(18) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

On April 26, 2018, the Company entered into the 2018 credit facility. Pursuant to requirements under the indentures governing its senior notes, each subsidiary that became a guarantor of the 2018 credit facility also became a guarantor of each of the Company’s senior notes. The 2018 credit facility and senior notes are guaranteed on a senior unsecured basis by the Company, along with its material United States domestic subsidiaries (the “Guarantor Subsidiaries”), which are 100% owned by the Company. These guarantees are full and unconditional and joint and several among the Guarantor Subsidiaries. Certain of the Company’s operating units which are accounted for on a consolidated basis do not guarantee the 2018 credit facility and senior notes (“Non-Guarantor Subsidiaries”). See Note 11 – Debt for additional information on the Company’s 2018 revolving credit facility and senior notes. At the closing of the Fayetteville Shale sale, its subsidiaries being sold will be released from these guarantees.

The following financial information reflects consolidating financial information of Southwestern Energy Company (the parent and issuer company), its Guarantor Subsidiaries on a combined basis and the Non-Guarantor Subsidiaries on a combined basis, prepared on the equity basis of accounting. The information is presented in accordance with the requirements of Rule 3-10 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations, cash flows or financial position had the Guarantor Subsidiaries operated as independent entities.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in millions)

Parent

Guarantors

Non-Guarantors

Eliminations

Consolidated

Three months ended September 30, 2018:

Operating Revenues:

Gas sales

–

465

–

465

Oil sales

–

NGL sales

–

112

–

112

Marketing

–

287

–

287

Gas gathering

–

Other

–

951

–

951

Operating Costs and Expenses:

Marketing purchases

–

288

–

288

Operating expenses

–

206

–

206

General and administrative expenses

–

Restructuring charges

–

Depreciation, depletion and amortization

–

151

–

151

Impairments

–

161

–

161

Taxes, other than income taxes

–

885

–

885

Operating Income

–

Interest Expense, Net

–

Loss on Derivatives

–

(65)

–

(65)

Loss on Early Extinguishment of Debt

–

Other Income, Net

–

(1)

–

(1)

Equity in Earnings of Subsidiaries

–

Income (Loss) Before Income Taxes

(29)

–

(29)

Provision (Benefit) for Income Taxes

–

Net Income (Loss)

(29)

–

(29)

Mandatory convertible preferred stock dividend

–

Participating securities - mandatory convertible preferred stock

–

Net Income (Loss) Attributable to

Common Stock

(29)

–

(29)

Net Income (Loss)

(29)

–

(29)

Other comprehensive income

–

Comprehensive Income (Loss)

(25)

–

(25)


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(in millions)	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
Three months ended September 30, 2017:
Operating Revenues:
Gas sales	$	–	$	394	$	–	$	–	$	394
Oil sales		–		27		–		–		27
NGL sales		–		55		–		–		55
Marketing		–		233		–		–		233
Gas gathering		–		28		–		–		28
Other		–		–		–		–		–
		–		737		–		–		737
Operating Costs and Expenses:
Marketing purchases		–		236		–		–		236
Operating expenses		–		170		–		–		170
General and administrative expenses		–		62		–		–		62
Depreciation, depletion and amortization		–		135		–		–		135
Taxes, other than income taxes		–		24		–		–		24
		–		627		–		–		627
Operating Income		–		110		–		–		110
Interest Expense, Net		31		–		–		–		31
Gain on Derivatives		–		45		–		–		45
Loss on Early Extinguishment of Debt		(59)		–		–		–		(59)
Other Income, Net		–		(2)		–		–		(2)
Equity in Earnings of Subsidiaries		167		–		–		(167)		–

Income (Loss) Before Income Taxes		77		153		–		(167)		63
Provision (Benefit) for Income Taxes		–		(14)		–		–		(14)
Net Income (Loss)	$	77	$	167	$	–	$	(167)	$	77
Mandatory convertible preferred stock dividend		27		–		–		–		27
Participating securities - mandatory convertible preferred stock		7		–		–		–		7
Net Income (Loss) Attributable to Common Stock	$	43	$	167	$	–	$	(167)	$	43

Net Income (Loss)	$	77	$	167	$	–	$	(167)	$	77
Other comprehensive income		1		–		–		–		1
Comprehensive Income (Loss)	$	78	$	167	$	–	$	(167)	$	78


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(in millions)	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
Nine months ended September 30, 2018:
Operating Revenues:
Gas sales	$	–	$	1,412	$	–	$	–	$	1,412
Oil sales		–		141		–		–		141
NGL sales		–		252		–		–		252
Marketing		–		805		–		–		805
Gas gathering		–		73		–		–		73
Other		–		4		–		–		4
		–		2,687		–		–		2,687
Operating Costs and Expenses:
Marketing purchases		–		808		–		–		808
Operating expenses		–		588		–		–		588
General and administrative expenses		–		165		–		–		165
Restructuring charges		–		20		–		–		20
Depreciation, depletion and amortization		–		436		–		–		436
Impairments		–		161		–		–		161
Taxes, other than income taxes		–		64		–		–		64
		–		2,242		–		–		2,242
Operating Income		–		445		–		–		445
Interest Expense, Net		100		–		–		–		100
Loss on Derivatives		–		(108)		–		–		(108)
Loss on Early Extinguishment of Debt		(8)		–		–		–		(8)
Other Income, Net		–		1		–		–		1
Equity in Earnings of Subsidiaries		338		−		–		(338)		–

Income (Loss) Before Income Taxes		230		338		–		(338)		230
Provision (Benefit) for Income Taxes		–		–		–		–		–
Net Income (Loss)	$	230	$	338	$	–	$	(338)	$	230
Mandatory convertible preferred stock dividend		–		–		–		–		–
Participating securities - mandatory convertible preferred stock		1		–		–		–		1
Net Income (Loss) Attributable to Common Stock	$	229	$	338	$	–	$	(338)	$	229

Net Income (Loss)	$	230	$	338	$	–	$	(338)	$	230
Other comprehensive income		4		–		–		–		4
Comprehensive Income (Loss)	$	234	$	338	$	–	$	(338)	$	234


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(in millions)	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
Nine months ended September 30, 2017:
Operating Revenues:
Gas sales	$	–	$	1,368	$	–	$	–	$	1,368
Oil sales		–		73		–		–		73
NGL sales		–		132		–		–		132
Marketing		–		736		–		–		736
Gas gathering		–		85		–		–		85
Other		–		–		–		–		–
		–		2,394		–		–		2,394
Operating Costs and Expenses:
Marketing purchases		–		740		–		–		740
Operating expenses		–		481		–		–		481
General and administrative expenses		–		170		–		–		170
Depreciation, depletion and amortization		–		364		–		–		364
Taxes, other than income taxes		–		75		–		–		75
		–		1,830		–		–		1,830
Operating Income		–		564		–		–		564
Interest Expense, Net		97		–		–		–		97
Gain on Derivatives		–		295		–		–		295
Loss on Early Extinguishment of Debt		(70)		–		–		–		(70)
Other Income, Net		–		6		–		–		6
Equity in Earnings of Subsidiaries		879		–		–		(879)		–

Income (Loss) Before Income Taxes		712		865		–		(879)		698
Provision (Benefit) for Income Taxes		–		(14)		–		–		(14)
Net Income (Loss)	$	712	$	879	$	–	$	(879)	$	712
Mandatory convertible preferred stock dividend		81		–		–		–		81
Participating securities - mandatory convertible preferred stock		83		–		–		–		83
Net Income (Loss) Attributable to Common Stock	$	548	$	879	$	–	$	(879)	$	548

Net Income (Loss)	$	712	$	879	$	–	$	(879)	$	712
Other comprehensive income		2		–		–		–		2
Comprehensive Income (Loss)	$	714	$	879	$	–	$	(879)	$	714


CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in millions)	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
September 30, 2018:
ASSETS
Cash and cash equivalents	$	9	$	–	$	–	$	–	$	9
Accounts receivable, net		–		397		–		–		397
Other current assets		11		134		–		–		145
Current assets held for sale		–		64		–		–		64
Total current assets		20		595		–		–		615

Intercompany receivables		7,966		–		–		(7,966)		–

Natural gas and oil properties, using the full cost method		–		24,825		55		–		24,880
Gathering systems		–		11		27		–		38
Other		204		275		–		–		479
Less: Accumulated depreciation, depletion and amortization		(153)		(19,717)		(58)		–		(19,928)
Total property and equipment, net		51		5,394		24		–		5,469

Investments in subsidiaries (equity method)		–		24		–		(24)		–
Other long-term assets		21		173		–		–		194
Long-term assets held for sale		–		780		–		–		780
TOTAL ASSETS	$	8,058	$	6,966	$	24	$	(7,990)	$	7,058

LIABILITIES AND EQUITY
Accounts payable	$	122	$	441	$	–	$	–	$	563
Other current liabilities		69		144		–		–		213
Current liabilities held for sale		–		116		–		–		116
Total current liabilities		191		701		–		–		892

Intercompany payables		–		7,966		–		(7,966)		–

Long-term debt		3,572		–		–		–		3,572
Pension and other postretirement liabilities		50		–		–		–		50
Other long-term liabilities		10		152		–		–		162
Long-term liabilities held for sale		–		177		–		–		177
Negative carrying amount of subsidiaries, net		2,030		–		–		(2,030)		–
Total long-term liabilities		5,662		329		–		(2,030)		3,961
Commitments and contingencies
Total equity (accumulated deficit)		2,205		(2,030)		24		2,006		2,205
TOTAL LIABILITIES AND EQUITY	$	8,058	$	6,966	$	24	$	(7,990)	$	7,058


CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in millions)	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
December 31, 2017:
ASSETS
Cash and cash equivalents	$	914	$	2	$	–	$	–	$	916
Accounts receivable, net		–		428		–		–		428
Other current assets		10		155		–		–		165
Total current assets		924		585		–		–		1,509

Intercompany receivables		7,978		–		–		(7,978)		–

Natural gas and oil properties, using the full cost method		–		23,834		56		–		23,890
Gathering systems		–		1,288		27		–		1,315
Other		207		357		–		–		564
Less: Accumulated depreciation, depletion and amortization		(134)		(19,804)		(59)		–		(19,997)
Total property and equipment, net		73		5,675		24		–		5,772

Investments in subsidiaries (equity method)		–		24		–		(24)		–
Other long-term assets		16		224		–		–		240
TOTAL ASSETS	$	8,991	$	6,508	$	24	$	(8,002)	$	7,521

LIABILITIES AND EQUITY
Accounts payable	$	73	$	460	$	–	$	–	$	533
Other current liabilities		110		137		–		–		247
Total current liabilities		183		597		–		–		780

Intercompany payables		–		7,978		–		(7,978)		–

Long-term debt		4,391		–		–		–		4,391
Pension and other postretirement liabilities		58		–		–		–		58
Other long-term liabilities		13		300		–		–		313
Negative carrying amount of subsidiaries, net		2,367		–		–		(2,367)		–
Total long-term liabilities		6,829		300		–		(2,367)		4,762
Commitments and contingencies
Total equity (accumulated deficit)		1,979		(2,367)		24		2,343		1,979
TOTAL LIABILITIES AND EQUITY	$	8,991	$	6,508	$	24	$	(8,002)	$	7,521


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

(in millions)	Parent		Guarantors		Non-Guarantors		Eliminations		Consolidated
Nine months ended September 30, 2018:
Net cash provided by (used in) operating activities	$	57	$	1,396	$	–	$	(482)	$	971
Investing activities:
Capital investments		(12)		(996)		–		–		(1,008)
Other		4		9		–		–		13
Net cash used in investing activities		(8)		(987)		–		–		(995)
Financing activities
Intercompany activities		(71)		(411)		–		482		–
Payments on long-term debt		(1,191)		–		–		–		(1,191)
Payments on revolving credit facility		(1,122)		–		–		–		(1,122)
Borrowings under revolving credit facility		1,482		–		–		–		1,482
Purchase of treasury stock		(25)		–		–		–		(25)
Preferred stock dividend		(27)		–		–		–		(27)
Other		–		–		–		–		–
Net cash provided by (used in) financing activities		(954)		(411)		–		482		(883)
Increase (decrease) in cash and cash equivalents		(905)		(2)		–		–		(907)
Cash and cash equivalents at beginning of year		914		2		–		–		916
Cash and cash equivalents at end of period	$	9	$	–	$	–	$	–	$	9

Nine months ended September 30, 2017:
Net cash provided by (used in) operating activities	$	735	$	933	$	–	$	(879)	$	789
Investing activities:
Capital investments		(30)		(909)		(4)		–		(943)
Other		1		21		–		–		22
Net cash used in investing activities		(29)		(888)		(4)		–		(921)
Financing activities
Intercompany activities		(834)		(48)		4		878		–
Payments on short-term debt		(287)		–		–		–		(287)
Payments on long-term debt		(1,139)		–		–		–		(1,139)
Proceeds from issuance of long-term debt		1,150		–		–		–		1,150
Other		(27)		–		–		1		(26)
Net cash provided by (used in) financing activities		(1,137)		(48)		4		879		(302)
Increase (decrease) in cash and cash equivalents		(431)		(3)		–		–		(434)
Cash and cash equivalents at beginning of year		1,416		7		–		–		1,423
Cash and cash equivalents at end of period	$	985	$	4	$	–	$	–	$	989