(15) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company is providing condensed consolidating financial information for SEECO, SEPCO and SES, its subsidiaries that are currently guarantors of the Company’s registered public debt, and for its other subsidiaries that are not guarantors of such debt. These wholly owned subsidiary guarantors have jointly and severally, fully and unconditionally guaranteed the Company’s 7.35% Senior Notes, 7.125% Senior Notes and 4.10% Senior Notes. The subsidiary guarantees (i) rank equally in right of payment with all of the existing and future senior debt of the subsidiary guarantors; (ii) rank senior to all of the existing and future subordinated debt of the subsidiary guarantors; (iii) are effectively subordinated to any future secured obligations of the subsidiary guarantors to the extent of the value of the assets securing such obligations; and (iv) are structurally subordinated to all debt and other obligations of the subsidiaries of the guarantors. In the case of each series of notes, if no default or event of default has occurred and is continuing, these guarantees will be released (i) automatically upon any sale, exchange or transfer of all of the Company’s equity interests in the guarantor; (ii) automatically upon the liquidation and dissolution of a guarantor; (iii) following delivery of notice to the trustee of the release of the guarantor of its obligations under the Company’s revolving credit facility; and (iv) upon legal or covenant defeasance or other satisfaction of the obligations under the notes.

The Company has not presented separate financial and narrative information for each of the subsidiary guarantors because it believes that such financial and narrative information would not provide any additional information that would be material in evaluating the sufficiency of the guarantees. The following condensed consolidating financial information summarizes the results of operations, financial position and cash flows for the Company’s guarantor and non-guarantor subsidiaries.


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)
Year ended December 31, 2012:
Operating revenues	$	–	$	2,541,684	$	476,997	$	(303,638)	$	2,715,043
Operating costs and expenses:
Gas purchases		–		593,091		–		(625)		592,466
Operating expenses		–		423,147		121,953		(300,365)		244,735
General and administrative expenses		–		151,488		26,307		(2,648)		175,147
Depreciation, depletion and amortization		–		765,623		45,330		–		810,953
Impairment of natural gas and oil properties		–		1,939,734		–		–		1,939,734
Taxes, other than income taxes		–		56,262		11,321		1		67,584
Total operating costs and expenses		–		3,929,345		204,911		(303,637)		3,830,619
Operating income (loss)		–		(1,387,661)		272,086		(1)		(1,115,576)
Other income (loss), net		–		(1,143)		2,173		–		1,030
Equity in earnings of subsidiaries		(707,064)		–		–		707,064		–
Interest expense		–		22,312		13,345		–		35,657
Income (loss) before income taxes		(707,064)		(1,411,116)		260,914		707,063		(1,150,203)
Provision (benefit) for income taxes		–		(538,357)		95,218		–		(443,139)
Net income (loss)		(707,064)		(872,759)		165,696		707,063		(707,064)
Comprehensive income (loss)	$	(965,688)	$	(1,125,454)	$	166,225	$	959,229	$	(965,688)


Year ended December 31, 2011:
Operating revenues	$	–	$	2,803,385	$	411,998	$	(262,477)	$	2,952,906
Operating costs and expenses:
Gas purchases		–		710,487		–		(1,396)		709,091
Operating expenses		–		380,154		118,713		(257,923)		240,944
General and administrative expenses		–		141,499		19,700		(3,158)		158,041
Depreciation, depletion and amortization		–		665,615		38,896		–		704,511
Taxes, other than income taxes		–		53,950		11,568		–		65,518
Total operating costs and expenses		–		1,951,705		188,877		(262,477)		1,878,105
Operating income (loss)		–		851,680		223,121		–		1,074,801
Other income (loss), net		–		306		(42)		–		264
Equity in earnings of subsidiaries		637,769		–		–		(637,769)		–
Interest expense		–		11,277		12,798		–		24,075
Income (loss) before income taxes		637,769		840,709		210,281		(637,769)		1,050,990
Provision for income taxes		–		332,795		80,426		–		413,221
Net income (loss)		637,769		507,914		129,855		(637,769)		637,769
Comprehensive income (loss)	$	962,222	$	836,291	$	129,294	$	(965,585)	$	962,222


Year ended December 31, 2010:
Operating revenues	$	–	$	2,488,105	$	318,232	$	(195,674)	$	2,610,663
Operating costs and expenses:
Gas purchases		–		612,745		–		(1,584)		611,161
Operating expenses		–		293,713		91,164		(193,106)		191,771
General and administrative expenses		–		127,022		19,525		(984)		145,563
Depreciation, depletion and amortization		–		559,845		30,487		–		590,332
Taxes, other than income taxes		–		44,200		6,408		–		50,608
Total operating costs and expenses		–		1,637,525		147,584		(195,674)		1,589,435
Operating income		–		850,580		170,648		–		1,021,228
Other income, net		–		242		185		–		427
Equity in earnings of subsidiaries		604,118		–		–		(604,118)		–
Interest expense		–		10,777		15,386		–		26,163
Income (loss) before income taxes		604,118		840,045		155,447		(604,118)		995,492
Provision for income taxes		–		330,879		60,780		–		391,659
Net income (loss)		604,118		509,166		94,667		(604,118)		603,833
Less: Net loss attributable to noncontrolling interest		–		(285)		–		–		(285)
Net income (loss) attributable to Southwestern Energy		604,118		509,451		94,667		(604,118)		604,118
Comprehensive income (loss)	$	603,817	$	510,626	$	94,649	$	(605,275)	$	603,817


CONDENSED CONSOLIDATING BALANCE SHEETS

	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
December 31, 2012:

ASSETS

Cash and cash equivalents	$	47,491	$	5,988	$	104	$	–	$	53,583
Restricted cash		8,542		–		–		–		8,542
Accounts receivable		2,677		353,607		21,354		–		377,638
Inventories		2		26,975		1,164		–		28,141
Other current assets		7,461		321,396		12,151		–		341,008
Total current assets		66,173		707,966		34,773		–		808,912

Intercompany receivables		2,259,713		42		27,077		(2,286,832)		–

Property and equipment		220,837		11,491,222		1,316,380		–		13,028,439
Less: Accumulated depreciation, depletion and amortization		(82,178)		(6,923,106)		(186,179)		–		(7,191,463)
		138,659		4,568,116		1,130,201		–		5,836,976

Investments in subsidiaries (equity method)		2,309,947		–		–		(2,309,947)		–

Other assets		35,136		42,247		14,256		–		91,639

Total assets	$	4,809,628	$	5,318,371	$	1,206,307	$	(4,596,779)	$	6,737,527

LIABILITIES AND EQUITY

Accounts payable	$	140,367	$	375,604	$	41,009	$	–	$	556,980
Other current liabilities		3,758		205,623		1,410		–		210,791
Total current liabilities		144,125		581,227		42,419		–		767,771

Intercompany payables		–		2,108,360		178,472		(2,286,832)		–

Long-term debt		1,668,273		–		–		–		1,668,273
Deferred income taxes		(116,207)		820,279		345,066		–		1,049,138
Other liabilities		77,565		124,505		14,403		–		216,473
Total liabilities		1,773,756		3,634,371		580,360		(2,286,832)		3,701,655
Commitments and contingencies
Total equity		3,035,872		1,684,000		625,947		(2,309,947)		3,035,872

Total liabilities and equity	$	4,809,628	$	5,318,371	$	1,206,307	$	(4,596,779)	$	6,737,527


CONDENSED CONSOLIDATING BALANCE SHEETS


	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
December 31, 2011:

ASSETS

Cash and cash equivalents	$	14,711	$	–	$	916	$	–	$	15,627
Accounts receivable		2,914		309,038		29,963		–		341,915
Inventories		–		45,260		974		–		46,234
Other current assets		6,087		563,635		4,780		–		574,502
Total current assets		23,712		917,933		36,633		–		978,278

Intercompany receivables		2,053,132		53		23,517		(2,076,702)		–

Property and equipment		180,300		9,731,944		1,148,575		–		11,060,819
Less: Accumulated depreciation, depletion and amortization		(57,254)		(4,220,205)		(137,880)		–		(4,415,339)
		123,046		5,511,739		1,010,695		–		6,645,480

Investments in subsidiaries (equity method)		3,256,195		–		–		(3,256,195)		–

Other assets		28,641		227,152		23,346		–		279,139

Total assets	$	5,484,726	$	6,656,877	$	1,094,191	$	(5,332,897)	$	7,902,897

LIABILITIES AND EQUITY

Accounts payable	$	205,341	$	332,710	$	37,276	$	–	$	575,327
Other current liabilities		5,912		301,170		2,504		–		309,586
Total current liabilities		211,253		633,880		39,780		–		884,913

Intercompany payables		–		1,628,750		447,952		(2,076,702)		–

Long-term debt		1,342,100		–		–		–		1,342,100
Deferred income taxes		(97,045)		1,442,576		241,267		–		1,586,798
Other liabilities		59,114		54,826		5,842		–		119,782
Total liabilities		1,515,422		3,760,032		734,841		(2,076,702)		3,933,593
Commitments and contingencies
Total equity		3,969,304		2,896,845		359,350		(3,256,195)		3,969,304

Total liabilities and equity	$	5,484,726	$	6,656,877	$	1,094,191	$	(5,332,897)	$	7,902,897


CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)

Year ended December 31, 2012:
Net cash provided by (used in) operating activities	$	(39,934)	$	1,278,673	$	415,203	$	–	$	1,653,942
Investing activities:
Capital investments		(36,918)		(1,868,487)		(202,350)		–		(2,107,755)
Proceeds from sale of property and equipment		26,006		169,149		5,946		–		201,101
Transfers to restricted cash		(167,788)		–		–		–		(167,788)
Transfers from restricted cash		159,245		1		–		–		159,246
Other		(696)		(35,792)		45,007		–		8,519
Net cash used in investing activities		(20,151)		(1,735,129)		(151,397)		–		(1,906,677)
Financing activities:
Intercompany activities		(198,023)		462,443		(264,420)		–		–
Payments on current portion of long-term debt		(1,200)		–		–		–		(1,200)
Payments on revolving long-term debt		(2,263,900)		–		–		–		(2,263,900)
Borrowing under revolving long-term debt		1,592,400		–		–		–		1,592,400
Proceeds from issuance of long-term debt		998,780		–		–		–		998,780
Other		(35,192)		1		–		–		(35,191)
Net cash provided by (used in) financing activities		92,865		462,444		(264,420)		–		290,889
Effect of exchange rate changes on cash		–		–		(198)		–		(198)
Increase (decrease) in cash and cash equivalents		32,780		5,988		(812)		–		37,956
Cash and cash equivalents at beginning of year		14,711		–		916		–		15,627
Cash and cash equivalents at end of year	$	47,491	$	5,988	$	104	$	–	$	53,583


Year ended December 31, 2011:
Net cash provided by operating activities	$	14,688	$	1,482,853	$	242,276	$	–	$	1,739,817
Investing activities:
Capital investments		(66,647)		(1,916,246)		(201,581)		–		(2,184,474)
Proceeds from sale of property and equipment		–		154,261		265		–		154,526
Transfers to restricted cash		(85,055)		–		–		–		(85,055)
Transfers from restricted cash		85,055		–		–		–		85,055
Other		16,263		(43,961)		32,856		–		5,158
Net cash used in investing activities		(50,384)		(1,805,946)		(168,460)		–		(2,024,790)
Financing activities:
Intercompany activities		(242,277)		315,462		(73,185)		–		–
Payments on current portion of long-term debt		(1,200)		–		–		–		(1,200)
Payments on revolving long-term debt		(3,445,900)		–		–		–		(3,445,900)
Borrowings under revolving long-term debt		3,696,200		–		–		–		3,696,200
Other		35,203		–		–		–		35,203
Net cash provided by financing activities		42,026		315,462		(73,185)		–		284,303
Effect of exchange rate changes on cash		–		–		242		–		242
Increase (decrease) in cash and cash equivalents		6,330		(7,631)		873		–		(428)
Cash and cash equivalents at beginning of year		8,381		7,631		43		–		16,055
Cash and cash equivalents at end of period	$	14,711	$	–	$	916	$	–	$	15,627


Year ended December 31, 2010:
Net cash provided by operating activities	$	25,865	$	1,368,248	$	248,472	$	–	$	1,642,585
Investing activities:
Capital investments		(46,062)		(1,718,847)		(308,265)		–		(2,073,174)
Proceeds from sale of property and equipment		–		348,274		1,953		–		350,227
Transfers to restricted cash		(356,035)		–		–		–		(356,035)
Transfers from restricted cash		356,035		–		–		–		356,035
Other		11,864		(22,719)		8,171		–		(2,684)
Net cash used in investing activities		(34,198)		(1,393,292)		(298,141)		–		(1,725,631)
Financing activities:
Intercompany activities		(76,904)		26,899		50,005		–		–
Payments on current portion of long-term debt		(1,200)		–		–		–		(1,200)
Payments on revolving long-term debt		(2,958,100)		–		–		–		(2,958,100)
Borrowings under revolving long-term debt		3,054,800		–		–		–		3,054,800
Other		(9,260)		–		–		–		(9,260)
Net cash provided by financing activities		9,336		26,899		50,005		–		86,240
Effect of exchange rate changes on cash		–		–		(323)		–		(323)
Increase in cash and cash equivalents		1,003		1,855		13		–		2,871
Cash and cash equivalents at beginning of year		7,378		5,776		30		–		13,184
Cash and cash equivalents at end of period	$	8,381	$	7,631	$	43	$	–	$	16,055