SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
--------------
For Quarter Ended September 30, 1995
Commission file number 1-8223
NATIONAL GAS & OIL COMPANY
(Exact name of registrant)
Ohio 31-1004640
(State) (I.R.S. Employer
Identification No.)
1500 Granville Road, Newark, Ohio 43055
(Address of principal executive office)
Registrant's telephone number (614) 344-2102
Area Code
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 12 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 issuers' classes
of common stock, as of the close of the period covered by this report
(applicable only to corporate issuers).
$1.00 Par Value - Common 6,661,477 shares
Page 1 of 15
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1995 1994
OPERATING REVENUES:
Gas sales $ 1,597,219 $ 3,452,390
Transportation 1,126,563 1,028,374
Oil and gas production 4,125,143 5,944,142
----------- -----------
TOTAL OPERATING REVENUES 6,848,925 10,424,906
----------- -----------
OPERATING EXPENSES:
Purchased gas - gas sales 745,473 2,286,089
Purchased gas - oil and gas production 3,081,747 4,469,387
Operation and maintenance 2,228,125 2,261,283
Depreciation, depletion and amortization 883,749 852,729
Taxes other than income 653,929 616,500
----------- -----------
TOTAL OPERATING EXPENSES 7,593,023 10,485,988
----------- -----------
OPERATING INCOME (LOSS) (744,098) (61,082)
----------- -----------
Other income 68,614 102,376
Interest expense 259,345 223,533
Federal income taxes (benefit) (466,223) (106,208)
----------- -----------
NET INCOME (LOSS) $ (468,606) $ (76,031)
=========== ===========
Net income (loss) per share $ (0.07) $ (0.01)
=========== ===========
Average number of shares outstanding 6,661,477 6,661,477
=========== ===========
The per share amounts and the average number of shares outstanding have
been restated to reflect the three-for-two stock split in December 1994.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
2
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
OPERATING REVENUES:
Gas sales $15,202,094 $22,341,631
Transportation 4,142,006 3,622,966
Oil and gas production 14,940,934 21,714,377
----------- -----------
TOTAL OPERATING REVENUES 34,285,034 47,678,974
----------- -----------
OPERATING EXPENSES:
Purchased gas - gas sales 8,396,811 15,145,822
Purchased gas - oil and gas production 11,099,171 17,432,578
Operation and maintenance 6,641,836 6,380,035
Depreciation, depletion and amortization 2,651,248 2,558,187
Taxes other than income 2,359,072 2,325,278
TOTAL OPERATING EXPENSES 31,148,138 43,841,900
----------- -----------
OPERATING INCOME 3,136,896 3,837,074
----------- -----------
Other income 182,088 234,743
Interest expense 766,666 623,020
Federal income taxes 631,485 1,046,669
----------- -----------
NET INCOME $ 1,920,833 $ 2,402,128
=========== ===========
Net income per share $ 0.29 $ 0.36
=========== ===========
Average number of shares outstanding 6,661,477 6,661,477
=========== ===========
The per share amounts and the average number of shares outstanding have
been restated to reflect the three-for-two stock split in December 1994.
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
PROPERTY, PLANT AND EQUIPMENT
Gas utility properties ..................... $61,431,252 $58,155,708
Less - Accumulated depreciation ............ 21,878,068 20,637,405
----------- -----------
39,553,184 37,518,303
Oil and gas properties,
successful efforts ....................... 23,111,426 21,543,577
Less - Accumulated depreciation,
depletion and amortization ............... 7,626,099 6,414,352
----------- -----------
15,485,327 15,129,225
Other - net ................................ 4,296,542 5,748,532
----------- -----------
TOTAL PROPERTY, PLANT AND EQUIPMENT .......... 59,335,053 58,396,060
CURRENT ASSETS
Cash and cash equivalents .................. 466,718 1,271,186
Short-term investments ..................... 1,103,035 1,842,848
Accounts receivable - net .................. 5,404,491 9,770,469
Gas in underground storage ................. 3,571,815 3,333,358
Materials and supplies,
at average cost .......................... 1,027,410 1,004,369
Other, primarily prepaid taxes ............. 1,371,746 2,802,679
----------- -----------
TOTAL CURRENT ASSETS ......................... 12,945,215 20,024,909
----------- -----------
OTHER ASSETS
Recoverable gas cost ....................... 872,354 1,206,941
Other ...................................... 817,298 901,178
----------- -----------
TOTAL OTHER ASSETS ........................... 1,689,652 2,108,119
----------- -----------
TOTAL ASSETS ................................. $73,969,920 $80,529,088
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
September 30, December 31,
1995 1994
CAPITALIZATION
Shareholders' equity -
Common stock, par value $1 per
share, authorized 14,000,000
shares, issued 6,819,400 shares ........ $ 6,819,400 $ 6,819,400
Paid in capital .......................... 29,498,107 29,498,107
Retained earnings ........................ 5,000,730 4,278,964
Treasury stock, 157,923 shares
at cost ................................ (1,550,509) (1,550,509)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ................. 39,767,728 39,045,962
------------ ------------
Long-term debt ........................... 11,394,892 12,955,973
CURRENT LIABILITIES
Current maturities of long-term debt ..... 878,975 877,695
Short-term loans ......................... 700,000 3,050,000
Accounts payable ......................... 3,528,128 4,498,197
Accrued income and other taxes ........... 1,208,128 3,988,887
LIFO inventory reserve ................... 351,560 --
Refundable gas cost ...................... 1,422,398 1,450,973
Other .................................... 2,050,633 1,522,889
------------ ------------
TOTAL CURRENT LIABILITIES .................. 10,139,822 15,388,641
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Federal income taxes ..................... 8,003,324 8,521,800
Investment tax credits ................... 1,108,659 1,182,072
Accrued transition costs ................. 1,177,621 1,177,621
Health care and other .................... 2,377,874 2,257,019
------------ ------------
TOTAL DEFERRED CREDITS AND OTHER ........... 12,667,478 13,138,512
TOTAL CAPITALIZATION AND LIABILITIES ....... $ 73,969,920 $ 80,529,088
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
<PAGE>
<TABLE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................. $ 1,920,833 $ 2,402,128
Reconciliation of net income to net
cash provided by operating activities
Depreciation, depletion and
amortization ......................... 2,784,545 2,657,857
Deferred income taxes ................. (764,353) (401,739)
Other, net ............................ 81,333 (91,748)
Change in assets and liabilities:
Accounts receivable ................... 4,365,978 5,608,969
Short-term investments ................ 739,813 286,148
Gas in underground storage and
LIFO reserve ........................ 113,103 (1,559,249)
Materials and supplies ................ (23,041) (40,173)
Deferred gas costs .................... (685,695) 897,869
Accounts payable ...................... (970,069) (3,552,022)
Prepaid taxes ......................... 1,350,258 --
Other, net ............................ (283,815) 668,247
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ....................... 8,628,890 6,876,287
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ....................... (4,358,912) (6,342,854)
Salvage on retirement of facilities ........ 34,421 50,642
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ........ (4,324,491) (6,292,212)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt ....... (1,559,800) (730,325)
Proceeds from long-term debt ............... -- 6,000,000
Net borrowings under short-term
bank loans ............................... (2,350,000) (5,000,000)
Dividends paid ............................. (1,199,067) (1,199,143)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES ........ (5,108,867) (929,468)
----------- -----------
NET DECREASE IN CASH & CASH EQUIVALENTS ...... (804,468) (345,393)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR .................................... 1,271,186 554,761
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD ..................................... $ 466,718 $ 209,368
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
6
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated balance sheets, statements of cash flows,
and income statements have been prepared by National Gas & Oil Company
(the Company) without audit by independent accountants. In the opinion of
the Company, all adjustments necessary for a fair presentation of its
consolidated results of operation at September 30, 1995 and 1994 have
been included, and were normal recurring adjustments.
2. Gas in underground storage under the LIFO method is determined using
calendar year-end quantities and costs. LIFO inventory is estimated at
interim periods. At September 30, 1995, gas in underground storage which
is accounted for under LIFO increased 417,458 Mcf from December 31, 1994,
due to the seasonal nature of the Company's business. The Company injects
natural gas into underground storage in the summer and withdraws the gas
in the winter during high demand periods. Under the LIFO accounting
method, the excess of the estimated current cost of replacing inventories
of gas withdrawn from storage during the early part of the year over LIFO
inventory cost is charged to the income statement and recorded as a
current liability. This liability is reduced as inventory is replenished
later in the year, and by year-end the liability is eliminated. The
reserve for LIFO inventory of $351,560 as of September 30, 1995, is the
difference between the cost to replace this temporary reduction and the
LIFO cost assigned to these volumes.
7
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated Results
Operating revenues have been separated into revenues generated from the
sale and transportation of natural gas by National Gas & Oil Corporation
(National Gas) and Producers Gas Sales, Inc. (Producers) and the sale of oil
and gas produced and purchased by NGO Development Corporation (NGO
Development). The revenues of the holding company, National Gas & Oil Company,
and other income from all subsidiaries are included under other income.
Consolidated revenues for the first nine months of 1995 have decreased 28
percent from 1994. Consolidated revenue of $6,849,000 in the third quarter of
1995 represents a decrease of 34 percent from third quarter 1994 consolidated
revenue. The major change in revenue can be attributed to decreased
residential and commercial throughput and the decrease in gas prices. A
reduction in production and marketing activities by NGO Development between
periods also contributed to the decline.
Consolidated net income for the first nine months of 1995 decreased
$481,000 or 20 percent since 1994. Net loss for the third quarter of 1995 was
$469,000, as compared to a loss of $76,000 for the third quarter of 1994.
Net income per common share for the first nine months of 1995 was $0.29,
as compared to $0.36 for 1994. Net loss per common share in the third quarter
of 1995 was $0.07 as compared to $0.01 in the third quarter of 1994. The
decrease is primarily attributed to the decrease in income generated by the
sale and transportation of natural gas and from the oil and gas production
segment.
Gas Sales and Transportation
Operating revenues associated with this segment of the business decreased
by 25 percent for the first nine months of 1995, as compared to 1994 and 40
percent in the third quarter of 1995 as compared to the third quarter of 1994.
This is due to a decrease in the volume of gas sold and transported and a
decrease in the price of gas sold to residential and commercial customers as a
result of declining gas prices.
8
<PAGE>
Net income of the gas sales and transportation segment for the first nine
months of 1995 has decreased $291,500 as compared to 1994. Net income during
the third quarter decreased $278,000 as compared to the third quarter of 1994.
These decreases are primarily the result of decreased throughput and higher
operations and maintenance expense between periods.
Volumes of gas sold and transported to various customer classes have
decreased 15 percent for the first nine months of 1995 compared to 1994.
Volumes for the third quarter decreased 12 percent over the third quarter of
1994.
Three Months Ended September 30,
Gas Throughput (Mcf) 1995 1994
------------------------ ---------- -------
Gas Sales:
Industrial 7,739 7,090
Residential 101,258 108,933
Commercial 47,139 52,877
--------- ---------
Total Gas Sales 156,136 168,900
Transportation 1,593,744 1,818,065
--------- ---------
Total Gas Throughput 1,749,880 1,986,965
========= =========
The decrease in purchased gas expense for the nine month and three month
period is the result of the corresponding decrease in gas sales revenues.
Operations and maintenance expenditures have increased 7 percent for both the
first nine months of 1995 and for third quarter of 1995 as compared to 1994,
primarily due to increased labor costs.
Oil and Gas Production
Operating revenues from the oil and gas production segment decreased
$6,773,000 for the first nine months of 1995 as compared to 1994 and
$1,819,000 in the third quarter of 1995 as compared to the third quarter of
1994. The decrease is due primarily to the decrease in gas prices and
decreased off-system gas marketing activity by NGO Development. Operating
expenses for this business segment have decreased 4 percent for the first nine
months of 1995 compared to 1994 and 22 percent for the third quarter of 1995
as compared to 1994. In addition, purchased gas expense has decreased to
correspond with the decrease in gas marketing revenue.
Net income for the first nine months of 1995 decreased $127,000 compared
to 1994 and $108,000 for the third quarter of 1995 as compared to 1994
primarily due to decreasing sales margins and the reduction in gas marketing
activity.
9
<PAGE>
General
Interest expense increased $143,000 for the first nine months of 1995
compared to 1994 and $36,000 in the third quarter of 1995 compared to 1994 due
to higher interest rates on the variable rate portions of the Company's
long-term debt and the impact on interest expense from the Company's long-term
borrowings entered into in March 1994. Other income decreased $53,000 for the
first nine months of 1995 compared to 1994 and $34,000 for the third quarter
of 1995 compared to 1994 primarily due to a reduction in investment income.
Federal Income Taxes
The change in federal income tax expense for the first nine months of
1995 as compared to 1994 and for the quarter reflects the changes in taxable
income for the consolidated companies. Taxable income has decreased due to an
increase in the estimated percentage depletion between periods.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The primary sources and uses of cash during the nine month period ending
September 30 are summarized in the following condensed cash flow statement:
Sources and (Uses) of Cash
1995 1994
Provided by Operating Activities $ 8,628,890 $ 6,876,287
Capital Expenditures, net of salvage (4,324,491) (6,292,212)
Net Borrowings (3,909,800) 269,675
Common Dividends (1,199,067) (1,199,143)
----------- -----------
Net Decrease in Cash &
Cash Equivalents $ (804,468) $ (345,393)
=========== ===========
Cash provided by operating activities consists of net income and noncash
items including depreciation, depletion, amortization and deferred income
taxes. Additionally, changes in working capital are also included in cash
provided by operating activities. The Company expects that internally
generated cash and cash reserves, coupled with seasonal short-term borrowings,
will continue to be sufficient to satisfy the operating, normal capital
expenditure and dividend requirements of the Company's existing operations in
the near future.
10
<PAGE>
Capital Expenditures
In the first nine months of 1995 the gas sales and transportation segment
accounted for 79 percent of the total capital expenditures. The funds were
expended primarily for expansion and upgrading of existing pipeline systems.
The oil and gas sales segment accounted for 21 percent which was primarily
used for the development and/or completion of various interest in oil and gas
wells. Capital expenditures in the first nine months of 1995 have decreased
due to decreased oil and gas drilling in response to lower gas prices.
Financing and Liquidity
The Company continually assesses various alternatives for expanding its
business, including the acquisition of other business entities.
As of September 30, 1995, the Company and its subsidiaries had short-term
lines of credit with various banks aggregating in excess of $6 million, the
upper limit on short-term borrowing imposed by the Board of Directors. The
terms of each borrowing under the lines of credit are negotiated at the time
the funds are requested with interest rates ranging from 6.813% to 8.75%.
During the first nine months, the Company utilized these credit lines and as
of September 30, 1995, $700,000 remained outstanding. These funds were used
primarily by National Gas to satisfy seasonal working capital requirements.
The Company anticipates that it will continue to utilize its credit lines for
additional funds during the fourth quarter of 1995.
Additionally, the Company and all of its subsidiaries, except National
Gas, have a $3 million revolving line of credit which expires in February
1997. This committed credit line is unsecured and may be utilized by any of
the subsidiaries, except National Gas. During 1993, NGO Development borrowed
$2.55 million against this credit line for various acquisitions and pipeline
projects. During 1994 and the first nine months of 1995, $2 million of the
credit line was repaid and $550,000 remained outstanding as of September 30,
1995.
The Company is not aware of any material events or uncertainties which
would materially limit or restrict its ability to secure additional funds from
external sources in either the debt or equity markets.
Dividends
The Company paid cash dividends of $1,199,067 and $1,199,143 during the
nine months ended September 30, 1995 and 1994, respectively. Presently, there
are no restrictions on the payment of dividends, as long as the Company is not
11
<PAGE>
in default of the terms in its long-term loans. The Company is continuing its
25 year history of issuing annual stock dividends or stock splits. On
August 24, 1995, the Company's Board of Directors declared a 3 percent stock
dividend to be issued on December 18, 1995, to shareholders of record on
November 27, 1995. Dividend policy is established by the Company's Board of
Directors. The Board's decision takes into consideration results of operations
and retained earnings of the Company.
Effects of Inflation
All of the Company's long-term bank loans accrue interest at a
fluctuating rate equal to either the bank's prime rate or to a rate tied to
the London Interbank Offered Rate (LIBOR). Because of the fluctuating rate,
the Company is exposed to increases in interest expense should rates increase
due to inflation.
During the third quarter of 1993, National Gas analyzed the need for
additional base rate increases and decided to apply for rate increases to
cover increases in operating expenses. Rate increases over a three-year period
have been successfully negotiated with all municipalities served by National
Gas.
12
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
NATIONAL GAS & OIL COMPANY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Default upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On August 24, 1995, the Board of Directors of the Company
accepted the resignation of Mason B. Starring, III and elected Alan
A. Baker and M. Howard Petricoff to the Board of Directors of
National Gas & Oil Company and each of its operating subsidiaries.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27. Financial Data Schedule.
13
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1995
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.
NATIONAL GAS & OIL COMPANY
(Registrant)
Date: November 14, 1995 /s/John B. Denison
John B. Denison
Vice President and Secretary
Date: November 14, 1995 /s/Lawrence P. Haren
Lawrence P. Haren
Executive Vice President, Chief
Financial Officer and Treasurer
14
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 39,553,184
<OTHER-PROPERTY-AND-INVEST> 19,781,869
<TOTAL-CURRENT-ASSETS> 12,945,215
<TOTAL-DEFERRED-CHARGES> 1,689,652
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 73,969,920
<COMMON> 6,819,400
<CAPITAL-SURPLUS-PAID-IN> 27,947,598
<RETAINED-EARNINGS> 5,000,730
<TOTAL-COMMON-STOCKHOLDERS-EQ> 39,767,728
0
0
<LONG-TERM-DEBT-NET> 11,394,892
<SHORT-TERM-NOTES> 700,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 878,975
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 21,228,325
<TOT-CAPITALIZATION-AND-LIAB> 73,969,920
<GROSS-OPERATING-REVENUE> 34,285,034
<INCOME-TAX-EXPENSE> 631,485
<OTHER-OPERATING-EXPENSES> 31,148,138
<TOTAL-OPERATING-EXPENSES> 31,779,623
<OPERATING-INCOME-LOSS> 2,505,411
<OTHER-INCOME-NET> 182,088
<INCOME-BEFORE-INTEREST-EXPEN> 2,687,499
<TOTAL-INTEREST-EXPENSE> 766,666
<NET-INCOME> 1,920,833
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,920,833
<COMMON-STOCK-DIVIDENDS> 1,199,067
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 8,628,890
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
