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 March 31, 1997
Commission file number 1-8223
________________________________
NATIONAL GAS & OIL COMPANY
______________________________________________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 31-1004640
________________________ ___________________
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1500 Granville Road, Newark, Ohio 43055
________________________________________ __________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (614) 344-2102
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 Stock 7,043,650 shares
Page 1 of 13
<PAGE>
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the three months ended
March 31,
----------------------------
1997 1996
------------ -----------
OPERATING REVENUES:
Gas sales $12,326,409 $10,871,904
Transportation 1,316,449 1,640,525
Oil and gas sales 9,959,937 10,464,382
----------- -----------
TOTAL OPERATING REVENUES 23,602,795 22,976,811
----------- -----------
OPERATING EXPENSES:
Purchases gas - gas sales 7,742,750 5,496,412
Purchased gas - oil and gas sales 8,838,048 8,899,536
Operation and maintenance 2,228,701 2,202,409
Depreciation, depletion and amortization 916,479 911,969
Taxes other than income 1,174,366 1,101,985
----------- -----------
TOTAL OPERATING EXPENSES 20,900,344 18,612,311
----------- -----------
OPERATING INCOME 2,702,451 4,364,500
----------- -----------
Other income 126,345 90,983
Interest expense 323,884 234,818
Federal income taxes 799,447 1,376,240
----------- -----------
NET INCOME $ 1,705,465 $
2,844,425
=========== ===========
Net income per share $ 0.24 $ 0.40
=========== ===========
Average number of shares outstanding 7,048,317 7,064,047
=========== ===========
Cash dividends per share $ 0.06 $ 0.06
=========== ===========
The per share amounts and the average number of shares outstanding have been
restated to reflect the purchase of Treasury shares during the first three
months of 1997 and the three percent stock dividend issued in December 1996.
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, December 31,
1997 1996
------------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Gas utility properties $66,443,783 $65,635,251
Less-accumulated depreciation 23,180,035 22,668,342
----------- -----------
43,263,748 42,966,909
Oil and gas properties, successful efforts 21,443,727 21,073,582
Less-accumulated depreciation, depletion
and amortization 8,604,285 8,247,143
----------- -----------
12,839,442 12,826,439
Other, net 5,341,283 5,387,784
----------- -----------
Total property, plant and equipment 61,444,473 61,181,132
CURRENT ASSETS:
Cash and cash equivalents 300,529 918,338
Short-term investments 1,837,020 1,347,413
Accounts receivable - net 15,843,791 16,113,827
Tax refund receivable 61,727 1,461,727
Gas in underground storage 1,540,332 3,533,919
Materials and supplies, at average cost 1,161,009 1,137,342
Prepaid taxes 2,217,830 2,919,668
Unrecovered gas cost 1,148,585 1,991,736
Other 454,823 554,231
----------- -----------
Total current assets 24,565,646 29,978,201
----------- -----------
OTHER ASSETS:
Recoverable transition costs 743,982 705,428
Other 516,713 534,775
----------- -----------
Total other assets 1,260,695 1,240,203
----------- -----------
TOTAL ASSETS $87,270,814 $92,399,536
=========== ===========
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
<TABLE>
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
CAPITALIZATION:
Shareholder's equity --
Common stock, $1 par value, authorized $ 7,223,403 $ 7,223,403
14,000,000 shares, issued 7,223,403 and
7,018,512 shares, respectively
Paid in capital 33,138,432 33,138,432
Retained earnings 5,409,281 4,126,765
Treasury stock, 179,753 and
160,423 shares respectively (1,748,188) (1,662,178)
------------ ------------
Total shareholders' equity 44,022,928 42,826,422
Long-term debt 9,128,057 10,231,385
------------ ------------
Total capitalization 53,150,985 53,057,807
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt 2,183,800 1,344,863
Short-term bank loans 7,300,000 6,925,000
Accounts payable 5,600,202 11,447,366
Accrued income and other taxes 4,881,241 5,178,706
LIFO inventory reserve 306,158 --
Other 1,371,962 1,647,292
------------ ------------
Total current liabilities 21,643,363 26,543,227
------------ ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Federal income taxes 8,277,883 8,262,483
Investment tax credits 961,833 986,304
Accrued transition costs 941,750 914,828
Health care and other 2,295,000 2,634,887
------------ ------------
Total deferred credits and other liabilities 12,476,466 12,798,502
------------ ------------
TOTAL CAPITALIZATION AND LIABILITIES $ 87,270,814 $ 92,399,536
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
-4-
<PAGE>
<TABLE>
NATIONAL GAS & OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three months ended
March 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOW FORM OPERATING ACTIVITIES:
Net income $ 1,705,465 $ 2,844,424
Reconciliation of net income to net cash provided
by operating activities:
Depreciation, depletion and amortization 947,719 935,922
Deferred income taxes (270,987) 111,332
Other, net (148,583) 49,291
Changes in assets and liabilities:
Short-term investments (489,608) (1,247,372)
Accounts receivable 394,148 (4,617,563)
Tax refund receivable 1,400,000 --
Gas in underground storage 1,993,587 2,528,691
Materials and supplies (23,667) (7,986)
Deferred gas cost 843,151 (781,900)
Accounts payable (5,847,165) 2,708,568
Prepaid and accrued taxes 738,103 620,334
Other, net (175,181) 92,303
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,066,982 3,236,044
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,211,438) (1,474,491)
Net (salvage) proceeds from retirements (7,122) 9,288
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,218,560) (1,465,203)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of shares for treasury (86,011) (23,309)
Proceeds from long-term debt -- --
Payments of long-term debt (682,272) (219,894)
Net borrowings under short-term bank loans 725,000 (1,800,000)
Dividends paid (422,949) (411,527)
----------- -----------
Net cash flow provided by (used in)
financing activities (466,232) (2,454,730)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (617,810) (683,889)
Cash and cash equivalents at beginning of year 918,339 448,250
----------- -----------
Cash and cash equivalents at end of year $ 300,529 ($ 235,639)
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
-5-
<PAGE>
NATIONAL GAS & OIL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated balance sheet, related statement of cash flows
and the comparative income statement 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 March 31, 1997 and 1996 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 March 31, 1997, gas in underground storage decreased 250,164 Mcf from
December 31, 1996, due to the seasonal nature of the Company's business. That
nature is injecting natural gas into underground storage in the summer and
withdrawing the gas in the winter during high demand periods. The reserve for
LIFO inventory of $306,150 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:
Three months ended March 31,
1997 1996
-------- --------
Income taxes $0 $100,000
Interest $488,865 $328,675
-6-
<PAGE>
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 $23,603,000 in the first quarter of 1997
increased by three percent from first quarter 1996 consolidated revenue. The
change in revenue can be attributed to increased gas sales by National Gas due
to higher gas prices during the first quarter of 1997.
Net income in the first quarter of 1997 amounted to $1,705,000, a
decrease of $1,139,000 or 40 percent from the first quarter of 1996. The
decrease is attributed to lower throughput to the residential and commercial gas
sales customers and decreased margins related to gas marketing activities.
Net income per common share in the first quarter of 1997 was $.24
as compared to $.40 in the first quarter of 1996.
Gas Sales and Transportation
Operating revenues associated with this segment of the business
increased by $1,130,000 or nine percent in the first quarter of 1997 as compared
to the first quarter of 1996 due to an increase in the price of gas sold as a
result of a higher gas cost and was offset by a decrease in the volume of gas
sold in the gas sales segment as a result of the warmer weather.
Net income of the gas sales and transportation segment during the
first quarter decreased $765,000 as compared to net income in the first quarter
of 1996.
The gas sales and transportation segment is regulated by the
Public Utilities Commission of Ohio (PUCO). Every two years, the segment is
audited to ensure compliance with the applicable PUCO tariffs and rules. The
staff of the PUCO has issued an initial report suggesting that a National Gas
refund of approximately two million dollars is owed its customers. National Gas
believes no refunds are due. National Gas and the PUCO staff are presently
working together to resolve the issues raised by the report. If these issues are
-7-
<PAGE>
not resolved, a hearing to determine the facts will be held later this summer
with a decision to be made by the PUCO, subject to further appeal to the Ohio
Supreme Court. At this time, management cannot determine the ultimate outcome of
these proceedings; therefore, no accrual for potential refunds has been
recorded.
Volumes of gas sold and transported to various customer classes
for the first three months decreased nine percent over the first three months of
1996.
Three months ended March 31,
Gas Throughput (Mcf) 1997 1996
-------------------- -------- --------
Gas sales:
Industrial 33,290 31,675
Residential 1,028,373 1,157,023
Commercial 384,006 500,196
--------- ---------
Subtotal 1,445,669 1,688,894
Transportation 2,198,253 2,332,010
--------- ---------
Total 3,643,922 4,020,904
========= =========
Operation and maintenance expenditures have increased five
percent during the first quarter as compared to the first quarter of 1996
primarily due to increased maintenance costs.
Oil and Gas Sales
Operating revenues from the oil and gas sales segment decreased
$488,000 in the first quarter of 1997 as compared to the first quarter of 1996.
The decrease is due to decreased gas marketing sales by NGO Development as a
result of decreased market activity. Operating expenses for this business
segment have decreased by one percent primarily due to lower purchased gas
expense and interest charges.
Net income for the period decreased $285,000 primarily due to
lower margins from gas marketing activity.
General
The first quarter 1997 increase in interest expense as compared
to the first quarter 1996 is the result of increased short-term borrowing by
National Gas and NGO Development.
-8-
<PAGE>
Federal Income Taxes
The change in federal income tax expense for the quarter reflects
the changes in taxable income for the consolidated companies.
CAPITAL RESOURCES AND LIQUIDITY
Capital Resources
The primary sources and uses of cash during the three month
period ending March 31, are summarized in the following condensed cash flow
statement:
<TABLE>
Sources & Uses of Cash
1997 1996
-------- --------
<S> <C> <C>
Provided by operating activities $ 1,066,982 $ 3,236,044
Capital expenditures, net of salvage (1,218,560) (1,465,203)
Net proceeds from (payments on) long-term debt 0 --
Net borrowings under short term bank loans 42,728 (2,019,894)
Purchase of shares for treasury (86,011) (23,309)
Common dividends (422,949) (411,527)
----------- -----------
Net increase (decrease) in cash and cash equivalents $ (617,810) $ (683,889)
=========== ===========
</TABLE>
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.
Capital Expenditures
In the first quarter of 1997 the gas sales and transportation
segment accounted for 67 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 33 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 1997 to support existing
operations will be approximately $4,300,000. The construction and drilling
programs are continually evaluated and actual expenditures may be more or less.
-9-
<PAGE>
Financing and Liquidity
The Company continually assesses various alternatives for
expanding its business, including the acquisition of other business entities.
As of March 31, 1997, the Company and its subsidiaries had
short-term lines of credit with various banks aggregating in excess of
$10,000,000, 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 6.375% to
8.250%. During the first quarter, the Company utilized these credit lines and as
of March 31, 1997, $7,300,00 of short-term loans were outstanding. These funds
were used primarily by National Gas to satisfy seasonal working capital
requirements. The Company anticipates that it will utilize its credit lines for
additional funds during the third and fourth quarters of 1997.
Additionally, the Company and all of its subsidiaries, except
National Gas, have a $3 million revolving line of credit which expires in
February 1998. This committed credit line is unsecured and may be utilized by
any of the subsidiaries, except National Gas. NGO Development had $950,000
outstanding at December 31, 1996. As of March 31, 1997, NGO had loans of
$1,300,000 outstanding.
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%, have a maturity of 15 years and an
average life of 9 years. The notes carry a 100% 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 $422,949 and $411,527 during
the three months ended March 31, 1997 and 1996, 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. 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.
-10-
<PAGE>
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.
-11-
<PAGE>
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.
Exhibit 27 -- Financial Data Schedule.
-12-
<PAGE>
FORM 10-Q
QUARTER ENDED
MARCH 31, 1997
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)
/s/Patrick J. McGonagle
Date: May 14, 1997 __________________________________________
Patrick J. McGonagle
President and Chief Executive Officer
/s/Todd P. Ware
Date: May 14, 1997 __________________________________________
Todd P. Ware
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 43,263,748
<OTHER-PROPERTY-AND-INVEST> 18,180,725
<TOTAL-CURRENT-ASSETS> 24,565,646
<TOTAL-DEFERRED-CHARGES> 1,260,695
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 87,270,814
<COMMON> 7,223,403
<CAPITAL-SURPLUS-PAID-IN> 31,390,244
<RETAINED-EARNINGS> 5,409,281
<TOTAL-COMMON-STOCKHOLDERS-EQ> 44,022,928
0
0
<LONG-TERM-DEBT-NET> 9,128,057
<SHORT-TERM-NOTES> 7,300,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,183,800
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 24,636,029
<TOT-CAPITALIZATION-AND-LIAB> 87,270,814
<GROSS-OPERATING-REVENUE> 23,602,795
<INCOME-TAX-EXPENSE> 799,447
<OTHER-OPERATING-EXPENSES> 20,900,344
<TOTAL-OPERATING-EXPENSES> 21,699,791
<OPERATING-INCOME-LOSS> 1,903,004
<OTHER-INCOME-NET> 126,345
<INCOME-BEFORE-INTEREST-EXPEN> 2,029,349
<TOTAL-INTEREST-EXPENSE> 323,884
<NET-INCOME> 1,705,465
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,705,465
<COMMON-STOCK-DIVIDENDS> 422,949
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 1,066,982
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
