- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1996
-----------------
Commission File Number 1-3880
-----------------------------
NATIONAL FUEL GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-1086010
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Lafayette Square
Buffalo, New York 14203
------------------- -----
(Address of principal executive offices) (Zip Code)
(716) 857-6980
--------------
(Registrant's telephone number, including 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 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 issuer's classes of
common stock, as of the latest practicable date:
Common stock, $1 par value, outstanding at January 31, 1997:
38,073,815 shares.
- -------------------------------------------------------------------------------
<PAGE>
Company or Group of Companies for which Report is Filed:
NATIONAL FUEL GAS COMPANY (Company or Registrant)
SUBSIDIARIES: National Fuel Gas Distribution Corporation (Distribution
Corporation)
National Fuel Gas Supply Corporation (Supply Corporation)
Seneca Resources Corporation (Seneca)
Highland Land & Minerals, Inc. (Highland)
Leidy Hub, Inc. (Leidy Hub)
Data-Track Account Services, Inc. (Data-Track)
National Fuel Resources, Inc. (NFR)
Horizon Energy Development, Inc. (Horizon)
Utility Constructors, Inc. (UCI)
INDEX
Part I. Financial Information Page
----------------------------- ----
Item 1. Financial Statements
a. Consolidated Statements of Income and Earnings
Reinvested in the Business - Three Months Ended
December 31, 1996 and 1995 3
b. Consolidated Balance Sheets - December 31, 1996 and
September 30, 1996 4 - 5
c. Consolidated Statement of Cash Flows - Three
Months Ended December 31, 1996 and 1995 6
d. Notes to Consolidated Financial Statements 7 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 23
Part II. Other Information
--------------------------
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 23 - 24
Signature 25
* The Company has nothing to report under this item.
This Form 10-Q contains "forward-looking statements" as defined by the Private
Securities Litigation Reform Act of 1995. Forward-looking statements should be
read with the cautionary statements included in this Form 10-Q at Item 2
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (MD&A), under the heading "Safe Harbor for Forward-Looking
Statements." Forward-looking statements are all statements other than statements
of historical fact, including, without limitation, those statements that are
designated with a "1" following the statement, as well as those statements that
are identified by the use of the words "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," "projects," and similar expressions.
<PAGE>
Part I. - Financial Information
- -------------------------------
Item 1. Financial Statements
- -----------------------------
National Fuel Gas Company
-------------------------
Consolidated Statements of Income and Earnings
----------------------------------------------
Reinvested in the Business
--------------------------
(Unaudited)
-----------
Three Months Ended
December 31,
------------------------
1996 1995
---- ----
(Thousands of Dollars)
INCOME
Operating Revenues $363,492 $316,328
-------- --------
Operating Expenses
Purchased Gas 164,091 132,958
Operation 68,663 66,666
Maintenance 5,231 6,024
Property, Franchise and Other Taxes 24,556 23,902
Depreciation, Depletion and Amortization 26,589 21,593
Income Taxes - Net 22,209 18,841
-------- --------
311,339 269,984
-------- --------
Operating Income 52,153 46,344
Other Income 737 943
-------- --------
Income Before Interest Charges 52,890 47,287
-------- --------
Interest Charges
Interest on Long-Term Debt 10,178 10,287
Other Interest 4,122 4,608
-------- --------
14,300 14,895
-------- --------
Net Income Available for Common Stock 38,590 32,392
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1 422,874 380,123
-------- --------
461,464 412,515
Dividends on Common Stock
(1996 - $.42; 1995 - $.405) 15,910 15,117
-------- --------
Balance at December 31 $445,554 $397,398
======== ========
Earnings Per Common Share $1.02 $ .87
===== =====
Weighted Average Common Shares Outstanding 37,952,194 37,440,778
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
December 31,
1996 September 30,
(Unaudited) 1996
------------ -------------
(Thousands of Dollars)
ASSETS
Property, Plant and Equipment $2,500,545 $2,471,063
Less - Accumulated Depreciation,
Depletion and Amortization 783,957 761,457
---------- ----------
1,716,588 1,709,606
---------- ----------
Current Assets
Cash and Temporary Cash Investments 33,956 19,320
Receivables - Net 183,450 96,740
Unbilled Utility Revenue 70,853 20,778
Gas Stored Underground 18,005 34,727
Materials and Supplies - at average cost 20,423 21,544
Unrecovered Purchased Gas Costs 10,848 -
Prepayments 18,476 27,872
---------- ----------
356,011 220,981
---------- ----------
Other Assets
Recoverable Future Taxes 88,036 88,832
Unamortized Debt Expense 24,634 25,193
Other Regulatory Assets 57,644 57,086
Deferred Charges 13,254 7,377
Other 41,132 40,697
---------- ----------
224,700 219,185
---------- ----------
$2,297,299 $2,149,772
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
December 31,
1996 September 30,
(Unaudited) 1996
------------ -------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity
Common Stock, $1 Par Value
Authorized - 100,000,000 Shares;
Issued and Outstanding - 38,023,304
Shares and 37,851,655 Shares,
Respectively $ 38,023 $ 37,852
Paid in Capital 400,807 395,272
Earnings Reinvested in the Business 445,554 422,874
---------- ----------
Total Common Stock Equity 884,384 855,998
Long-Term Debt, Net of Current Portion 524,000 574,000
---------- ----------
Total Capitalization 1,408,384 1,429,998
---------- ----------
Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 252,300 199,700
Current Portion of Long-Term Debt 50,000 -
Accounts Payable 84,268 64,610
Amounts Payable to Customers 2,423 4,618
Other Accruals and Current Liabilities 114,376 82,520
---------- ----------
503,367 351,448
---------- ----------
Deferred Credits
Accumulated Deferred Income Taxes 285,888 281,207
Taxes Refundable to Customers 21,005 21,005
Unamortized Investment Tax Credit 12,543 12,711
Other Deferred Credits 66,112 53,403
---------- ----------
385,548 368,326
---------- ----------
Commitments and Contingencies - -
---------- ----------
$2,297,299 $2,149,772
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
National Fuel Gas Company
-------------------------
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
-----------
Three Months Ended
December 31,
------------------
1996 1995
---- ----
(Thousands of Dollars)
OPERATING ACTIVITIES
Net Income Available for Common Stock $ 38,590 $ 32,392
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation, Depletion and Amortization 26,589 21,593
Deferred Income Taxes 5,476 3,377
Other 3,475 (581)
Change in:
Receivables and Unbilled Utility Revenue (136,785) (116,992)
Gas Stored Underground and Materials and
Supplies 17,843 12,348
Unrecovered Purchased Gas Costs (10,848) (187)
Prepayments 9,396 9,105
Accounts Payable 19,658 13,045
Amounts Payable to Customers (2,195) (9,513)
Other Accruals and Current Liabilities 30,991 29,532
Other Assets and Liabilities - Net 6,419 (2,906)
-------- --------
Net Cash Provided by (Used in)
Operating Activities 8,609 (8,787)
-------- --------
INVESTING ACTIVITIES
Capital Expenditures (34,695) (34,038)
Other 239 (539)
-------- --------
Net Cash Used in Investing Activities (34,456) (34,577)
-------- --------
FINANCING ACTIVITIES
Change in Notes Payable to Banks and Commercial
Paper 52,600 121,100
Reduction of Long-Term Debt - (58,500)
Proceeds from Issuance of Common Stock 3,724 474
Dividends Paid on Common Stock (15,841) (15,102)
-------- --------
Net Cash Provided by
Financing Activities 40,483 47,972
-------- --------
Net Increase in Cash and Temporary
Cash Investments 14,636 4,608
Cash and Temporary Cash Investments
at October 1 19,320 12,757
-------- --------
Cash and Temporary Cash Investments at December 31 $ 33,956 $ 17,365
======== ========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
National Fuel Gas Company
-------------------------
Notes to Consolidated Financial Statements
------------------------------------------
NOTE 1 - Summary of Significant Accounting Policies
Quarterly Earnings. The Company, in its opinion, has included all adjustments
that are necessary for a fair statement of the results of operations for the
periods presented. The fiscal 1997 consolidated financial statements will be
examined by the Company's independent accountants after the end of the fiscal
year. The consolidated financial statements and notes thereto, included herein,
should be read in conjunction with the financial statements and notes for the
years ended September 30, 1996, 1995 and 1994, that are included in the
Company's combined Annual Report to Shareholders / Form 10-K for 1996.
The earnings for the quarter ended December 31, 1996, should not be
taken as a prediction for the fiscal year ending September 30, 1997, as most of
the Company's business is seasonal in nature and is influenced by weather
conditions. Because of the seasonal nature of the Company's heating business,
earnings during the winter months normally represent a substantial part of
earnings for the entire fiscal year. The impact of abnormal weather on earnings
during the heating season is partially reduced by the operation of a weather
normalization clause included in Distribution Corporation's New York tariff. The
weather normalization clause is effective for October through May billings.
Distribution Corporation's Pennsylvania jurisdiction does not have a weather
normalization clause. In addition, Supply Corporation's straight fixed-variable
rate design, which allows for recovery of substantially all fixed costs in the
demand or reservation charge, reduces the earnings impact of weather.
Consolidated Statement of Cash Flows. For purposes of the Consolidated Statement
of Cash Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of generally three months or less to be cash
equivalents. Cash interest payments during the three months ended December 31,
1996 and 1995, amounted to $8.6 million and $11.4 million, respectively. Income
taxes paid during the three months ended December 31, 1996 and 1995 amounted to
$6.0 million and $12.0 million, respectively.
Reclassification. Certain prior year amounts have been reclassified to conform
with current year presentation.
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
NOTE 2 - Income Taxes
The components of federal and state income taxes included in the
Consolidated Statement of Income are as follows (in thousands):
Three Months Ended
December 31,
------------------
1996 1995
---- ----
Operating Expenses:
Current Income Taxes -
Federal $15,140 $14,086
State 1,593 1,378
Deferred Income Taxes 5,476 3,377
------- -------
22,209 18,841
Other Income:
Deferred Investment Tax Credit (167) (167)
------- -------
Total Income Taxes $22,042 $18,674
======= =======
Total income taxes as reported differ from the amounts that were
computed by applying the federal income tax rate to income before income taxes.
The following is a reconciliation of this difference (in thousands):
Three Months Ended
December 31,
------------------
1996 1995
---- ----
Net income available for common stock $38,590 $32,392
Total income taxes 22,042 18,674
------- -------
Income before income taxes $60,632 $51,066
======= =======
Income tax expense, computed at federal
statutory rate of 35% 21,222 17,873
Increase (reduction) in taxes resulting from:
Current state income taxes, net of federal
income tax benefit 1,035 896
Depreciation 415 523
Production tax credits (107) (146)
Miscellaneous (523) (472)
------- -------
Total Income Taxes $22,042 $18,674
======= =======
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
Significant components of the Company's deferred tax liabilities and assets
were as follows (in thousands):
At December 31, 1996 At September 30, 1996
-------------------- ---------------------
Deferred Tax Liabilities:
Excess of tax over book
depreciation $181,958 $182,271
Exploration and intangible
well drilling costs 101,526 98,293
Other 69,015 67,030
-------- --------
Total Deferred Tax
Liabilities 352,499 347,594
-------- --------
Deferred Tax Assets:
Overheads capitalized for
tax purposes (16,995) (16,289)
Other (49,616) (50,098)
-------- --------
Total Deferred Tax Assets (66,611) (66,387)
-------- --------
Total Net Deferred Income
Taxes $285,888 $281,207
======== ========
NOTE 3 - Capitalization
Common Stock. During the three months ended December 31, 1996, the Company
issued 31,500 shares of common stock under the Company's Section 401(k) plans,
39,907 shares to participants in the Company's Dividend Reinvestment Plan, and
12,714 shares to participants in the Company's Customer Stock Purchase Plan.
Additionally, 87,528 shares of common stock were issued under the Company's
stock option and stock award plans, including 6,300 shares of restricted stock,
which were awarded under the 1993 Award and Option Plan in December 1996.
NOTE 4 - Derivative Financial Instruments
The Company, in its Exploration and Production operations, has
entered into certain price swap agreements to manage a portion of the market
risk associated with fluctuations in the price of natural gas and crude oil,
thereby providing more stability to the operating results of that business
segment. These agreements are not held for trading purposes. The price swap
agreements call for the Company to receive monthly payments from (or make
payment to) other parties based upon the difference between a fixed and a
variable price as specified by the agreement. The variable price is either a
crude oil price quoted on the New York Mercantile Exchange or a quoted natural
gas price in "Inside FERC." These variable prices are highly correlated with the
market prices received by the Company for its natural gas and crude oil
production.
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
The following summarizes the Company's activity under swap agreements
for the quarters ended December 31, 1996 and 1995, respectively:
Quarter Ended Quarter Ended
December 31, 1996 December 31, 1995
----------------- -----------------
Natural Gas Swap Agreements:
Notional Amount - Equivalent Billion
Cubic Feet (Bcf) 6.5 5.4
Range of Fixed Prices per Thousand
Cubic Feet (Mcf) $1.71 - $2.10 $1.75 - $2.17
Weighted Average Fixed Price per Mcf $1.96 $2.00
Range of Variable Prices per Mcf $1.86 - $4.11 $1.67 - $2.34
Weighted Average Variable Price per Mcf $2.95 $1.94
Gain (Loss) $(6,462,000) $358,000
Crude Oil Swap Agreements:
Notional Amount - Equivalent
Barrels (bbl) 310,000 214,000
Range of Fixed Prices per bbl $17.40 - $18.33 $17.40 - $19.00
Weighted Average Fixed Price per bbl $17.91 $18.13
Range of Variable Prices per bbl $23.55 - $25.12 $17.40 - $19.04
Weighted Average Variable Price per bbl $24.52 $18.11
Gain (Loss) $(2,093,000) $4,000
The Company had the following swap agreements outstanding at December
31, 1996:
Natural Gas Swap Agreements:
Notional Amount Range of Fixed Weighted Average
Fiscal Year (Equivalent Bcf) Prices Per Mcf Fixed Price Per Mcf
- ----------- ---------------- -------------- -------------------
1997 18.4 $1.77 - $2.06 $1.90
1998 14.0 $1.77 - $2.22 $2.02
1999 1.1 $2.00 $2.00
----
33.5
====
Crude Oil Swap Agreements:
Notional Amount Range of Fixed Weighted Average
Fiscal Year (Equivalent bbl) Prices Per bbl Fixed Price Per bbl
- ----------- ---------------- -------------- -------------------
1997 1,064,500 $17.40 - $18.71 $18.03
1998 600,000 $17.50 - $19.30 $18.19
1999 51,000 $19.30 $19.30
---------
1,715,500
=========
In January 1997, the Company entered into additional natural gas swap
agreements covering the period of January 1999 - December 1999. The notional
amount for the period is 5.1 equivalent Bcf at a fixed price of $2.29 per Mcf.
Gains or losses from these price swap agreements are reflected in
operating revenues on the Consolidated Statement of Income at the time of
settlement with the other parties. At December 31, 1996, the Company had an
unrecognized loss of approximately $19.8 million related to price swap
agreements which are offset by corresponding unrecognized revenues from the
Company's anticipated natural gas and crude oil production over the terms of the
price swap agreements.
<PAGE>
Item 1. Financial Statements (Concl.)
- --------------------------------------
The Company has SEC authority to enter into interest rate swaps and
other derivative instruments associated with long-term borrowings up to a
notional amount of $350.0 million at any one time outstanding. All such interest
rate swaps and other derivative instruments must be directly related to then
outstanding long or short-term debt. The Company also has SEC authority to enter
into interest rate and currency exchange agreements associated with short-term
borrowings covering a total principal amount of $300.0 million. No such
agreements were entered into during the quarter ended December 31, 1996 and none
are currently outstanding.
Credit Risk. Credit risk relates to the risk of loss that the Company would
incur as a result of nonperformance by counterparties pursuant to the terms of
their contractual obligations under the price swap agreements they have issued.
The Company is exposed to such credit risk when fluctuations in natural gas and
crude oil market prices result in the Company recognizing gains on the price
swap agreements that it has entered into. When credit risk arises, such risk to
the Company is mitigated by the fact that the counterparties, or the parent
companies of such counterparties, are investment grade financial institutions.
In those instances where the Company is not dealing directly with the parent
company, the Company has obtained guarantees from the parent company of the
counterparty that has issued the price swap agreement. Accordingly, the Company
does not anticipate any material impact to its financial position, results of
operations or cash flow as a result of nonperformance by counterparties.
NOTE 5 - Commitments and Contingencies
Environmental Matters. The Company is subject to various federal, state and
local laws and regulations relating to the protection of the environment. The
Company has established procedures for on-going evaluation of its operations to
identify potential environmental exposures and assure compliance with regulatory
policies and procedures.
It is the Company's policy to accrue estimated environmental clean-up
costs when such amounts can reasonably be estimated and it is probable that the
Company will be required to incur such costs. Distribution Corporation has
estimated that clean-up costs related to several former manufactured gas plant
sites and several other waste disposal sites are in the range of $8.6 million to
$10.0 million. At December 31, 1996, Distribution Corporation has recorded the
minimum liability of $8.6 million. The ultimate cost to Distribution Corporation
with respect to the remediation of these sites will depend on such factors as
the remediation plan selected, the extent of the site contamination, the number
of additional potentially responsible parties at each site and the portion, if
any, attributed to Distribution Corporation. The Company is currently not aware
of any material additional exposure to environmental liabilities. However,
changes in environmental regulations or other factors could adversely impact the
Company.
In New York and Pennsylvania, Distribution Corporation is recovering
site investigation and remediation costs in rates. Accordingly, the Consolidated
Balance Sheet at December 31, 1996 includes related regulatory assets in the
amount of approximately $8.0 million. For further discussion, see disclosure in
Note H - Commitments and Contingencies under the heading "Environmental Matters"
in Item 8 of the Company's 1996 Form 10-K.
Memorandum of Understanding - Green Canyon Project. In November 1996, Supply
Corporation entered into a Memorandum of Understanding (the MOU) with Green
Canyon Gathering Company (Green Canyon), a subsidiary of El Paso Energy,
regarding a project to develop, construct, finance, own and operate natural gas
gathering and processing facilities offshore and onshore Louisiana (the
Project). The total cost of the Project is estimated at approximately
<PAGE>
Item 1. Financial Statements (Concl.)
- --------------------------------------
$200 million. The MOU provides for the parties to (i) share equally past and
future development costs for the Project through June 1, 1997, and thereafter as
agreed by the parties, (ii) negotiate toward definitive agreements to be signed
about June 1, 1997, to form one or more 50%/50% partnerships, and (iii)
negotiate toward definitive agreements to finance, develop, build, own and
operate the Project. The original date established for signing of the definitive
agreements discussed above was January 1, 1997. The date has since been changed
to June 1, 1997 because the parties concluded that the prospective customers
(offshore gas producers) will not be ready to put gas into the system in 1997,
and that those producers' development plans are more likely to result in gas
being available in 1998 or 1999. This additional time should enable the parties
to finalize definitive agreements after the Federal Energy Regulatory Commission
rules on the jurisdictional status (or not) of the project, while maintaining a
schedule which would put the project into service in 1998 if justified by demand
at that time. If the definitive agreements are not executed, or if the Project
is not constructed, Supply Corporation's share of the past and future
development costs through June 1, 1997 is estimated to not exceed $2 million,
for which it is unlikely Supply Corporation would be reimbursed. As of December
31, 1996, Supply Corporation has paid $0.3 million of such development costs.
Supply Corporation is currently using short-term borrowings to finance the
development costs of the Project.
Other. The Company is involved in litigation arising in the normal course of
business. The Company is involved in regulatory matters arising in the normal
course of business that involve rate base, cost of service and purchased gas
cost issues. While the resolution of such litigation or regulatory matters could
have a material effect on earnings and cash flows, none of this litigation, and
none of these regulatory matters, is expected to have a material effect on the
financial condition of the Company at this time.
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
Earnings.
The Company's earnings were $38.6 million, or $1.02 per common share,
during the quarter ended December 31, 1996. This compares with earnings of $32.4
million, or $0.87 per common share, during the quarter ended December 31, 1995.
The $0.15 per common share increase in earnings resulted from an
increase in earnings of the Company's Exploration and Production, Utility and
Pipeline and Storage segments, which outweighed the higher losses experienced by
its Other Nonregulated segment.
The earnings of the Exploration and Production segment increased
because of higher natural gas and oil production coupled with an increase in the
weighted average price received for this production. The earnings of the Utility
segment increased because of lower operation and maintenance (O&M) expense
combined with a rate increase effective in October 1996 in the New York
jurisdiction. The higher earnings of the Pipeline and Storage segment include
the impact of the February 1996 Federal Energy Regulatory Commission (FERC)
approval of a settlement of Supply Corporation's rate case that became effective
on April 1, 1996. This segment also realized an increase in revenues associated
with unbundled pipeline sales and the addition of new customers. The Other
Nonregulated segment experienced a greater loss during the quarter ended
December 31, 1996 than the quarter ended December 31, 1995 primarily because of
expenses associated with the dissolution of the Horizon partnership known as
Sceptre Power Company.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
OPERATING REVENUES
(in thousands)
Three Months Ended
December 31,
-----------------------------
1996 1995 % Change
---- ---- --------
Utility
Retail Revenues:
Residential $213,626 $192,240 11.1
Commercial 50,655 45,796 10.6
Industrial 6,229 5,292 17.7
-------- --------
270,510 243,328 11.2
Off-System Sales 14,858 9,672 53.6
Transportation 11,242 10,850 3.6
Other 1,009 808 24.9
-------- --------
297,619 264,658 12.5
-------- --------
Pipeline and Storage
Storage Service 16,387 14,893 10.0
Transportation 24,182 23,046 4.9
Other 3,925 2,297 70.9
-------- --------
44,494 40,236 10.6
-------- --------
Exploration and Production 30,082 22,973 30.9
Other Nonregulated 16,474 12,336 33.5
-------- --------
46,556 35,309 31.9
-------- --------
Less-Intersegment Revenues 25,177 23,875 5.5
-------- --------
$363,492 $316,328 14.9
======== ========
OPERATING INCOME (LOSS) BEFORE INCOME TAXES
(in thousands)
Three Months Ended
December 31,
----------------------------
1996 1995 % Change
---- ---- --------
Utility $45,725 $40,632 12.5
Pipeline and Storage 19,463 16,206 20.1
Exploration and Production 12,576 9,504 32.3
Other Nonregulated (2,691) (454) (492.7)
Corporate (711) (703) (1.1)
------- -------
$74,362 $65,185 14.1
======= =======
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
SYSTEM NATURAL GAS VOLUMES
(millions of cubic feet-MMcf)
Three Months Ended
December 31,
--------------------------
1996 1995 % Change
---- ---- --------
Utility Gas Sales
Residential 25,804 27,471 (6.1)
Commercial 6,836 7,356 (7.1)
Industrial 1,298 1,271 2.1
Off-System 3,838 4,137 (7.2)
------- -------
37,776 40,235 (6.1)
------- -------
Non-Utility Gas Sales
Production(in equivalent MMcf) 12,368 10,719 15.4
------- -------
Total Gas Sales 50,144 50,954 (1.6)
------- -------
Transportation
Utility 13,887 13,558 2.4
Pipeline and Storage 86,000 93,441 (8.0)
Nonregulated - 305 NM
------- -------
99,887 107,304 (6.9)
------- -------
Marketing Volumes 4,516 4,780 (5.5)
------- -------
Less-Intersegment Volumes:
Transportation 43,456 50,200 (13.4)
Production 1,116 1,292 (13.6)
Marketing - 75 NM
Gas Sales - 371 NM
------- -------
44,572 51,938 (14.2)
------- -------
Total System Natural Gas
Volumes 109,975 111,100 (1.0)
======= =======
NM = Not meaningful.
Utility.
Operating revenues for the Utility segment increased $33.0 million
for the quarter ended December 31, 1996, compared with the same period a year
ago. This increase reflects the recovery of increased gas costs mainly because
of an increase in the average cost of purchased gas ($4.69 per Mcf and $3.42 per
Mcf during the quarters ended December 31, 1996 and 1995, respectively). This
increase more than compensated for a 2.5 billion cubic feet (Bcf) decrease in
gas sales. The decrease in gas sales, exclusive of industrial sales which were
up slightly, resulted primarily from weather that was warmer than last year in
both the New York and Pennsylvania jurisdictions. The increase in operating
revenues also reflects the first quarter impact of a general base rate increase
of $7.2 million in the New York rate jurisdiction, which became effective on
October 1, 1996.
Operating income before income taxes for the Utility segment
increased $5.1 million for the quarter ended December 31, 1996, compared with
the same period a year ago. This resulted primarily from the rate increase
discussed above combined with lower O&M expenses resulting, in part, from the
labor savings generated by the special early retirement offer to certain
salaried, non-union hourly and union employees in the fourth quarter of fiscal
1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
Degree Days.
Three Months Ended December 31:
- -------------------------------
Percent (Warmer) Colder
in 1996 Than
Normal 1996 1995 Normal 1995
- -------------------------------------------------------------------------
Buffalo 2,264 2,256 2,430 (0.4) (7.2)
Erie 2,045 2,128 2,241 4.1 (5.0)
- -------------------------------------------------------------------------
Pipeline and Storage.
Operating income before income taxes for the Pipeline and Storage
segment increased $3.3 million for the quarter ended December 31, 1996, as
compared with the same period a year ago. This increase reflects the impact of
the February 1996 FERC approval of a settlement of Supply Corporation's rate
case that became effective on April 1, 1996. This segment also realized an
increase in revenues associated with unbundled pipeline sales and the addition
of new customers.
While transportation volumes for the current quarter decreased 7.4
Bcf from the quarter ended December 31, 1995, largely due to warmer weather, the
decrease in volumes did not have a significant impact on earnings as a result of
Supply Corporation's straight fixed-variable (SFV) rate design.
Exploration and Production.
Operating income before income taxes from the Company's Exploration
and Production segment increased $3.1 million compared with the same period a
year ago, mainly because of higher weighted average prices for natural gas and
oil combined with increased natural gas and oil production. Natural gas
production increased 0.4 Bcf, or 3.9%, compared with the same period a year ago,
and the weighted average price received for natural gas increased $0.89 per Mcf.
Significant contributors to this increase were West Cameron 552, Vermilion 252
and West Delta 17 in the Gulf Coast region. Oil and condensate production
increased 217,000 barrels (bbls), or 73.6%, and the weighted average price
received for oil increased $7.03 per bbl. A significant contributor to this
increase in production was Vermilion 252 in the Gulf Coast region. The
fluctuations in prices denoted above do not reflect gains and losses from
hedging activities. During the quarter ended December 31, 1996, this segment
recognized a pre-tax loss on hedging of approximately $8.6 million compared with
a pre-tax gain of $0.4 million during the quarter ended December 31, 1995. See
further discussion of the Company's hedging activities under "Financing Cash
Flow" and in Note 4 - Derivative Financial Instruments.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
PRODUCTION VOLUMES
Exploration and Production.
Three Months Ended
December 31,
-------------------------
1996 1995 % Change
---- ---- --------
Gas Production - (MMcf)
Gulf Coast 7,801 7,296 6.9
West Coast 214 257 (16.7)
Appalachia 1,281 1,393 (8.0)
----- -----
9,296 8,946 3.9
===== =====
Oil Production - (Thousands of Barrels)
Gulf Coast 384 169 127.2
West Coast 126 123 2.4
Appalachia 2 3 (33.3)
--- -----
512 295 73.6
=== =====
WEIGHTED AVERAGE PRICES*
Exploration and Production.
Three Months Ended
December 31,
-------------------------
1996 1995 % Change
---- ---- --------
Weighted Avg. Gas Price/Mcf
Gulf Coast $2.93 $1.96 49.5
West Coast $1.62 $1.19 36.1
Appalachia $2.46 $2.05 20.0
Weighted Average Price $2.84 $1.95 45.6
Weighted Avg. Oil Price/bbl
Gulf Coast $24.28 $17.53 38.5
West Coast $20.84 $14.86 40.2
Appalachia $22.89 $16.28 40.6
Weighted Average Price $23.43 $16.40 42.9
* Weighted average prices do not reflect gains or losses from hedging
activities.
Other Nonregulated.
The Other Nonregulated operations experienced operating losses before
income taxes of $2.7 million and $0.5 million for the quarters ended December
31, 1996 and December 31, 1995, respectively. The higher loss in the current
quarter was mainly due to expenses associated with the dissolution of the
Horizon partnership known as Sceptre Power Company, the partnership principally
engaged in the development of foreign electric power projects. The dissolution
of the partnership does not affect Horizon's commitment to evaluate
opportunities in the international arena, currently with significant interest in
Eastern Europe.1
Income Taxes.
Income taxes increased $3.4 million for the current quarter mainly
because of an increase in pretax income.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
Interest Charges.
Total interest charges decreased $0.6 million for the quarter ended
December 31, 1996, compared with the same period a year ago: other interest
decreased $0.5 million and interest on long-term debt decreased $0.1 million.
The decrease in other interest primarily reflects lower interest expense on
Amounts Payable to Customers. The decrease in interest on long-term debt can be
attributed primarily to a lower average interest rate offset partly by a higher
average amount of long-term debt.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of cash during the three month period
consisted of cash provided by operating activities and short-term bank loans and
commercial paper. These sources were supplemented by issuances of common stock
under the Company's Customer Stock Purchase Plan, Dividend Reinvestment Plan,
section 401(k) Plans, and stock option and stock award plans. Beginning March 1,
1997, the Company's Customer Stock Purchase Plan, Dividend Reinvestment Plan and
section 401(k) Plans will begin purchasing shares of Company common stock on the
open market.
Operating Cash Flow.
Internally generated cash from operating activities consists of net
income available for common stock, adjusted for noncash expenses, noncash income
and changes in operating assets and liabilities. Noncash items include
depreciation, depletion and amortization, deferred income taxes and allowance
for funds used during construction.
Cash provided by operating activities in the Utility and the Pipeline
and Storage segments may vary substantially from period to period because of the
impact of rate cases. In the Utility segment, supplier refunds, over- or
under-recovered purchased gas costs and weather also significantly impact cash
flow. The Company considers supplier refunds and over-recovered purchased gas
costs as a substitute for short-term borrowings. The impact of weather on cash
flow is tempered in the Utility segment's New York rate jurisdiction by its
weather normalization clause and in the Pipeline and Storage segment by Supply
Corporation's SFV rate design.
Because of the seasonal nature of the Company's heating business,
revenues are relatively high during the quarter ended December 31 and
receivables and unbilled utility revenue historically increase from September to
December with the beginning of winter weather.
The storage gas inventory normally declines during the first and
second quarters of the fiscal year and is replenished during the third and
fourth quarters. Under the last-in, first-out (LIFO) method of accounting, the
current cost of replacing gas withdrawn from storage is recorded in the
Consolidated Statement of Income and a reserve for gas replacement is recorded
in the Consolidated Balance Sheet and is included under the caption "Other
Accruals and Current Liabilities." Such reserve is reduced as the inventory is
replenished.
Net cash provided by operating activities totaled $8.6 million for
the quarter ended December 31, 1996, compared with $8.8 million used in
operating activities in the quarter ended December 31, 1995. This shift in cash
flow can be attributed primarily to an increase in net income, adjusted for
non-cash items, combined with higher payable balances in the Utility segment
offset partly by an increase in receivable balances and unrecovered purchased
gas costs in the Utility segment.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
Investing Cash Flow.
Capital Expenditures
- --------------------
The Company's capital expenditures totaled $34.7 million during the
three month period. Total expenditures for the quarter represent 16% of the
total capital expenditure budget for fiscal 1997 of $214.0 million. The
following table presents first quarter capital expenditures by business segment:
(in thousands)
--------------
Utility $16,165
Pipeline and Storage 2,229
Exploration and Production 16,030
Other Nonregulated 271
-------
$34,695
=======
The bulk of the Utility capital expenditures were made for
replacement of mains and main extensions, as well as for the replacement of
service lines.
The bulk of the Pipeline and Storage capital expenditures were made
for additions, improvements, and replacements to this segment's transmission and
storage systems. The proposed 1997 Niagara Expansion Project, which would
provide approximately 47.3 MMcf per day of firm winter capacity and 21.0 MMcf
per day of firm non-winter capacity from the Niagara Falls, New York import
point to interconnections at Leidy and Wharton, Pennsylvania, is currently
awaiting FERC approval.1 It is anticipated that such approval will be received
in the spring of 1997.1 As to the proposed 1998/1999 Niagara Expansion Project,
Supply Corporation has received signed offers from customers for 514 MMcf per
day of transportation capacity from the Canadian border at Niagara Falls, New
York, to Leidy, Pennsylvania. At this expansion level, the total cost is
estimated to be approximately $248 million over a two-year period.1 However, no
amount has been included in the budget for this proposed project as the timing
of the "go ahead" will depend on several factors, including FERC approval.1
Supply Corporation anticipates filing for FERC approval of this project in March
1997.1 If the project proceeds, the first phase would involve 300 MMcf per day
of capacity and could be in service in November 1998.1 The second phase, with
associated capacity of 214 MMcf per day, could be in service by the end of
calendar year 1999.1
The Exploration and Production segment spent approximately $13.3
million on its offshore program in the Gulf of Mexico, including offshore
drilling expenditures and lease acquisitions. Offshore exploratory and
development drilling was concentrated on West Cameron 182 and High Island 194.
Offshore lease acquisitions included Mustang Island 796 and 818 in Texas state
waters and Eugene Island 9 in Louisiana state waters.
Approximately $2.7 million was spent on the Exploration and
Production segment's onshore program, including horizontal onshore drilling in
central Texas and Seneca's development drilling program in California.
Other Nonregulated capital expenditures consisted of equipment
purchases for the Company's sawmill operation.
The Company's capital expenditure program is under continuous review.
The amounts are subject to modification for opportunities in the natural gas
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
industry such as the acquisition of attractive oil and gas properties or storage
facilities and the expansion of transmission line capacities. While the majority
of capital expenditures in the Utility segment are necessitated by the continued
need for replacement and upgrading of mains and service lines, the magnitude of
future capital expenditures in the Company's other business segments depends, to
a large degree, upon market conditions.1
Other
- -----
In November 1996, Supply Corporation entered into a Memorandum of
Understanding (the MOU) with Green Canyon Gathering Company (Green Canyon), a
subsidiary of Tenneco Energy, regarding a project to develop, construct,
finance, own and operate natural gas gathering and processing facilities
offshore and onshore Louisiana (the Project). The total cost of the Project is
estimated at approximately $200 million. The MOU provides for the parties to (i)
share past and future development costs for the Project through June 1, 1997,
and thereafter as agreed by the parties, (ii) negotiate toward definitive
agreements to be signed about June 1, 1997, to form one or more 50%/50%
partnerships, and (iii) negotiate toward definitive agreements to finance,
develop, build, own and operate the Project. The original date established for
signing of the definitive agreements discussed above was January 1, 1997. The
date has since been changed because the parties concluded that the prospective
customers (offshore gas producers) will not be ready to put gas into the system
in 1997, and that those producers' development plans are more likely to result
in gas being available in 1998 or 1999.1 This additional time should enable the
parties to finalize definitive agreements after the Federal Energy Regulatory
Commission rules on the jurisdictional status (or not) of the project, while
maintaining a schedule which would put the project into service in 1998 if
justified by demand at that time.1 If the definitive agreements are not
executed, or if the Project is not constructed, Supply Corporation's share of
the past and future development costs through June 1, 1997 is estimated to not
exceed $2 million, for which it is unlikely Supply Corporation would be
reimbursed.1 As of December 31, 1996, Supply Corporation has paid $0.3 million
of such development costs. Supply Corporation is currently using short-term
borrowings to finance the development costs of the Project.
Financing Cash Flow.
Consolidated short-term debt increased by $52.6 million during the
first quarter. The Company continues to consider short-term bank loans and
commercial paper important sources of cash for temporarily financing capital
expenditures, gas-in-storage inventory, unrecovered purchased gas costs,
exploration and development expenditures and other working capital needs. In
addition, the Company considers supplier refunds and over-recovered purchased
gas costs as a substitute for short-term debt. Fluctuations in these items can
have a significant impact on the amount and timing of short-term debt.
The Company's present liquidity position is believed to be adequate
to satisfy known demands.1 Under the Company's covenants contained in its
indenture covering long-term debt, at December 31, 1996, the Company would have
been permitted to issue up to a maximum of $648.0 million in additional
long-term unsecured indebtedness, in light of then current long-term interest
rates. In addition, at December 31, 1996, the Company had regulatory
authorizations and unused short-term credit lines that would have permitted it
to borrow an additional $347.7 million of short-term debt.
The Company currently has authorization from the Securities and
Exchange Commission (SEC) under the Public Utility Holding Company Act of 1935,
as amended, to issue and sell up to $150.0 million of debentures and/or
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
medium-term notes. The amounts and timing of the issuance and sale of these
debentures and/or medium-term notes will depend on market conditions and the
requirements of the Company.1 The Company expects that it will issue new
debentures and/or medium-term notes late in calendar 1997 to retire $50.0
million of 6.42% medium-term notes maturing in November 1997.1
The Company, through Seneca, has entered into certain price swap
agreements to manage a portion of the market risk associated with fluctuations
in the market price of natural gas and crude oil. These price swap agreements
are not held for trading purposes. During the quarter ended December 31, 1996,
Seneca utilized natural gas and crude oil swap agreements with notional amounts
of 6.5 equivalent Bcf and 310,000 equivalent bbl, respectively. These hedging
activities resulted in the recognition of a pre-tax loss of approximately $8.6
million. This loss was offset by higher prices received for actual natural gas
and crude oil production.
At December 31, 1996, Seneca had natural gas swap agreements
outstanding with a notional amount of approximately 33.5 equivalent Bcf at
prices ranging from $1.77 per Mcf to $2.22 per Mcf. The weighted average fixed
price of these swap agreements is approximately $1.96 per Mcf. In January 1997,
the Company entered into additional natural gas swap agreements covering the
period of January 1999 - December 1999. The notional amount is 5.1 equivalent
Bcf for the period at a fixed price of $2.29 per Mcf.
Seneca also had crude oil swap agreements outstanding at December 31,
1996 with a notional amount of 1,715,500 equivalent bbl at prices ranging from
$17.40 per bbl to $19.30 per bbl. The weighted average fixed price of these swap
agreements is approximately $18.13 per bbl.
In addition, the Company has SEC authority to enter into certain
interest rate swap agreements. For further discussion, refer to Note 4 -
Derivative Financial Instruments.
The Company's credit risk is the risk of loss that the Company would
incur as a result of nonperformance by counterparties pursuant to the terms of
their contractual obligations related to derivative financial instruments. The
Company does not anticipate any material impact to its financial position,
results of operations or cash flow as a result of nonperformance by
counterparties.1 For further discussion, refer to Note 4 - Derivative Financial
Instruments.
The Company is involved in litigation arising in the normal course of
business. The Company is involved in regulatory matters arising in the normal
course of business that involve rate base, cost of service and purchased gas
cost issues, among other things. While the resolution of such litigation or
regulatory matters could have a material effect on earnings and cash flows in
the year of resolution, none of this litigation and none of these regulatory
matters are expected to change materially the Company's present liquidity
position, nor have a material adverse effect on the financial condition of the
Company at this time.1
RATE MATTERS
Utility Operation
New York Jurisdiction
- ---------------------
In November 1995, Distribution Corporation filed in its New York
jurisdiction a request for an annual base rate increase of $28.9 million with
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
----------------------------
a requested return on equity of 11.5%. A two-year settlement with the parties in
this rate proceeding has been approved by the Public Service Commission of the
State of New York (PSC). The settlement calls for annual base rate increases of
$7.2 million in each of fiscal years beginning October 1, 1996 and 1997 with no
specified rate of return on equity. Generally, earnings above a 12% return on
equity (excluding certain items and determined on a cumulative basis over the
three years ending September 30, 1998) will be shared equally between
shareholders and ratepayers. However, the settlement includes a number of
incentives which would impact return on equity. Distribution Corporation may
earn a maximum of 25 basis points or incur a penalty of 50 basis points on
common equity based on its customer service. The incentives relate to customer
satisfaction, customer complaints, appointments, new service installations,
telephone response, adjusted bills and estimated meter readings. In addition,
there is a gas cost incentive mechanism designed to compare Distribution's spot
gas purchases to monthly gas cost targets. Certain costs above the targets and
savings below the targets will be shared equally between Distribution
Corporation and its customers.
Pennsylvania Jurisdiction
- -------------------------
Distribution Corporation currently does not have a rate case on file
with the Pennsylvania Public Utility Commission (PaPUC). Management will
continue to monitor its financial position in the Pennsylvania jurisdiction to
determine the necessity of filing a rate case in the future.
General rate increases in both the New York and Pennsylvania
jurisdictions do not reflect the recovery of purchased gas costs. Such costs are
recovered through operation of the purchased gas adjustment clauses of the
regulatory authorities having jurisdiction.
Pipeline and Storage. On October 31, 1994, Supply Corporation filed for an
annual rate increase of $21.0 million, with a requested return on equity of
12.6%. In February 1996, the FERC approved a settlement authorizing an annual
rate increase of approximately $6.0 million with a return on equity of 11.3%.
The new rates were put into effect on April 1, 1996, retroactive to June 1,
1995. With this settlement, Supply Corporation agreed not to seek recovery for
increased cost of service until April 1, 1998. Supply Corporation also agreed
not to seek recovery of revenues related to certain terminated service from
other storage customers until April 1, 2000, as long as the terminations were
not greater than approximately 30% of the terminable service. Management has
been successful in marketing and obtaining executed contracts for such
terminated storage service and does not anticipate a problem in obtaining
executed contracts for additional terminated storage service as it arises.1
A Stipulation and Agreement approved by the FERC in February 1996
permits Supply Corporation to fully recover its net investment in production and
gathering plant, as well as its production and gathering cost of service.
OTHER MATTERS
Environmental Matters. The Company is subject to various federal, state and
local laws and regulations relating to the protection of the environment. The
Company has established procedures for on-going evaluation of its operations to
identify potential environmental exposures and assure compliance with regulatory
policies and procedures.
It is the Company's policy to accrue estimated environmental clean-u
costs when such amounts can reasonably be estimated and it is probable that the
Company will be required to incur such costs. Distribution Corporation
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
has estimated that clean-up costs related to several former manufactured gas
plant sites and several other waste disposal sites are in the range of $8.6
million to $10.0 million.1 At December 31, 1996, Distribution Corporation has
recorded the minimum liability of $8.6 million. The ultimate cost to
Distribution Corporation with respect to the remediation of these sites will
depend on such factors as the remediation plan selected, the extent of the site
contamination, the number of additional potentially responsible parties at each
site and the portion, if any, attributed to Distribution Corporation.1 The
Company is currently not aware of any material additional exposure to
environmental liabilities. However, changes in environmental regulations or
other factors could adversely impact the Company.
In New York and Pennsylvania, Distribution Corporation is recovering
site investigation and remediation costs in rates. For further discussion, see
disclosure in Note H - Commitments and Contingencies under the heading
"Environmental Matters" in Item 8 of the Company's 1996 Form 10-K.
Safe Harbor for Forward-Looking Statements. The Company is including
the following cautionary statement in this Form 10-Q to make applicable and take
advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf of,
the Company. Forward-looking statements include statements concerning plans,
objectives, goals, strategies, future events or performance, and underlying
assumptions and other statements which are other than statements of historical
facts. From time to time, the Company may publish or otherwise make available
forward-looking statements of this nature. All such subsequent forward-looking
statements, whether written or oral and whether made by or on behalf of the
Company, are also expressly qualified by these cautionary statements. Certain
statements contained herein, including those which are designated with a "1",
are forward-looking statements and accordingly involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The forward-looking statements
contained herein are based on various assumptions, many of which are based, in
turn, upon further assumptions. The Company's expectations, beliefs and
projections are expressed in good faith and are believed by the Company to have
a reasonable basis, including without limitation, management's examination of
historical operating trends, data contained in the Company's records and other
data available from third parties, but there can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished. In addition to other factors and matters discussed elsewhere
herein, the following are important factors that, in the view of the Company,
could cause actual results to differ materially from those discussed in the
forward-looking statement:
1. Changes in economic conditions, demographic patterns and weather
conditions
2. Changes in the availability and/or price of natural gas and oil
3. Inability to obtain new customers or retain existing ones
4. Significant changes in competitive factors affecting the Company
5. Governmental/regulatory actions and initiatives, including those
affecting financings, allowed rates of return, industry and rate
structure, franchise renewal, and environmental/safety requirements
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Concl.)
------------------------------
6. Unanticipated impacts of restructuring initiatives in the natural gas and
electric industries
7. Significant changes from expectations in actual capital expenditures and
operating expenses and unanticipated project delays
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments
9. Ability to successfully identify and finance oil and gas property
acquisitions and ability to operate existing and any subsequently
acquired properties
10. Ability to successfully identify, drill for and produce economically
viable natural gas and oil reserves
11. Changes in the availability and/or price of derivative financial
instruments
12. Inability of the various counterparties to meet their obligations with
respect to the Company's financial instruments
13. Regarding foreign operations - changes in foreign trade and monetary
policies, laws and regulations related to foreign operations, political
and governmental changes, inflation and exchange rates, taxes and
operating conditions
14. Significant changes in tax rates or policies or in rates of inflation or
interest
15. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur
16. Changes in accounting principles and/or the application of such
principles to the Company
The Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
Part II. Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
(10) Amendment to National Fuel Gas Company 1993
Award and Option Plan
(12) Statements regarding Computation of Ratios:
Ratio of Earnings to Fixed Charges for the
Twelve Months Ended December 31, 1996.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K (Concl.)
- --------------------------------------------------
(27) Financial Data Schedule
(99) National Fuel Gas Company Consolidated
Statement of Income for the Twelve Months
Ended December 31, 1996 and 1995.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
---------
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 FUEL GAS COMPANY
-------------------------
(Registrant)
/s/ Joseph P. Pawlowski
------------------------
Joseph P. Pawlowski
Treasurer and Principal
Accounting Officer
Date: February 14, 1997
-----------------
AMENDMENT TO
NATIONAL FUEL GAS COMPANY
1993 AWARD AND OPTION PLAN
I, Bernard J. Kennedy, pursuant to authorization granted by the
National Fuel Gas Company Board of Directors on December 13, 1996, do hereby
execute the following amendment to the National Fuel Gas Company 1993 Award and
Option Plan (the "1993 Plan"), effective December 2, 1996.
1. Section 5 is amended so that the second sentence thereof shall
read as follows:
Awards covering no more than 325,000 shares of Common
Stock (subject to adjustment as provided in paragraph 18) may be
granted to any Participant in any fiscal year of the Company.
NATIONAL FUEL GAS COMPANY
Dec. 18, 1996 /s/ Bernard J. Kennedy
- ------------- -----------------------------------------
Dated Bernard J. Kennedy
President, Chief Executive Officer
and Chairman of the Board of
Directors
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EXHIBIT 12
EARNINGS TO FIXED CHARGES
UNAUDITED
Fiscal Year Ended September 30
Twelve Months -----------------------------------------------------------
Ended
December 31, 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
EARNINGS:
Income Before Interest Charges (2) $165,203 $159,599 $128,061 $127,885 $125,742 $118,222
Allowance for Borrowed Funds Used in Construction 209 205 195 209 174 1,088
Federal Income Tax 56,202 55,148 30,522 36,630 21,148 17,680
State Income Tax 7,481 7,266 4,905 6,309 2,979 3,426
Deferred Inc. Taxes - Net (3) 6,010 3,907 8,452 4,853 16,919 14,125
Investment Tax Credit - Net (670) (665) (672) (682) (693) (706)
Rentals (1) 5,745 5,640 5,422 5,730 5,621 5,857
-----------------------------------------------------------------------------
$240,180 $231,100 $176,885 $180,934 $171,890 $159,692
=============================================================================
FIXED CHARGES:
Interest & Amortization of Premium and
Discount of Funded Debt $40,763 $40,872 $40,896 $36,699 $38,507 $39,949
Interest on Commercial Paper and
Short-Term Notes Payable 8,121 7,872 6,745 5,599 7,465 12,093
Other Interest (2) 5,657 6,389 4,721 3,361 4,727 6,958
Rentals (1) 5,745 5,640 5,422 5,730 5,621 5,857
-----------------------------------------------------------------------------
$60,286 $60,773 $57,784 $51,389 $56,320 $64,857
=============================================================================
RATIO OF EARNINGS TO FIXED CHARGES 3.98 3.80 3.06 3.52 3.05 2.46
</TABLE>
Notes:
(1) Rentals shown above represent the portion of all rentals (other than
delay rentals) deemed representative of the interest factor.
(2) Twelve months ended December 1996, Fiscal 1996, 1995, 1994, 1993 and
1992 reflect the reclassification of $1,716, $1,716, $1,716, $1,674,
$1,374 and $1,129, respectivley, representing the loss on reacquired
debt amortized during each period, from Other Interest Charges to
Operation Expense.
(3) Deferred Income Taxes - Net for fiscal 1994 excludes the cumulative
effect of changes in accounting.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 03-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,716,588
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 356,011
<TOTAL-DEFERRED-CHARGES> 13,254
<OTHER-ASSETS> 211,446
<TOTAL-ASSETS> 2,297,299
<COMMON> 38,023
<CAPITAL-SURPLUS-PAID-IN> 400,807
<RETAINED-EARNINGS> 445,554
<TOTAL-COMMON-STOCKHOLDERS-EQ> 884,384
0
0
<LONG-TERM-DEBT-NET> 524,000
<SHORT-TERM-NOTES> 147,300
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 105,000
<LONG-TERM-DEBT-CURRENT-PORT> 50,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 586,615
<TOT-CAPITALIZATION-AND-LIAB> 2,297,299
<GROSS-OPERATING-REVENUE> 363,492
<INCOME-TAX-EXPENSE> 22,209
<OTHER-OPERATING-EXPENSES> 289,130
<TOTAL-OPERATING-EXPENSES> 311,339
<OPERATING-INCOME-LOSS> 52,153
<OTHER-INCOME-NET> 737
<INCOME-BEFORE-INTEREST-EXPEN> 52,890
<TOTAL-INTEREST-EXPENSE> 14,300
<NET-INCOME> 38,590
0
<EARNINGS-AVAILABLE-FOR-COMM> 38,590
<COMMON-STOCK-DIVIDENDS> 15,910
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 8,609
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NATIONAL FUEL
GAS COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND SCHEDULES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 03-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,663,143
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 289,578
<TOTAL-DEFERRED-CHARGES> 9,594
<OTHER-ASSETS> 196,906
<TOTAL-ASSETS> 2,159,221
<COMMON> 37,471
<CAPITAL-SURPLUS-PAID-IN> 383,932
<RETAINED-EARNINGS> 397,398
<TOTAL-COMMON-STOCKHOLDERS-EQ> 818,801
0
0
<LONG-TERM-DEBT-NET> 474,000
<SHORT-TERM-NOTES> 163,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 105,000
<LONG-TERM-DEBT-CURRENT-PORT> 30,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 567,720
<TOT-CAPITALIZATION-AND-LIAB> 2,159,221
<GROSS-OPERATING-REVENUE> 316,328
<INCOME-TAX-EXPENSE> 18,841
<OTHER-OPERATING-EXPENSES> 251,143
<TOTAL-OPERATING-EXPENSES> 269,984
<OPERATING-INCOME-LOSS> 46,344
<OTHER-INCOME-NET> 943
<INCOME-BEFORE-INTEREST-EXPEN> 47,287
<TOTAL-INTEREST-EXPENSE> 14,895
<NET-INCOME> 32,392
0
<EARNINGS-AVAILABLE-FOR-COMM> 32,392
<COMMON-STOCK-DIVIDENDS> 15,117
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> (8,787)
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
Exhibit 99
Form 10-Q
December 31, 1996
NATIONAL FUEL GAS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Twelve Months Ecded
December 31,
--------------------------------
1996 1995
(Thousands of Dollars)
INCOME
Operating Revenues $1,255,181 $1,012,491
---------- ----------
Operating Expenses
Purchased Gas 508,489 380,645
Operation 285,841 266,609
Maintenance 24,569 25,851
Property, Franchise and Other Taxes 100,111 92,640
Depreciation, Depletion and Amortization 103,227 75,046
Income Taxes - Net 69,689 44,245
---------- ----------
1,091,926 885,036
---------- ----------
Operation Income 163,255 127,455
Other Income 3,664 5,477
---------- ----------
Income Before Interest Charges 166,919 132,932
---------- ----------
Interest Charges
Interest on Long-Term Debt 40,763 40,810
Other Interest 15,286 14,407
---------- ----------
56,049 55,217
---------- ----------
Net Income Available for Common Stock $ 110,870 $ 77,715
========== ==========
Earnings Per Common Share
Net Income Available for Common Stock $2.94 $2.08
========== ==========
Weighted Average Common Shares Outstanding 37,741,855 37,425,797
========== ==========
