(16) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

As of December 16, 2013, following the release of all guarantees under the 7.15%, 7.5%, 7.35%, 7.125% and 4.10% Senior Notes and our former credit facility, as described in Note 8, all of our 100%-owned subsidiaries have been released of their guarantees.

Prior to that date, the Company’s obligations under registered public debt and outstanding senior notes as listed in Note 8 were fully and unconditionally guaranteed, jointly and severally, by all of our 100%-owned subsidiaries, other than minor subsidiaries, on a senior unsecured basis, and the Company, as a parent company, had no independent assets or operations. The subsidiary guarantees (i) ranked equally in right of payment with all of the existing and future senior debt of the subsidiary guarantors; (ii) ranked senior to all of the existing and future subordinated debt of the subsidiary guarantors; (iii) were 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) were 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 had occurred and was continuing, these guarantees would 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. In addition, there were no significant restrictions on the ability of the Company or any guarantor to obtain funds from its subsidiaries by dividend or loan, and none of the assets of the Company or a guarantor represented restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act.

The Company is providing condensed consolidating financial information for SEECO, SEPCO and SES, its subsidiaries that were guarantors of the Company’s registered public debt and outstanding senior notes, and for its other subsidiaries that are not guarantors of such debt as of and for the years December 31, 2012 and 2011. The Company has not provided comparative financial statements for 2013 because all guarantees were released in 2013. The Company has not presented separate financial and narrative information for each of the former 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 former guarantor and other subsidiaries.


CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

	Parent		Former Guarantors		Other Subsidiaries		Eliminations		Consolidated
	(in thousands)
Year ended December 31, 2012:
Operating revenues	$	–	$	2,556,634	$	476,997	$	(303,638)	$	2,729,993
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)		–		(1,372,711)		272,086		(1)		(1,100,626)
Other income (loss), net		–		(1,143)		2,173		–		1,030
Gain (loss) on derivatives		–		(14,950)		–		–		(14,950)
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	$	–	$	2,801,811	$	411,998	$	(262,477)	$	2,951,332
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		–		850,106		223,121		–		1,073,227
Other income (loss), net		–		306		(42)		–		264
Gain (loss) on derivatives		–		1,574		–		–		1,574
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


CONDENSED CONSOLIDATING BALANCE SHEETS


	Parent		Former Guarantors		Other Subsidiaries		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 STATEMENTS OF CASH FLOWS


	Parent		Former Guarantors		Other Subsidiaries		Eliminations		Consolidated
	(in thousands)

Year ended December 31, 2012:
Net cash provided by 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)
Borrowings 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 period	$	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