12,994
========== ==========
Weighted Average Common Shares Outstanding 25,672,724 25,684,110
========== ==========
Earnings Per Share $ .28 $ .51
===== =====
Dividends Declared Per Share Payable 5/5/95
and 5/5/94 $ .06 $ .06
===== =====
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 5 -
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<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1995 1994
-------- --------
($ in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 7,102 $ 12,994
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 9,424 9,496
Deferred income taxes 1,560 21
Equity in loss of partnership 966 430
Change in assets and liabilities:
Decrease in accounts receivable 6,022 990
Decrease in inventories 1,817 2,324
Decrease in accounts payable (3,589) (3,226)
Increase in taxes payable 3,586 5,278
Increase in customer deposits 22 64
Increase (decrease) in over-recovered
purchased gas costs 4,953 (1,799)
Net change in other current assets
and liabilities 853 919
-------- --------
Net cash provided by operating activities 32,716 27,491
-------- --------
Cash Flows From Investing Activities
Capital expenditures (20,160) (11,785)
Investment in partnership (1,140) -
Decrease in gas stored underground 3,993 6,325
Other items 605 663
-------- --------
Net cash used in investing activities (16,702) (4,797)
-------- --------
Cash Flows From Financing Activities
Decrease in revolving long-term debt (12,500) (21,000)
Increase in treasury stock (1,157) -
Cash dividends (1,541) (1,541)
-------- --------
Net cash used in financing activities (15,198) (22,541)
-------- --------
Increase in cash 816 153
Cash at beginning of year 1,152 834
-------- --------
Cash at end of period $ 1,968 $ 987
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 6 -
<PAGE>
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SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
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 1994 Annual Report to
Shareholders, Notes to Financial Statements.
Certain reclassifications have been made to the March 31,
1994, financial statements in order to conform with the 1995
presentation. These reclassifications had no effect on
previously reported net income.
2. DIVIDEND PAYABLE
A dividend of $.06 per share was declared April 6, 1995,
payable May 5, 1995.
3. TREASURY STOCK
The Company's Board of Directors authorized during the first quarter
of 1995 the repurchase of up to $30,000,000 of the Company's Common
Stock. The stock repurchases have been funded by positive cash flows
from operations and the Company's revolving credit facilities. The
following table reconciles changes in treasury stock during the
quarter ended March 31, 1995 ($ in thousands).
<TABLE>
<CAPTION>
Shares Amount
--------- -------
<S> <C> <C>
Balance at December 31, 1994 2,053,974 $19,717
Shares repurchased 84,645 1,157
--------- -------
Balance at March 31, 1995 2,138,619 $20,874
========= =======
</TABLE>
4. INTEREST AND INCOME TAXES PAID
The following table provides interest and income taxes paid
during each period presented.
<TABLE>
<CAPTION>
Quarter Ended March 31 1995 1994
---------------------------------------------------------
(in thousands)
<S> <C> <C>
Interest payments $1,935 $1,845
Income tax payments $221 $3,191
</TABLE>
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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, 1994,
and analyzes the changes in the results of operations between the three
month period ended March 31, 1995, and the comparable period of 1994.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1995, was $7.1 million, or
$.28 per share, compared to $13.0 million, or $.51 per share, for the same
period in 1994. For the twelve months ended March 31, 1995, net income was
$19.2 million, or $.75 per share, compared to $28.7 million, or $1.12 per
share, for the same period in 1994.
The comparative decrease in net income for the first three months of 1995
was primarily the result of lower gas prices and a decrease in gas
production. The following tables compare operating revenues and operating
income by business segment for the first three months of 1995 and 1994:
<TABLE>
<CAPTION>
Increase
1995 1994 (Decrease)
--------- --------- --------
REVENUES (in thousands)
<S> <C> <C> <C>
Exploration and production $ 17,724 $ 24,944 $ (7,220)
Gas distribution 45,337 52,906 (7,569)
Other 98 70 28
Eliminations (11,408) (12,490) 1,082
--------- --------- --------
$ 51,751 $ 65,430 $(13,679)
========= ========= ========
OPERATING INCOME
Exploration and production $ 6,900 $ 14,374 $ (7,474)
Gas distribution 8,328 9,281 (953)
Corporate and other (138) (130) (8)
--------- --------- --------
$ 15,090 $ 23,525 $ (8,435)
========= ========= ========
</TABLE>
Revenues of the exploration and production segment were down 29% for the
three months ended March 31, 1995, as compared to the same period in 1994.
Gas production during the first quarter of 1995 was 9.2 billion cubic feet
(Bcf), down 12% from 10.4 Bcf for the same period in 1994. The decrease was
related both to warmer weather and to lower sales from the
- 8 -<PAGE>
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Company's offshore Gulf of Mexico properties. Sales from these properties
were .8 Bcf for the first quarter of 1995, down from 1.8 Bcf for the same
period in 1994. The Company is in process of connecting new production from
onshore wells drilled in 1994, but the trend in production experienced
during the first quarter of 1995 may continue into the second quarter of the
year.
Sales of the Company's onshore gas production were 8.4 Bcf during the
quarter ended March 31, 1995, down slightly from 8.6 Bcf for the same period
in 1994. Sales of Arkansas production to unaffiliated purchasers totaled
2.3 Bcf for the first quarter of 1995, down from 4.1 Bcf for the same period
in 1994, but the decline was largely offset by increased sales to the
Company's utility subsidiary. Most of that increase was under the terms of
a settlement agreement approved by the Arkansas Public Service Commission
(APSC) to resolve a dispute concerning the pricing of intersegment sales.
The settlement, which was effective July 1, 1994, increased the volumes
which could be sold by the Company's exploration and production segment to
its utility segment, but made the sales price equal to a spot market index
plus a premium. The index based pricing has to date resulted in a lower
sales price under the contract affected by the settlement.
As a result of the settlement, the Company's sales to Arkansas Western Gas
Company (AWG), which operates its northwest Arkansas gas distribution
system, increased to 3.3 Bcf during the three months ended March 31, 1995,
compared to 2.5 Bcf for the same period in 1994. Associated Natural Gas
Company (Associated), which operates the Company's systems in northeast
Arkansas and Missouri, purchased 1.9 Bcf of the Company's gas production
during the first three months of 1995, up from 1.7 Bcf for the same period
in 1994.
The Company's average sales price for its gas production was $1.84 per
thousand cubic feet (Mcf) for the first quarter of 1995, down from $2.35 per
Mcf for the first quarter of 1994. The decrease reflected both the general
decline in spot market prices for natural gas and the effect of the pricing
settlement approved by the APSC.
The Company's oil production increased to 47,391 barrels for the three
months ended March 31, 1995, up from 39,874 barrels for the same period in
1994. The increase was due primarily to additional production from
properties acquired in Oklahoma during the last half of 1994.
Operating revenues of the gas distribution segment decreased 14% in the
first quarter of 1995, as compared to the same period in 1994. The decrease
was due both to a decrease in the average utility rate and warmer weather.
Weather during the quarter was 8% warmer than normal and 10% 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 12.5
Bcf for the three months ended March 31, 1995, down from 12.8 Bcf for the
same period in 1994. While deliveries to industrial customers improved in
1995, 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 8.1 Bcf to its sales and end-use transportation customers during
the first
- 9 -<PAGE>
<PAGE>
quarter of both 1995 and 1994. AWG also transported 1.2 Bcf for delivery
off its system during the first quarter of 1995, down from 3.1 Bcf for the
same period in 1994. Associated delivered a total of 4.4 Bcf to its
customers during the first quarter of 1995, down from 4.7 Bcf for the same
period in 1994.
The Company's average rate for its utility sales decreased during the first
quarter of 1995, to $3.95 per Mcf, down from $4.45 per Mcf for the same
period in 1994. The decrease reflected lower prices paid for purchases of
natural gas which are passed through to customers under automatic adjustment
clauses.
Operating costs and expenses decreased 13% in the first quarter of 1995, as
compared to the same period in 1994. The decrease was primarily caused by
lower purchased gas costs of the Company's gas distribution systems related
to lower prices paid for gas supplies.
Total interest expense for the three months ended March 31, 1995, was up
34%, compared to the same period in 1994. The increase was due to both
higher average borrowings and higher average interest rates on the Company's
revolving credit facilities.
The Company's share of the NOARK Pipeline System's (NOARK) pre-tax loss
included in other income was $1.0 million for the first quarter of 1995, as
compared to $.4 million for the same period in 1994. The increase in
NOARK's pre-tax loss resulted primarily from a decrease in firm demand
revenues and from an increase in interest expense. 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 month period ended March 31, 1995, as compared to the same
period in 1994, 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 March 31, 1995, as compared
to December 31, 1994, 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
three months of 1995 and 1994, net cash provided by operating activities was
$32.7 million and $27.5 million, respectively, and exceeded the total of
these routine requirements. The increase in net cash provided by operating
activities during the first quarter of 1995, as compared to the same period
in 1994, was
- 10 -<PAGE>
<PAGE>
primarily due to the timing of both cash receipts and expenditures. The
Company expects its outstanding borrowings to increase during the upcoming
months of 1995 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 three months of 1995 were
$20.2 million, compared to $11.8 million for the same period in 1994.
Approximately $7.4 million of the comparative increase resulted from the
timing of expenditures in the Company s exploration and production segment.
The Company budgeted $55.2 million in 1995 for this segment, approximately
level with the total spent in 1994, but currently expects total spending for
this segment to exceed this amount.
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, $39.8 million was outstanding at March 31, 1995, all of
which was classified as long-term debt. The Company also has available
short-term lines of credit totaling $3.5 million, none of which was
outstanding at March 31, 1995. During the first quarter of 1995, the
Company's revolving long-term debt was reduced by $12.5 million, primarily
due to the increased cash flow generated by seasonally high utility
revenues. As a result, long-term debt at March 31, 1995, accounted for 38%
of the Company's capitalization, down from 41% at December 31, 1994.
Accounts receivable has declined since December 31, 1994, due to both
seasonally lower gas deliveries of the gas distribution segment and a
decrease in amounts due from unaffiliated purchasers of gas production in
the exploration and production segment caused by lower production volumes
and lower average gas prices. The decrease in inventories since December
31, 1994, is the result of withdrawals of gas stored underground to meet
seasonal requirements in the gas distribution segment. Accounts payable has
declined since December 31, 1994, due primarily to seasonally lower gas
purchases of the gas distribution segment. Other changes in current assets
and current liabilities between periods resulted primarily from the timing
of expenditures.
The Company had over-recovered $8.6 million of purchased gas costs at March
31, 1995, which will be refunded to its utility customers through automatic
cost of gas adjustment clauses included in its filed rate tariffs. At
December 31, 1994, the Company had over-recovered purchased gas costs in the
amount of $3.6 million. These amounts are classified as current
liabilities.
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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, 1995, 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 15, 1995 /s/ GREGORY D. KERLEY
------------ --------------------------
Gregory D. Kerley
Vice President - Treasurer and Secretary,
and Chief Accounting Officer
- 12 -<PAGE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,968
<SECURITIES> 0
<RECEIVABLES> 26,303
<ALLOWANCES> 0
<INVENTORY> 10,382
<CURRENT-ASSETS> 40,771
<PP&E> 683,628
<DEPRECIATION> (251,719)
<TOTAL-ASSETS> 483,978
<CURRENT-LIABILITIES> 44,733
<BONDS> 123,729
<COMMON> 2,774
0
0
<OTHER-SE> 205,039
<TOTAL-LIABILITY-AND-EQUITY> 483,978
<SALES> 50,047
<TOTAL-REVENUES> 51,751
<CGS> 0
<TOTAL-COSTS> 36,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,598
<INCOME-PRETAX> 11,547
<INCOME-TAX> 4,445
<INCOME-CONTINUING> 7,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,102
<EPS-PRIMARY> .28
<EPS-DILUTED> 0
<PAGE>
<PAGE>
</TABLE>
