<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, 1996
--------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 1-8246
SOUTHWESTERN ENERGY COMPANY
(Exact name of registrant as specified in its charter)
Arkansas 71-0205415
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
1083 Sain Street, P.O. Box 1408, Fayetteville, Arkansas 72702-1408
(Address of principal executive offices, including zip code)
(501) 521-1141
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year; if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 3, 1996
---------------------------- ------------------------------
Common Stock, Par Value $.10 24,701,349
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- 1 -
<PAGE>
PART I
FINANCIAL INFORMATION
- 2 -
<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
($ in thousands)
<S> <C> <C>
Current Assets
Cash $ 1,249 $ 1,498
Accounts receivable 31,764 35,541
Income taxes receivable 2,491 8,221
Inventories, at average cost 12,913 15,448
Other 2,108 3,188
--------- ---------
Total current assets 50,525 63,896
--------- ---------
Investments 8,297 9,114
--------- ---------
Property, Plant and Equipment, at cost
Gas and oil properties, using the
full cost method 533,455 517,979
Gas distribution systems 195,822 193,258
Gas in underground storage 27,109 32,616
Other 20,108 19,717
--------- ---------
776,494 763,570
Less: Accumulated depreciation,
depletion and amortization 289,137 277,751
--------- ---------
487,357 485,819
--------- ---------
Other Assets 11,346 10,264
--------- ---------
Total Assets $ 557,525 $ 569,093
========= =========
</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,
1996 1995
--------- ---------
($ in thousands)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 3,071 $ 3,071
Accounts payable 19,237 23,989
Taxes payable 2,943 2,422
Interest payable 4,842 1,376
Customer deposits 4,639 4,619
Over-recovered purchased gas costs, net 4,703 7,327
Other 1,851 2,606
--------- ---------
Total current liabilities 41,286 45,410
--------- ---------
Long-Term Debt, less current portion above 189,857 207,757
--------- ---------
Other Liabilities
Deferred income taxes 117,999 115,461
Deferred investment tax credits 2,025 2,103
Other 3,972 3,858
--------- ---------
123,996 121,422
--------- ---------
Commitments and Contingencies
Shareholders' Equity
Common stock, $.10 par value; authorized
75,000,000 shares, issued 27,738,084
shares 2,774 2,774
Additional paid-in capital 21,272 21,272
Retained earnings 212,484 204,632
Less: Common stock in treasury, at cost 33,795 33,795
Unamortized cost of 31,527
restricted shares in 1996
and 34,807 restricted shares
in 1995, issued under stock
incentive plan 349 379
--------- ---------
202,386 194,504
--------- ---------
Total Liabilities and Shareholders' Equity $ 557,525 $ 569,093
========= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 4 -
<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1996 1995
--------- ---------
($ in thousands, except per share amounts)
<S> <C> <C>
Operating Revenues
Gas sales $ 60,706 $ 49,213
Oil sales 1,316 834
Gas transportation 1,150 1,181
Other 690 523
--------- ---------
63,862 51,751
--------- ---------
Operating Costs and Expenses
Purchased gas costs 20,094 15,595
Operating and general 11,754 10,586
Depreciation, depletion and amortization 11,217 9,354
Taxes, other than income taxes 1,279 1,126
---------- ----------
44,344 36,661
---------- ----------
Operating Income 19,518 15,090
---------- ----------
Interest Expense 3,215 2,598
---------- ----------
Other Income (Expense) (1,126) (945)
---------- ----------
Income Before Provision for Income Taxes 15,177 11,547
---------- ----------
Income Tax Provision
Current 3,383 2,885
Deferred 2,460 1,560
---------- ----------
5,843 4,445
---------- ----------
Net Income $ 9,334 $ 7,102
========== ==========
Weighted Average Common Shares Outstanding 24,701,349 25,672,724
========== ==========
Earnings Per Share $0.38 $0.28
=========== ==========
Dividends Declared Per Share Payable
5/3/96 and 5/5/95 $0.06 $0.06
=========== ==========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 5 -
<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1996 1995
-------- --------
($ in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 9,334 $ 7,102
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 11,286 9,424
Deferred income taxes 2,460 1,560
Equity in loss of partnership 808 966
Change in assets and liabilities:
Decrease in accounts receivable 3,777 6,022
Decrease in income taxes receivable 5,730 2,877
Decrease in inventories 2,535 1,817
Decrease in accounts payable (4,752) (3,589)
Increase in taxes payable 521 709
Increase in interest payable 3,466 944
Increase (decrease) in over-recovered
purchased gas costs (2,624) 4,953
Net change in other current assets
and liabilities 345 (69)
---------- ---------
Net cash provided by operating activities 32,886 32,716
---------- ---------
Cash Flows From Investing Activities
Capital expenditures (18,721) (20,160)
Investment in partnership - (1,140)
Decrease in gas stored underground 5,507 3,993
Other items (539) 605
---------- ---------
Net cash used in investing activities (13,753) (16,702)
---------- ---------
Cash Flows From Financing Activities
Decrease in revolving long-term debt (17,900) (12,500)
Increase in treasury stock - (1,157)
Cash dividends (1,482) (1,541)
---------- --------
Net cash used in financing activities (19,382) (15,198)
---------- --------
Increase (decrease) in cash (249) 816
Cash at beginning of year 1,498 1,152
--------- --------
Cash at end of period $ 1,249 $ 1,968
========= ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
- 6 -
<PAGE>
SOUTHWESTERN ENERGY COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BASIS OF PRESENTATION
The financial statements included herein are unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the interim
periods. The Company's accounting policies are summarized in the 1995
Annual Report to Shareholders, Notes to Financial Statements.
Certain reclassifications have been made to the March 31, 1995,
financial statements in order to conform with the 1996 presentation.
These reclassifications had no effect on previously reported net
income.
2. DIVIDEND PAYABLE
A dividend of $.06 per share was declared April 10, 1996, payable May
3, 1996.
3. INTEREST AND INCOME TAXES PAID
The following table provides interest and income taxes paid during each
period presented.
Quarter Ended March 31 1996 1995
-----------------------------------------------------------------------
(in thousands)
Interest payments $321 $1,935
Income tax payments $9 $221
- 7 -
<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, 1995, and
analyzes the changes in the results of operations between the three month period
ended March 31, 1996, and the comparable period of 1995.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1996, was $9.3 million, or $.38
per share, up from $7.1 million, or $.28 per share, for the same period in 1995.
The increase in net income 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 1996 and 1995:
Increase
1996 1995 (Decrease)
-------- -------- --------
Revenues (in thousands)
Exploration and production $ 23,158 $ 17,724 $ 5,434
Gas distribution 54,274 45,337 8,937
Other 79 98 (19)
Eliminations (13,649) (11,408) (2,241)
-------- -------- --------
$ 63,862 $ 51,751 $ 12,111
======== ======== ========
Operating Income
Exploration and production $ 9,971 $ 6,900 $ 3,071
Gas distribution 9,712 8,328 1,384
Corporate and other (165) (138) (27)
-------- ------- --------
$ 19,518 $15,090 $ 4,428
======== ======= ========
Revenues of the exploration and production segment were up 31% for the three
months ended March 31, 1996, as compared to the same period in 1995. Gas
production during the first quarter of 1996 was 9.9 billion cubic feet (Bcf), up
8% from 9.2 Bcf for the same period in 1995. The increase was due to higher
sales to the Company's utility subsidiary. Sales to Arkansas Western Gas Company
(AWG), which operates the Company's northwest Arkansas gas distribution system,
increased to 3.7 Bcf during the three months ended March 31, 1996,
- 8 -
<PAGE>
compared to 3.3 Bcf for the same period in 1995. Associated Natural Gas Company
(Associated), which operates the Company's systems in northeast Arkansas and
Missouri, purchased 2.2 Bcf of the Company's gas production during the first
three months of 1996, up from 1.9 Bcf for the first three months of 1995. The
colder weather in 1996 resulted in higher demand of the gas distribution segment
which enabled the Company to increase its production of reserves located on the
utility's gathering system.
Sales of gas production to unaffiliated purchasers were 4.0 Bcf in the first
quarter of 1996, equal to the level of such sales for the same period in 1995.
Production during the quarter from properties acquired in 1995 offset a decrease
in production from the Company's Gulf of Mexico properties.
The Company received an average price of $2.20 per thousand cubic feet (Mcf) for
its gas production during the three months ended March 31, 1996, up from $1.84
per Mcf received in the first three months of 1995. The increased average price
reflected the general improvement evident in the market for natural gas during
the first quarter of 1996.
The Company's oil production was 72 thousand barrels (MBbls) during the three
months ended March 31, 1996, up from 47 MBbls for the same period of 1995. The
increase was due primarily to production from properties acquired during 1995.
Operating revenues of the gas distribution segment increased 20% in the first
quarter of 1996, as compared to the first quarter of 1995. The increase was due
primarily to higher deliveries to sales and end-use transportation customers.
The Company's utility systems delivered 14.6 Bcf to these customers during the
three months ended March 31, 1996, up from 12.5 Bcf for the same period in 1995.
The higher deliveries reflected both the effects of weather which was 10% colder
than normal and 20% colder than in the same period of the prior year and growth
of 2% in the average number of customers.
The Company's average rate for its utility sales increased during the first
quarter of 1996 to $4.03 per Mcf, up from $3.95 per Mcf for the same period in
1995. 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 21% in the first quarter of 1996, as
compared to the first quarter of 1995. The increase was primarily caused by
higher purchased gas costs of the Company's gas distribution systems and
increased depreciation, depletion and amortization expense in the exploration
and production segment. The increase in depreciation, depletion and amortization
expense was due both to an increase in production and an increase in the
amortization rate per unit of production.
Interest expense, net of capitalization, for the three months ended March 31,
1996, was up 24% compared to the same period in 1995. The increase was due to
higher average borrowings,
- 9 -
<PAGE>
partially offset by an increase in capitalized interest. Interest is capitalized
in the exploration and production segment on costs that are unevaluated and
excluded from amortization.
The Company's share of the NOARK Pipeline System's (NOARK) pre-tax loss included
in other income was $.8 million for the first quarter of 1996, as compared to
$1.0 million for the same period in 1995. The decrease in NOARK's pre-tax loss
resulted primarily from a decrease 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, 1996, as compared to the same period in
1995, resulted primarily from the level of taxable income and from the deduction
of intangible drilling costs in the year incurred for tax purposes, netted
against the turnaround of intangible drilling costs deducted for tax purposes in
prior years. Intangible drilling costs are capitalized and amortized over future
years for financial reporting purposes under the full cost method of accounting.
CHANGES IN FINANCIAL CONDITION
Changes in the Company's financial condition at March 31, 1996, as compared to
December 31, 1995, 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
predominantly funded through cash provided by operations. For the first three
months of 1996 and 1995, net cash provided by operating activities was $32.9
million and $32.7 million, respectively, and exceeded the total of these routine
requirements. The Company expects its outstanding borrowings to increase during
the upcoming months of 1996 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 1996 were $18.7
million, compared to $20.2 million for the same period in 1995. Capital spending
for the exploration and production segment was $15.9 million for the first
quarters of both 1996 and 1995. Although spending for this segment was equal in
the two periods, the Company expects exploration and production spending for
calendar year 1996 to be less than the total spent in 1995.
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, $5.0 million was outstanding at March 31, 1996, all of which was
classified as long-term debt. During the first quarter of 1996, the Company's
revolving long-term debt was reduced by $17.9 million, primarily due to the
increased cash flow generated by seasonally high utility revenues. As a
- 10 -
<PAGE>
result, long-term debt at March 31, 1996, accounted for 49% of the Company's
capitalization, down from 52% at December 31, 1995.
Accounts receivable has declined since December 31, 1995, due primarily to
seasonally lower gas deliveries of the gas distribution segment. The decrease in
income taxes receivable resulted from the receipt of federal income tax refunds
related to the carryback of a 1995 tax net operating loss. The decrease in
inventories since December 31, 1995, is both the result of withdrawals of gas
stored underground to meet seasonal requirements in the gas distribution segment
and sales of gas to unaffiliated parties from the Company's unregulated
underground storage facility. Accounts payable has declined since December 31,
1995, due primarily to seasonally lower gas purchases of the gas distribution
segment and to the timing of expenditures. Other changes in current assets and
current liabilities between periods resulted primarily from the timing of
expenditures and receipts.
The Company had over-recovered $4.7 million of purchased gas costs at March 31,
1996, which will be refunded to its utility customers through automatic cost of
gas adjustment clauses included in its filed rate tariffs. At December 31, 1995,
the Company had over-recovered purchased gas costs in the amount of $7.3
million. These amounts are classified as current liabilities.
- 11 -
<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, 1996.
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 14, 1996 /s/ GREGORY D. KERLEY
------------------ --------------------------------
Gregory D. Kerley
Vice President - Treasurer and Secretary,
and Chief Accounting Officer
- 12 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,249
<SECURITIES> 0
<RECEIVABLES> 31,764
<ALLOWANCES> 0
<INVENTORY> 12,913
<CURRENT-ASSETS> 50,525
<PP&E> 776,494
<DEPRECIATION> (289,137)
<TOTAL-ASSETS> 557,525
<CURRENT-LIABILITIES> 41,286
<BONDS> 189,857
0
0
<COMMON> 2,774
<OTHER-SE> 199,612
<TOTAL-LIABILITY-AND-EQUITY> 557,525
<SALES> 62,022
<TOTAL-REVENUES> 63,862
<CGS> 0
<TOTAL-COSTS> 44,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,215
<INCOME-PRETAX> 15,177
<INCOME-TAX> 5,843
<INCOME-CONTINUING> 9,334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,334
<EPS-PRIMARY> .38
<EPS-DILUTED> 0
</TABLE>
