(17) 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.

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
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)
Three months ended September 30, 2013:
Operating revenues	$	–	$	823,112	$	130,998	$	(85,744)	$	868,366
Operating costs and expenses:
Gas purchases – midstream services		–		195,437		–		(166)		195,271
Operating expenses		–		140,400		35,425		(85,556)		90,269
General and administrative expenses		–		43,836		7,155		(22)		50,969
Depreciation, depletion and amortization		–		191,972		12,962		–		204,934
Taxes, other than income taxes		–		15,348		2,346		–		17,694
Total operating costs and expenses		–		586,993		57,888		(85,744)		559,137
Operating income		–		236,119		73,110		–		309,229
Other income (loss), net		–		145		(464)		–		(319)
Gain on derivatives		–		10,251		1,873		–		12,124
Equity in earnings of subsidiaries		185,867		–		–		(185,867)		–
Interest expense		–		9,359		1,659		–		11,018
Income before income taxes		185,867		237,156		72,860		(185,867)		310,016
Provision for income taxes		–		91,466		32,683		–		124,149
Net income		185,867		145,690		40,177		(185,867)		185,867
Comprehensive income	$	139,179	$	98,102	$	40,811	$	(138,913)	$	139,179


Three months ended September 30, 2012:
Operating revenues	$	–	$	647,961	$	121,343	$	(77,577)	$	691,727
Operating costs and expenses:
Gas purchases – midstream services		–		149,765		–		(114)		149,651
Operating expenses		–		106,293		32,277		(76,664)		61,906
General and administrative expenses		–		30,818		6,102		(799)		36,121
Depreciation, depletion and amortization		–		193,057		10,878		–		203,935
Impairment of natural gas and oil properties		–		289,821		–		–		289,821
Taxes, other than income taxes		–		13,513		2,739		–		16,252
Total operating costs and expenses		–		783,267		51,996		(77,577)		757,686
Operating income (loss)		–		(135,306)		69,347		–		(65,959)
Other income, net		–		216		22		–		238
Loss on derivatives		–		(5,879)		–		–		(5,879)
Equity in earnings of subsidiaries		(54,053)		–		–		54,053		–
Interest expense		–		7,200		3,406		–		10,606
Income (loss) before income taxes		(54,053)		(148,169)		65,963		54,053		(82,206)
Provision (benefit) for income taxes		–		(53,903)		25,750		–		(28,153)
Net income (loss)		(54,053)		(94,266)		40,213		54,053		(54,053)
Comprehensive income (loss)	$	(183,944)	$	(225,408)	$	41,210	$	184,198	$	(183,944)


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)
Nine months ended September 30, 2013:
Operating revenues	$	–	$	2,331,343	$	379,212	$	(246,499)	$	2,464,056
Operating costs and expenses:
Gas purchases – midstream services		–		576,185		–		(848)		575,337
Operating expenses		–		375,721		106,520		(245,593)		236,648
General and administrative expenses		–		116,648		19,164		(58)		135,754
Depreciation, depletion and amortization		–		533,876		37,392		–		571,268
Taxes, other than income taxes		–		50,053		8,490		–		58,543
Total operating costs and expenses		–		1,652,483		171,566		(246,499)		1,577,550
Operating income		–		678,860		207,646		–		886,506
Other income (loss), net		–		67		(565)		–		(498)
Gain on derivatives		–		73,906		1,873		–		75,779
Equity in earnings of subsidiaries		559,013		–		–		(559,013)		–
Interest expense		–		23,884		5,433		–		29,317
Income before income taxes		559,013		728,949		203,521		(559,013)		932,470
Provision for income taxes		–		291,795		81,662		–		373,457
Net income		559,013		437,154		121,859		(559,013)		559,013
Comprehensive income	$	457,967	$	337,122	$	120,045	$	(457,167)	$	457,967


Nine months ended September 30, 2012:
Operating revenues	$	–	$	1,824,594	$	350,064	$	(222,020)	$	1,952,638
Operating costs and expenses:
Gas purchases – midstream services		–		424,425		–		(484)		423,941
Operating expenses		–		311,165		87,461		(219,148)		179,478
General and administrative expenses		–		111,567		20,700		(2,388)		129,879
Depreciation, depletion and amortization		–		572,139		33,253		–		605,392
Impairment of natural gas and oil properties		–		1,090,473		–		–		1,090,473
Taxes, other than income taxes		–		42,159		8,995		–		51,154
Total operating costs and expenses		–		2,551,928		150,409		(222,020)		2,480,317
Operating income (loss)		–		(727,334)		199,655		–		(527,679)
Other income (loss), net		–		(23)		2,638		–		2,615
Loss on derivatives		–		(10,593)		–		–		(10,593)
Equity in earnings of subsidiaries		(351,481)		–		–		351,481		–
Interest expense		–		15,460		10,845		–		26,305
Income (loss) before income taxes		(351,481)		(753,410)		191,448		351,481		(561,962)
Provision (benefit) for income taxes		–		(285,231)		74,750		–		(210,481)
Net income (loss)		(351,481)		(468,179)		116,698		351,481		(351,481)
Comprehensive income (loss)	$	(567,869)	$	(686,291)	$	117,660	$	568,631	$	(567,869)


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

	Parent		Guarantors		Non- Guarantors		Eliminations		Consolidated
	(in thousands)
September 30, 2013:

ASSETS

Cash and cash equivalents	$	17,956	$	–	$	994	$	–	$	18,950
Accounts receivable		3,114		423,418		18,191		–		444,723
Inventories		–		40,906		2,319		–		43,225
Other assets		13,893		212,154		7,030		–		233,077
Total current assets		34,963		676,478		28,534		–		739,975

Intercompany receivables		2,548,900		57		54,531		(2,603,488)		–

Property and equipment		236,324		13,079,991		1,507,238		–		14,823,553
Less: Accumulated depreciation, depletion and amortization		(102,706)		(7,455,008)		(229,106)		–		(7,786,820)
		133,618		5,624,983		1,278,132		–		7,036,733

Investments in subsidiaries (equity method)		2,788,544		–		–		(2,788,544)		–

Other assets		32,103		69,697		15,880		–		117,680

Total assets	$	5,538,128	$	6,371,215	$	1,377,077	$	(5,392,032)	$	7,894,388

LIABILITIES AND EQUITY

Accounts payable	$	147,265	$	432,089	$	84,372	$	–	$	663,726
Other current liabilities		3,759		141,307		1,019		–		146,085
Total current liabilities		151,024		573,396		85,391		–		809,811

Intercompany payables		–		2,603,488		–		(2,603,488)		–

Long-term debt		1,911,165		–		–		–		1,911,165
Deferred income taxes		(115,675)		1,077,055		427,453		–		1,388,833
Other liabilities		71,625		178,703		14,262		–		264,590
Total liabilities		2,018,139		4,432,642		527,106		(2,603,488)		4,374,399
Commitments and contingencies
Total equity		3,519,989		1,938,573		849,971		(2,788,544)		3,519,989

Total liabilities and equity	$	5,538,128	$	6,371,215	$	1,377,077	$	(5,392,032)	$	7,894,388


CONDENSED CONSOLIDATING BALANCE SHEETS
(Unaudited)

	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 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 STATEMENTS OF CASH FLOWS
(Unaudited)

	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
	(in thousands)

Nine months ended September 30, 2013:
Net cash provided by (used in) operating activities	$	(32,502)	$	1,062,133	$	347,887	$	–	$	1,377,518
Investing activities:
Capital investments		(29,227)		(1,530,760)		(167,556)		–		(1,727,543)
Proceeds from sale of property and equipment		–		210		2,871		–		3,081
Transfers from restricted cash		8,542		–		–		–		8,542
Other		(74)		(1,685)		6,459		–		4,700
Net cash used in investing activities		(20,759)		(1,532,235)		(158,226)		–		(1,711,220)
Financing activities:
Intercompany activities		(274,931)		464,114		(189,183)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(2,134,550)		–		–		–		(2,134,550)
Borrowing under revolving long-term debt		2,377,950		–		–		–		2,377,950
Other Items		55,857		–		–		–		55,857
Net cash provided by (used in) financing activities		23,726		464,114		(189,183)		–		298,657
Effect of exchange rate changes on cash		–		–		412		–		412
Increase (decrease) in cash and cash equivalents		(29,535)		(5,988)		890		–		(34,633)
Cash and cash equivalents at beginning of year		47,491		5,988		104		–		53,583
Cash and cash equivalents at end of period	$	17,956	$	–	$	994	$	–	$	18,950


Nine months ended September 30, 2012:
Net cash provided by (used in) operating activities	$	(55,324)	$	915,885	$	331,916	$	–	$	1,192,477
Investing activities:
Capital investments		(38,946)		(1,452,061)		(132,744)		–		(1,623,751)
Proceeds from sale of property and equipment		144		169,149		31,868		–		201,161
Transfers to restricted cash		(167,774)		–		–		–		(167,774)
Transfers from restricted cash		40,700		–		–		–		40,700
Other		16,575		(24,340)		13,004		–		5,239
Net cash used in investing activities		(149,301)		(1,307,252)		(87,872)		–		(1,544,425)
Financing activities:
Intercompany activities		(148,027)		392,732		(244,705)		–		–
Payments on current portion of long-term debt		(600)		–		–		–		(600)
Payments on revolving long-term debt		(1,774,000)		–		–		–		(1,774,000)
Borrowings under revolving long-term debt		1,129,000		–		–		–		1,129,000
Proceeds from issuance of long-term debt		998,780		–		–		–		998,780
Other items		1,722		–		(11)		–		1,711
Net cash provided by (used in) financing activities		206,875		392,732		(244,716)		–		354,891
Effect of exchange rate changes on cash		–		–		(10)		–		(10)
Increase (decrease) in cash and cash equivalents		2,250		1,365		(682)		–		2,933
Cash and cash equivalents at beginning of year		14,711		–		916		–		15,627
Cash and cash equivalents at end of period	$	16,961	$	1,365	$	234	$	–	$	18,560