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, 1996 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 6,852,389 Shares
Page 1 of 13
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1996
-------------------------------
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
OPERATING REVENUES:
Gas sales $ 1,734,405 $ 1,597,219
Transportation 827,194 1,126,563
Oil & gas production 5,625,302 4,125,143
----------- -----------
TOTAL OPERATING REVENUES 8,186,901 6,848,925
----------- -----------
OPERATING EXPENSES:
Purchased gas - gas sales 741,279 745,473
Purchased gas - oil and gas production 4,292,722 3,081,747
Operation and maintenance 2,243,676 2,228,125
Depreciation, depletion & amortization 911,156 883,749
Taxes other than income 670,199 653,929
----------- -----------
TOTAL OPERATING EXPENSES 8,859,032 7,593,023
----------- -----------
OPERATING INCOME (LOSS) (672,131) (744,098)
----------- -----------
Other income 166,454 68,614
Interest expense 231,091 259,345
Federal income taxes (300,890) (466,223)
----------- -----------
NET INCOME (LOSS) $ (435,878) $ (468,606)
=========== ===========
Net income (loss) per share $ (0.06) $ (0.07)
=========== ===========
Average number of share outstanding 6,852,389 6,860,589
=========== ===========
The per share amounts and the average number of shares outstanding have been
restated to reflect the three percent stock dividend issued in December 1995.
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
QUARTER ENDED
SEPTEMBER 30, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
---- ----
OPERATING REVENUES:
Gas sales $16,043,176 $15,202,094
Transportation 3,321,238 4,142,006
Oil & gas production 22,215,354 14,940,934
----------- -----------
TOTAL OPERATING REVENUES 41,579,768 34,285,034
----------- -----------
OPERATING EXPENSES:
Purchased gas - gas sales 7,663,627 8,396,811
Purchased gas - oil and gas production 17,657,724 11,099,171
Operation and maintenance 6,581,862 6,641,836
Depreciation, depletion & amortization 2,734,282 2,651,248
Taxes other than income 2,557,806 2,359,072
----------- -----------
TOTAL OPERATING EXPENSES 37,195,301 31,148,138
----------- -----------
OPERATING INCOME 4,384,467 3,136,896
----------- -----------
Other income 396,315 182,088
Interest expense 661,172 766,666
Federal income taxes 1,231,870 631,485
----------- -----------
NET INCOME $ 2,887,740 $ 1,920,833
=========== ===========
Net income per share $ 0.42 $ 0.28
=========== ===========
Average number of share outstanding 6,854,978 6,860,589
=========== ===========
The per share amounts and the average number of shares outstanding have been
restated to reflect the three percent stock dividend issued in December 1995.
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
QUARTER ENDED
SEPTEMBER 30, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, December 31,
1996 1995
------------- ------------
PROPERTY, PLANT AND EQUIPMENT
Gas utility properties $65,712,994 $62,444,717
Less - Accumulated depreciation 23,710,745 22,199,392
----------- -----------
42,002,249 40,245,325
----------- -----------
Oil and gas properties, successful efforts 21,992,504 21,218,605
Less - Accumulated depreciation,
depletion and amortization 7,667,585 7,304,416
----------- -----------
14,324,919 13,914,189
----------- -----------
Other - net 4,675,650 5,492,265
----------- -----------
TOTAL PROPERTY, PLANT AND EQUIPMENT 61,002,818 59,651,779
----------- -----------
CURRENT ASSETS
Cash and cash equivalents 2,227,517 448,250
Short-term investments 1,418,493 782,788
Accounts receivable - net 6,478,479 10,285,798
Gas in underground storage 4,747,145 2,321,552
Materials and supplies, at average cost 1,166,307 980,787
Prepaid taxes 1,384,115 2,896,527
Deferred gas costs 1,555,935 --
Other 843,712 504,340
----------- -----------
TOTAL CURRENT ASSETS 19,821,703 18,220,042
----------- -----------
TOTAL OTHER ASSETS 1,376,117 1,558,481
----------- -----------
TOTAL ASSETS $82,200,638 $79,430,302
=========== ===========
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
QUARTER ENDED
SEPTEMBER 30, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
September 30, December 31,
1996 1995
------------- ------------
CAPITALIZATION
Shareholders' equity -
Common stock, par value $1 per
share, authorized 14,000,000
shares, issued 7,018,512 shares $ 7,018,512 $ 7,018,512
Paid in capital 31,353,832 31,353,831
Retained earnings 5,502,050 3,848,185
Treasury shares at cost, 166,123 & 157,923
respectively (1,625,002) (1,550,509)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 42,249,392 40,670,019
------------ ------------
Long-term debt 9,964,056 11,079,442
CURRENT LIABILITIES
Current maturities of long-term debt 3,082,638 877,264
Short-term loans 5,400,000 1,350,000
Accounts payable 4,735,084 5,491,004
Accrued income and other taxes 1,590,141 3,990,295
LIFO inventory reserve 563,594 --
Refundable gas cost -- 1,348,047
Other 1,851,137 1,947,816
------------ ------------
TOTAL CURRENT LIABILITIES 17,222,594 15,004,426
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES
Federal income taxes 8,188,129 8,112,490
Investment tax credits 1,010,775 1,084,188
Accrued transition costs 1,035,895 1,035,895
Health care and other 2,529,797 2,443,842
------------ ------------
TOTAL DEFERRED CREDITS AND OTHER 12,764,596 12,676,415
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES 82,200,638 79,430,302
============ ============
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
<TABLE>
QUARTER ENDED
SEPTEMBER 30, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,887,740 $ 1,920,833
Reconciliation of net income to net cash provided by
operating activities
Depreciation, depletion, and amortization 2,838,115 2,784,545
Deferred income taxes 962,920 (764,353)
Other, net (77,027) 81,333
Change in assets and liabilities:
Accounts receivable 3,810,933 4,365,978
Short-term investments (635,705) 739,813
Gas in underground storage and LIFO reserve (1,861,999) 113,103
Materials and supplies (185,520) (23,041)
Deferred gas costs (2,980,253) (685,695)
Accounts payable (755,920) (970,069)
Prepaid taxes 1,512,412 1,350,258
Accrued Taxes (3,287,435) --
Other, net (96,635) (283,815)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,131,626 8,628,890
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,229,036) (4,358,912)
Salvage on retirement of facilities 45,276 34,421
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,183,760) (4,324,491)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt (660,009) (1,559,800)
Net borrowings under short-term bank loans 5,800,000 (2,350,000)
Issuance (purchase) of treasury stock (74,494) --
Dividends paid (1,234,096) (1,199,067)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,831,401 (5,108,867)
----------- -----------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 1,779,267 (804,468)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 448,250 1,271,186
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,227,517 $ 466,718
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1996
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form
10-Q. Accordingly, certain information and footnotes required by
generally accepted accounting principles for complete financial
statements are not included herein. The interim statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's latest Annual Report on Form 10-K.
Interim statements are subject to possible adjustments in connection with
the annual audit of the Company's accounts for the full year 1996: in the
Company's opinion, all adjustments necessary for a fair presentation of
these interim statements have been included and are of a normal and
recurring nature.
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, 1996, gas in underground storage which
is accounted for under LIFO increased 66,473 Mcf from December 31, 1995,
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. The reserve for LIFO inventory
of $563,594 is the difference between the cost to replace this temporary
reduction and the LIFO cost assigned to these volumes.
3. Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Nine Months Ended September 30,
1996 1995
---- ----
Income taxes $1,650,000 $1,750,000
Interest $ 488,042 $ 858,037
-7-
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1996
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 revenue of $8,187,000 in the third quarter of 1996
represents an increase of 20 percent over the third quarter of 1995.
Consolidated revenue of $41,580,000 for the first nine months of 1996
increased by 21 percent from the comparative period in 1995. The major change
in revenue can be attributed to increased marketing activities by NGO
Development.
Net loss for the third quarter of 1996 amounted to $436,000, as compared
to a loss of $469,000 from the third quarter of 1995. Consolidated net income
for the first nine months of 1996 increased $967,000, representing a 50
percent increase over 1995.
Net loss per common share in the third quarter of 1996 was $.06 as
compared to $.07 in the third quarter of 1995. Net income per common share for
the first nine months of 1996 was $.42, as compared to $.28 for 1995. This
change is primarily attributed to increased marketing activities by NGO
Development.
Gas Sales and Transportation
Operating revenues associated with this segment of the business decreased
by $162,000 or 6 percent in the third quarter of 1996 as compared to the third
quarter of 1995. This is primarily due to a decrease in the volume of gas
transported. Operating revenues of $19,364,000 for the first nine months of
1996 represent a nominal increase over the comparative period for 1995.
Net loss of the gas sales and transportation segment during the third
quarter of 1996 amounted to $562,000 as compared to a net loss in the third
quarter of 1995 of $512,000. The increased loss is primarily the result of
decreased transportation throughput and lower margins earned on the
transportation class of customers. Net income for the first nine months of
1996 increased $331,000 representing a 21 percent increase over 1995. This
increase is primarily attributed to the strong first quarter of 1996.
-8-
<PAGE>
Volumes of gas sold to various customer classes for the third quarter
increased 13 percent over the third quarter of 1995. Transportation throughput
decreased 6 percent when compared to the third quarter of 1995 primarily due
to increased competition.
Three Months Ended September 30,
Gas Throughput (MCF) 1996 1995
- --------------------------------------------------------------------------------
Gas Sales:
Industrial 8,275 7,739
Residential 116,754 101,258
Commercial 52,125 47,139
------------------------
Total Gas Sales 177,154 156,136
Transportation 1,491,803 1,593,744
------------------------
Total Gas Throughput 1,668,957 1,749,880
========================
The increase in purchased gas expense is the result of the corresponding
increase in gas sales revenue related to the industrial, residential and
commercial class of customers. There were no unusual changes in operation and
maintenance expenditures during the third quarter as compared to the third
quarter of 1995.
Oil and Gas Production
Operating revenues from the oil and gas production segment increased
$1,500,000 in the third quarter of 1996 as compared to the third quarter of
1995. Operating Revenues of $22,215,000 for the first nine months of 1996
increased by 49 percent from the comparative period in 1995. The increase in
revenue is due primarily to the increased gas marketing activity by NGO
Development. Operating expenses for this business segment have remained
relatively flat with purchased gas expense increasing to correspond with the
increase in gas marketing revenue. Other operating expenses have decreased due
to cost cutting measures.
Net income of the oil and gas production segment during the third quarter
of 1996 amounted to $103,000 as compared to net income in the third quarter of
1995 of $12,000. Net income for the first nine months of 1996 increased
$582,873, representing a 220 percent increase. This increase is primarily due
to favorable market conditions, the increase in gas marketing activity and
operating expenses remaining relatively flat.
General
Interest expense decreased $28,000 as compared to third quarter 1995, due
to decreased borrowing by National Gas and NGO Development. Other income
increased $98,000 in the third quarter of 1996 as compared to the third
quarter of 1995, primarily due to the beginning of operations of the
processing plant.
Federal Income Taxes
The change in federal income tax expense for the third quarter and for
the first nine months of 1996 as compared to 1995 reflects the change in
taxable income for the consolidated companies. Taxable income has increased
due to the marketing activities by NGO Development.
-9-
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The primary sources and uses of cash during the nine month period ending
September 30, 1996 are summarized in the following condensed cash flow
statement:
Sources and (Uses) of Cash
1996 1995
---- ----
Provided by Operating Activities $ 2,131,626 $ 8,628,890
Capital Expenditures, net of salvage (4,183,760) (4,324,491)
Net Borrowings 5,139,991 (3,909,800)
Common Dividends (1,234,096) (1,199,067)
Purchase of Treasury Stock (74,494) 0
----------- -----------
Net Increase (Decrease) in Cash &
Cash Equivalents $ 1,779,267 $ (804,468)
=========== ===========
Cash provided by operating activities consist 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.
Capital Expenditures
In the first nine months of 1996 the gas sales and transportation segment
accounted for 78 percent of the total capital expenditures. The funds were
expended primarily for expansion and upgrading of existing pipeline systems
and storage wells. The oil and gas sales segment accounted for 22 percent
which was primarily used for the development and/or completion of various
interest in oil and gas wells.
Capital expenditures vary significantly by quarter. The Company estimates
that normal capital expenditures in 1996 to support existing operations will
be approximately $4,700,000. The construction and drilling programs are
continually evaluated and actual expenditures may be more or less.
Financing and Liquidity
The Company continually assesses various alternatives for expanding its
business, including the acquisition of other business entities.
As of September 30, 1996, the Company and its subsidiaries had short-term
lines of credit with various banks aggregating in excess of $6,000,000, 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 6.43 percent to 8.25
percent. During the first nine months, the Company utilized these credit lines
and as of September 30, 1996, $5,400,000 remains 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 1996.
-10-
<PAGE>
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.
In March 1994, National Gas issued $6 million of Senior Unsecured Notes
in a private placement to a qualified investor. The proceeds were utilized by
National Gas to fund various capital projects in 1994 and 1995, including the
$3.5 million pipeline project to provide gas service to a new customer. The
notes bear a fixed interest rate of 6.63 percent, have a maturity of 15 years
and an average life of 9 years. The notes carry a 100 percent guaranty by the
Company.
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 $1,234,096 and $1,199,067 during the
nine months ended September 30, 1996 and 1995, respectively. Presently, there
are no restrictions on the payment of dividends, as long as the Company is not
in default of the terms in its long-term loans. The Company is continuing its
history of issuing annual stock dividends or stock splits. On August 22, 1996,
the Company's Board of Directors declared a 3 percent stock dividend to be
issued on December 23, 1996, to all shareholders of record on December 2,
1996. 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. There are currently no restrictions on the present
ability to pay such dividends.
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.
-11-
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1996
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.
None.
Item 6. Exhibits and Reports on Form 8-K.
None.
-12-
<PAGE>
FORM 10-Q
QUARTER ENDED
SEPTEMBER 30, 1996
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 13, 1996 John B. Denison
------------------------------------
John B. Denison
Vice President and Secretary
Date: November 13, 1996 Todd P. Ware
------------------------------------
Todd P. Ware
Vice President and Chief Financial
Officer
-13-
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 42,002,249
<OTHER-PROPERTY-AND-INVEST> 19,000,569
<TOTAL-CURRENT-ASSETS> 19,821,703
<TOTAL-DEFERRED-CHARGES> 1,376,117
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 82,200,638
<COMMON> 7,018,512
<CAPITAL-SURPLUS-PAID-IN> 31,353,832
<RETAINED-EARNINGS> 5,502,050
<TOTAL-COMMON-STOCKHOLDERS-EQ> 43,874,394
0
0
<LONG-TERM-DEBT-NET> 9,964,056
<SHORT-TERM-NOTES> 5,400,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,082,638
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 19,879,550
<TOT-CAPITALIZATION-AND-LIAB> 82,200,638
<GROSS-OPERATING-REVENUE> 8,186,901
<INCOME-TAX-EXPENSE> (300,890)
<OTHER-OPERATING-EXPENSES> 8,859,032
<TOTAL-OPERATING-EXPENSES> 8,558,142
<OPERATING-INCOME-LOSS> (371,241)
<OTHER-INCOME-NET> 166,454
<INCOME-BEFORE-INTEREST-EXPEN> (204,787)
<TOTAL-INTEREST-EXPENSE> 231,091
<NET-INCOME> (435,878)
0
<EARNINGS-AVAILABLE-FOR-COMM> (435,878)
<COMMON-STOCK-DIVIDENDS> 411,143
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 2,131,626
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
