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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
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Commission File Number 1-3880
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NATIONAL FUEL GAS COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-1086010
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Lafayette Square
Buffalo, New York 14203
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(Address of principal executive offices) (Zip Code)
(716) 857-6980
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(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 April 30, 1997:
38,139,715 shares.
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<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 and
Six Months Ended March 31, 1997 and 1996 3 - 4
b. Consolidated Balance Sheets - March 31, 1997 and
September 30, 1996 5 - 6
c. Consolidated Statement of Cash Flows - Six
Months Ended March 31, 1997 and 1996 7
d. Notes to Consolidated Financial Statements 8 - 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 29
Part II. Other Information
--------------------------
Item 1. Legal Proceedings *
Item 2. Changes in Securities 29
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 29 - 30
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 30
Signature 31
* 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
March 31,
-----------------------
1997 1996
---- ----
(Thousands of Dollars)
INCOME
Operating Revenues $498,704 $492,376
-------- --------
Operating Expenses
Purchased Gas 251,573 246,984
Operation 70,850 75,061
Maintenance 6,495 7,441
Property, Franchise and Other Taxes 35,676 35,556
Depreciation, Depletion and Amortization 29,096 23,960
Income Taxes - Net 34,202 33,743
-------- --------
427,892 422,745
-------- --------
Operating Income 70,812 69,631
Other Income 584 863
-------- --------
Income Before Interest Charges 71,396 70,494
-------- --------
Interest Charges
Interest on Long-Term Debt 10,178 9,587
Other Interest 4,109 5,215
-------- --------
14,287 14,802
-------- --------
Net Income Available for Common Stock 57,109 55,692
EARNINGS REINVESTED IN THE BUSINESS
Balance at January 1 445,554 397,398
-------- --------
502,663 453,090
Dividends on Common Stock
(1997 - $.42; 1996 - $.405) 15,967 15,177
-------- --------
Balance at March 31 $486,696 $437,913
======== ========
Earnings Per Common Share $1.50 $1.48
====== =====
Weighted Average Common Shares Outstanding 38,090,435 37,551,990
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. - Financial Statements (Cont.)
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National Fuel Gas Company
-------------------------
Consolidated Statements of Income and Earnings
----------------------------------------------
Reinvested in the Business
--------------------------
(Unaudited)
-----------
Six Months Ended
March 31,
-----------------------
1997 1996
---- ----
(Thousands of Dollars)
INCOME
Operating Revenues $862,196 $808,704
-------- --------
Operating Expenses
Purchased Gas 415,664 379,942
Operation 139,273 141,468
Maintenance 11,966 13,725
Property, Franchise and Other Taxes 60,233 59,458
Depreciation, Depletion and Amortization 55,685 45,553
Income Taxes - Net 56,411 52,584
-------- --------
739,232 692,730
-------- --------
Operating Income 122,964 115,974
Other Income 1,322 1,806
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Income Before Interest Charges 124,286 117,780
-------- --------
Interest Charges
Interest on Long-Term Debt 20,357 19,874
Other Interest 8,230 9,823
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28,587 29,697
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Net Income Available for Common Stock 95,699 88,083
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1 422,874 380,123
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518,573 468,206
Dividends on Common Stock
(1997 - $.84; 1996 - $.81) 31,877 30,293
-------- --------
Balance at March 31 $486,696 $437,913
======== ========
Earnings Per Common Share $2.52 $2.35
===== =====
Weighted Average Common Shares Outstanding 38,020,555 37,496,080
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
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National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
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March 31,
1997 September 30,
(Unaudited) 1996
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(Thousands of Dollars)
ASSETS
Property, Plant and Equipment $2,554,709 $2,471,063
Less - Accumulated Depreciation, Depletion
and Amortization 808,257 761,457
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1,746,452 1,709,606
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Current Assets
Cash and Temporary Cash Investments 29,024 19,320
Receivables - Net 228,151 96,740
Unbilled Utility Revenue 45,943 20,778
Gas Stored Underground 4,312 34,727
Materials and Supplies - at average cost 20,481 21,544
Unrecovered Purchased Gas Costs 8,443 -
Prepayments 16,765 27,872
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353,119 220,981
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Other Assets
Recoverable Future Taxes 87,240 88,832
Unamortized Debt Expense 24,092 25,193
Other Regulatory Assets 51,764 57,086
Deferred Charges 9,464 7,377
Other 41,590 40,697
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214,150 219,185
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$2,313,721 $2,149,772
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
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National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
March 31,
1997 September 30,
(Unaudited) 1996
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(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity
Common Stock, $1 Par Value
Authorized - 100,000,000 Shares; Issued
and Outstanding - 38,137,921 Shares and
37,851,655 Shares, Respectively $ 38,138 $ 37,852
Paid in Capital 404,889 395,272
Earnings Reinvested in the Business 486,696 422,874
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Total Common Stock Equity 929,723 855,998
Long-Term Debt, Net of Current Portion 531,739 574,000
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Total Capitalization 1,461,462 1,429,998
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Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 173,200 199,700
Current Portion of Long-Term Debt 52,628 -
Accounts Payable 60,426 64,610
Amounts Payable to Customers 7,770 4,618
Other Accruals and Current Liabilities 167,284 82,520
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461,308 351,448
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Deferred Credits
Accumulated Deferred Income Taxes 282,563 281,207
Taxes Refundable to Customers 21,005 21,005
Unamortized Investment Tax Credit 12,375 12,711
Other Deferred Credits 75,008 53,403
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390,951 368,326
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Commitments and Contingencies - -
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$2,313,721 $2,149,772
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. - Financial Statements (Cont.)
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National Fuel Gas Company
-------------------------
Consolidated Statement of Cash Flows
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(Unaudited)
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Six Months Ended
March 31,
----------------------
1997 1996
---- ----
(Thousands of Dollars)
OPERATING ACTIVITIES
Net Income Available for Common Stock $ 95,699 $ 88,083
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation, Depletion and Amortization 55,685 45,553
Deferred Income Taxes 2,948 1,199
Other 5,322 5,274
Change in:
Receivables and Unbilled Utility Revenue (156,576) (191,226)
Gas Stored Underground and Materials and
Supplies 31,478 21,767
Unrecovered Purchased Gas Costs (8,443) -
Prepayments 11,107 4,007
Accounts Payable (4,184) 44,454
Amounts Payable to Customers 3,152 (15,621)
Other Accruals and Current Liabilities 83,047 98,135
Other Assets and Liabilities - Net 26,504 (1,637)
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Net Cash Provided by
Operating Activities 145,739 99,988
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INVESTING ACTIVITIES
Capital Expenditures (84,644) (70,674)
Other 263 (340)
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Net Cash Used in Investing Activities (84,381) (71,014)
-------- --------
FINANCING ACTIVITIES
Change in Notes Payable to Banks and Commercial
Paper (26,500) (37,100)
Net Proceeds from Issuance of Long-Term Debt - 99,650
Reduction of Long-Term Debt (367) (58,500)
Proceeds from Issuance of Common Stock 6,965 3,226
Dividends Paid on Common Stock (31,752) (30,219)
--------- --------
Net Cash Used in
Financing Activities (51,654) (22,943)
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Net Increase in Cash and
Temporary Cash Investments 9,704 6,031
Cash and Temporary Cash Investments
at October 1 19,320 12,757
-------- --------
Cash and Temporary Cash Investments at March 31 $ 29,024 $ 18,788
======== ========
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
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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. 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 fiscal
1997 consolidated financial statements will be examined by the Company's
independent accountants after the end of the fiscal year.
The earnings for the six months ended March 31, 1997 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 tariff for its 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 six months ended March 31, 1997
and 1996, amounted to $26.7 million and $28.8 million, respectively. Net income
taxes paid during the six months ended March 31, 1997 and 1996 amounted to $40.9
million and $32.0 million, respectively.
In January 1997, Seneca entered into a non-cash investing activity
whereby it issued notes to third parties totaling $10.7 million in connection
with the acquisition of timber properties. For further discussion, refer to Note
3 - Capitalization.
Reclassification. Certain prior year amounts have been reclassified to conform
with current year presentation.
<PAGE>
Item 1. Financial Statements (Cont.)
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Note 2 - Income Taxes
The components of federal and state income taxes included in the
Consolidated Statement of Income are as follows (in thousands):
Six Months Ended
March 31,
----------------
1997 1996
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Operating Expenses:
Current Income Taxes -
Federal $48,590 $46,696
State 4,873 4,689
Deferred Income Taxes 2,948 1,199
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56,411 52,584
Other Income:
Deferred Investment Tax Credit (335) (334)
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Total Income Taxes $56,076 $52,250
======= =======
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):
Six Months Ended
March 31,
----------------
1997 1996
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Net income available for common stock $ 95,699 $ 88,083
Total income taxes 56,076 52,250
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Income before income taxes $151,775 $140,333
======== ========
Income tax expense, computed at
statutory rate of 35% $ 53,121 $ 49,117
Increase (reduction) in taxes resulting from:
Current state income taxes, net of federal
income tax benefit 3,165 3,048
Depreciation 851 1,215
Production tax credits (214) (278)
Miscellaneous (847) (852)
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Total Income Taxes $ 56,076 $ 52,250
======== ========
<PAGE>
Item 1. Financial Statements (Cont.)
- -------------------------------------
Significant components of the Company's deferred tax liabilities
(assets) were as follows (in thousands):
At March 31, 1997 At September 30, 1996
----------------- ---------------------
Deferred Tax Liabilities:
Excess of tax over book
depreciation $180,925 $182,271
Exploration and
intangible well
drilling costs 105,180 98,293
Other 69,225 67,030
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Total Deferred Tax
Liabilities 355,330 347,594
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Deferred Tax Assets:
Overheads capitalized
for tax purposes (17,881) (16,289)
Other (54,886) (50,098)
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Total Deferred Tax
Assets (72,767) (66,387)
-------- --------
Total Net Deferred
Income Taxes $282,563 $281,207
======== ========
Note 3 - Capitalization
Common Stock. During the six months ended March 31, 1997, the Company issued
53,300 shares of common stock under the Company's section 401(k) Plans, 72,154
shares to participants in the Company's Dividend Reinvestment Plan, and 23,050
shares to participants in the Company's Customer Stock Purchase Plan.
Additionally, 137,062 shares of common stock were issued under the Company's
stock option and stock award plans and 700 shares were issued under the Retainer
Policy for Non-Employee Directors. Effective March 1, 1997, the Company's
section 401(k) Plans, Dividend Reinvestment Plan and Customer Stock Purchase
Plan began purchasing shares of Company common stock on the open market.
On April 4, 1997, 398,750 stock options were granted at an exercise
price of $41.625 per share.
Long-Term Debt. In January 1997, Seneca issued notes to third parties for $8.6
million and $2.1 million in connection with its acquisition of timber
properties. Both notes have an interest rate of 6.75%. On the $8.6 million note,
Seneca will pay interest and principal on a monthly basis over the period of
January 1997 through June 2001. On the $2.1 million note, Seneca will pay
interest on a monthly basis over the period of February 1997 through January
1999. The principal amount will be repaid in two equal installments in January
1998 and January 1999.
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
<PAGE>
Item 1. Financial Statements (Cont.)
- --------------------------------------
segment. These agreements are not held for trading purposes. The price swap
agreements call for the Company to receive monthly payments from (or make
payments 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.
The following summarizes the Company's activity under price swap
agreements for the quarter and six-month periods ended March 31, 1997 and 1996,
respectively:
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
-------------- --------------
Natural Gas Price Swap Agreements:
Notional Amount - Equivalent Billion
Cubic Feet (Bcf) 5.9 6.5
Range of Fixed Prices per Thousand Cubic
Feet (Mcf) $1.77 - $2.06 $1.71 - $3.05
Weighted Average Fixed Price per Mcf $1.90 $1.92
Range of Variable Prices per Mcf $1.77 - $4.08 $1.96 - $3.43
Weighted Average Variable Price per Mcf $2.87 $2.50
Loss $(5,714,000) $(3,649,000)
Crude Oil Price Swap Agreements:
Notional Amount - Equivalent
Barrels (bbl) 360,000 204,000
Range of Fixed Prices per bbl $17.40 - $18.71 $17.40 - $18.50
Weighted Average Fixed Price per bbl $18.02 $18.08
Range of Variable Prices per bbl $20.97 - $25.18 $18.70 - $21.18
Weighted Average Variable Price per bbl $22.78 $19.55
Loss $(1,713,000) $(220,000)
Six Months Ended Six Months Ended
March 31, 1997 March 31, 1996
---------------- ----------------
Natural Gas Price Swap Agreements:
Notional Amount - Equivalent Bcf 12.4 11.9
Range of Fixed Prices per Mcf $1.71 - $2.10 $1.71 - $3.05
Weighted Average Fixed Price per Mcf $1.93 $1.96
Range of Variable Prices per Mcf $1.77 - $4.11 $1.67 - $3.43
Weighted Average Variable Price per Mcf $2.91 $2.24
Loss $(12,176,000) $(3,291,000)
Crude Oil Price Swap Agreements:
Notional Amount - Equivalent bbl 670,000 418,000
Range of Fixed Prices per bbl $17.40 - $18.71 $17.40 - $19.00
Weighted Average Fixed Price per bbl $17.97 $18.11
Range of Variable Prices per bbl $20.97 - $25.18 $17.40 - $21.18
Weighted Average Variable Price per bbl $23.59 $18.82
Loss $(3,806,000) $(216,000)
<PAGE>
Item 1. Financial Statements (Cont.)
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The Company had the following price swap agreements outstanding at
March 31, 1997.
Natural Gas Price Swap Agreements:
Notional Amount Range of Fixed Weighted Average
Fiscal Year (Equivalent Bcf) Prices Per Mcf Fixed Price Per Mcf
- ----------- ---------------- -------------- -------------------
1997 12.5 $1.77 - $2.06 $1.90
1998 17.4 $1.77 - $2.22 $2.04
1999 6.1 $2.00 - $2.29 $2.20
2000 1.3 $2.29 $2.29
----
37.3
====
Crude Oil Price Swap Agreements:
Notional Amount Range of Fixed Weighted Average
Fiscal Year (Equivalent bbl) Prices Per bbl Fixed Price Per bbl
- ----------- ---------------- -------------- -------------------
1997 702,000 $17.40 - $18.71 $18.04
1998 600,000 $17.50 - $19.30 $18.19
1999 51,000 $19.30 $19.30
---------
1,353,000
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 March 31, 1997, the Company had
unrecognized losses of approximately $6.1 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.
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 or six months ended March 31,
1997 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
<PAGE>
Item 1. Financial Statements (Concl.)
- --------------------------------------
from the parent company of the counterparty that has issued the price swap
agreements. 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 $8.3 million to
$9.7 million. At March 31, 1997, Distribution Corporation has recorded the
minimum liability of $8.3 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 March 31, 1997 includes related regulatory assets in the amount
of approximately $7.9 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 $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 of the Project
(offshore gas producers) will not be ready to use the natural gas gathering and
processing facilities in 1997. Such prospective customers are more likely to use
the Project facilities in 1998 or 1999.
The Federal Energy Regulatory Commission ruled in March 1997 that
most of the Project would be jurisdictional, so the parties are preparing the
<PAGE>
Item 1. Financial Statements (Concl.)
- --------------------------------------
necessary regulatory filings seeking authorization to construct facilities and
place them in 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 March 31, 1997, Supply Corporation has
paid approximately $0.7 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 $57.1 million, or $1.50 per common share,
during the quarter ended March 31, 1997. This compares with earnings of $55.7
million, or $1.48 per common share, during the quarter ended March 31, 1996.
The Company's earnings were $95.7 million, or $2.52 per common share,
during the six months ended March 31, 1997. This compares with earnings of $88.1
million, or $2.35 per common share during the six months ended March 31, 1996.
The increase in earnings for the quarter ended March 31, 1997 is
primarily attributable to the higher earnings of the Company's Utility and Other
Nonregulated segments. The earnings of the Utility segment reflect the positive
impact of lower operation and maintenance (O&M) expense combined with a rate
increase effective in October 1996 in the New York jurisdiction. The earnings of
the Other Nonregulated segment increased primarily because of developments in
Horizon, the Company's foreign and domestic energy projects subsidiary.
Partly offsetting the increases discussed above, the Pipeline and
Storage and Exploration and Production segments experienced decreases in
earnings for the quarter ended March 31, 1997. Decreased earnings in the
Pipeline and Storage segment reflect amounts recorded in the quarter ended March
31, 1996 to reflect a rate increase that became effective April 1, 1996,
retroactive to June 1, 1995. The earnings of the Exploration and Production
segment decreased as higher expenses, especially depletion expense, more than
offset higher oil and gas revenues for the quarter.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Contd.)
------------------------------
The increase in earnings for the six months ended March 31, 1997 is
primarily the result of higher earnings of the Utility and Exploration and
Production segments. The earnings of the Utility segment reflect the positive
impact of lower O&M expense combined with the rate increase discussed above for
the quarter. The higher earnings of the Exploration and Production segment
resulted from higher total natural gas and oil production and higher prices,
offset in part by increased depletion expense. The earnings of the Pipeline and
Storage segment and the net loss of the Other Nonregulated segment did not
change significantly from the six months ended March 31, 1996.
A more detailed discussion of current period results can be found in
the business segment information that follows.
OPERATING REVENUES
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- -----------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
Regulated
Utility
Retail Revenues:
Residential $301,632 $299,236 0.8 $515,258 $491,476 4.8
Commercial 74,959 79,855 (6.1) 125,614 125,651 -
Industrial 8,980 11,317 (20.7) 15,209 16,609 (8.4)
-------- -------- -------- --------
385,571 390,408 (1.2) 656,081 633,736 3.5
Off-System Sales 15,818 9,625 64.3 30,676 19,297 59.0
Transportation 16,946 15,359 10.3 28,188 26,209 7.6
Other (374) 1,026 (136.5) 635 1,833 (65.4)
-------- -------- -------- --------
417,961 416,418 0.4 715,580 681,075 5.1
-------- -------- -------- --------
Pipeline and Storage
Storage Service 16,304 20,130 (19.0) 32,691 35,023 (6.7)
Transportation 24,397 23,606 3.4 48,579 46,651 4.1
Other 2,960 5,894 (49.8) 6,885 8,192 (16.0)
-------- -------- -------- --------
43,661 49,630 (12.0) 88,155 89,866 (1.9)
-------- -------- -------- --------
Exploration and
Production 32,297 30,172 7.0 62,379 53,145 17.4
Other Nonregulated 36,590 27,745 31.9 53,064 40,082 32.4
-------- -------- -------- --------
68,887 57,917 18.9 115,443 93,227 23.8
-------- -------- -------- --------
Less-Intersegment
Revenues 31,805 31,589 0.7 56,982 55,464 2.7
-------- -------- -------- --------
$498,704 $492,376 1.3 $862,196 $808,704 6.6
======== ======== ======== ========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
OPERATING INCOME (LOSS) BEFORE
INCOME TAXES
(in thousands)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------ -------------------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
Utility $ 73,299 $ 68,721 6.7 $119,023 $109,353 8.8
Pipeline and Storage 18,320 23,246 (21.2) 37,783 39,451 (4.2)
Exploration and
Production 11,870 12,825 (7.4) 24,446 22,329 9.5
Other Nonregulated 2,294 (844) NM (398) (1,298) 69.3
Corporate (769) (574) (34.0) (1,479) (1,277) (15.8)
-------- ------- -------- --------
$105,014 $103,374 1.6 $179,375 $168,558 6.4
======== ======== ======== ========
SYSTEM NATURAL GAS VOLUMES
(millions of cubic feet-MMcf)
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- -----------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
Utility Gas Sales
Residential 37,720 41,904 (10.0) 63,524 69,375 (8.4)
Commercial 10,153 12,183 (16.7) 16,989 19,539 (13.1)
Industrial 1,725 2,426 (28.9) 3,023 3,697 (18.2)
Off-System 4,381 2,273 92.7 8,428 6,410 31.5
------- ------- ------- -------
53,979 58,786 (8.2) 91,964 99,021 (7.1)
------- ------- ------- -------
Non-Utility Gas Sales
Production(in
equivalent MMcf) 12,284 12,535 (2.0) 24,652 23,254 6.0
------- ------- ------- -------
Total Gas Sales 66,263 71,321 (7.1) 116,616 122,275 (4.6)
------- ------- ------- -------
Transportation
Utility 19,469 19,229 1.2 33,356 32,787 1.7
Pipeline and Storage 109,093 124,459 (12.3) 195,093 217,900 (10.5)
Nonregulated 60 163 (63.2) 60 468 (87.2)
------- ------- ------- -------
128,622 143,851 (10.6) 228,509 251,155 (9.0)
------- ------- ------- -------
Marketing Volumes 7,304 7,837 (6.8) 11,820 12,617 (6.3)
------- ------- ------- -------
Less-Inter and
Intrasegment Volumes:
Transportation 66,982 72,038 (7.0) 110,665 122,557 (9.7)
Production 1,038 1,183 (12.3) 2,154 2,475 (13.0)
Gas Sales - 443 NM - 814 NM
Marketing - 20 NM - 95 NM
------- ------- ------- -------
68,020 73,684 (7.7) 112,819 125,941 (10.4)
------- ------- ------- -------
Total System Natural Gas
Volumes 134,169 149,325 (10.1) 244,126 260,106 (6.1)
======= ======= ======= =======
NM = Not meaningful.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
Utility.
Despite warmer weather and lower residential, commercial and
industrial sales volumes, operating revenues for the Utility segment increased
$1.5 million and $34.5 million, respectively, for the quarter and six months
ended March 31, 1997, as compared with the same periods a year ago. These
increases reflect the recovery of increased gas costs mainly because of an
increase in the average cost of purchased gas ($4.47 per thousand cubic feet
(Mcf) and $4.06 per Mcf during the quarters ended March 31, 1997 and 1996,
respectively, and $4.57 per Mcf and $3.77 per Mcf during the six months ended
March 31, 1997 and 1996, respectively). Higher off-system sales volumes also
contributed to the revenue increase, as did higher transportation volumes. The
increase in off-system sales reflects increased gas sales utilizing Distribution
Corporation's available capacity on various upstream pipelines. Margins on such
sales are minimal. The Utility segment's operating revenues also benefitted from
a general base rate increase in the New York rate jurisdiction, which became
effective on October 1, 1996. On an annual basis, this rate increase amounts to
$7.2 million.
Operating income before income taxes for the Utility segment
increased $4.6 million and $9.7 million, respectively, for the quarter and six
months ended March 31, 1997, as compared with the same periods 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. The negative impact of warmer weather on
operating results was greatest in the Pennsylvania jurisdiction since
Pennsylvania does not have a weather normalization clause (WNC). As a result of
weather, the Pennsylvania jurisdiction experienced a reduction in pretax
operating income of approximately $3.7 million and $3.6 million, respectively,
for the quarter and six months ended March 31, 1997, as compared with the same
periods a year ago. The impact of warmer weather experienced by the New York
jurisdiction was tempered by the WNC, which preserved pretax operating income of
$4.4 million and $3.5 million, respectively, for the quarter and six months
ended March 31, 1997. For the quarter and six months ended March 31, 1996, the
WNC resulted in a reduction to pre-tax operating income of $5.0 million and $7.0
million, respectively, as weather was colder than normal.
Degree Days
Three Months Ended March 31:
- ----------------------------
Percent (Warmer) Colder
in 1997 Than
Normal 1997 1996 Normal 1996
- -----------------------------------------------------------------------
Buffalo 3,337 3,194 3,595 (4.3) (11.2)
Erie 3,198 2,996 3,450 (6.3) (13.2)
Six Months Ended March 31:
- ---------------------------
Buffalo 5,601 5,450 6,025 (2.7) (9.5)
Erie 5,243 5,123 5,691 (2.3) (10.0)
- -----------------------------------------------------------------------
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
Pipeline and Storage.
Operating income before income taxes for the Pipeline and Storage
segment decreased $4.9 million for the quarter ended March 31, 1997, as compared
with the same period a year ago. The decrease is attributable primarily to the
February 1996 FERC approval of Supply Corporation's rate case. With this
approval, new rates became effective on April 1, 1996 retroactive to June 1,
1995. Operating income before income taxes for the quarter ended March 31, 1996
included approximately $3.3 million related to the period of June 1, 1995 to
December 31, 1995. The remaining decrease in operating income before income
taxes related mainly to lower revenue related to unbundled pipeline sales and
open access transportation.
For the six months ended March 31, 1997, operating income before
income taxes decreased $1.7 million compared with the same period a year ago.
The decrease is attributable primarily to the March 1996 recording of the
retroactive rate increase discussed above for the period of June 1, 1995 to
September 30, 1995.
While transportation volumes in this segment decreased 15.4 billion
cubic feet (Bcf) and 22.8 Bcf, respectively, for the quarter and six months
ended March 31, 1997, 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 decreased $1.0 million for the quarter ended March 31, 1997,
compared with the same period a year ago, mainly because of higher depletion
expense, which more than offset higher natural gas and oil revenues. The current
quarter's oil and gas revenues increased substantially over the prior year's
quarter because of higher oil and gas prices while total production decreased
slightly from 12.5 Bcf equivalent to 12.3 Bcf equivalent. This decrease was
attributable to a 62% decline in the production of onshore horizontal wells,
which resulted from the typical Austin Chalk high rate of decline. The offshore
program (where the majority of this segment's capital expenditures are being
made - see further discussion under "Investing Cash Flow") experienced an
increase in total production of 17% compared with the prior year's quarter.
Total oil production was up 119,000 barrels (bbls) (0.7 Bcf equivalent)
from the prior year's quarter which mostly offset the drop in natural gas
production of about 1 Bcf. The weighted average price received for oil
production increased $3.09 per bbl and the weighted average price received for
gas production increased $0.49 per Mcf. Higher natural gas and oil revenues for
the second quarter of 1997 coupled with declining prices throughout that quarter
to a weighted average of $2.76 per Mcf for natural gas and $18.91 per bbl for
oil at March 31, 1997, adversely affected the depletion expense due to the use
of the unit of revenue depletion method.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
For the six months ended March 31, 1997, operating income before income
taxes for the Exploration and Production segment increased $2.1 million,
compared with the same period a year ago, mainly because of higher natural gas
and oil revenues, offset in part by higher depletion expense. Total production
was up from 23.3 Bcf equivalent to 24.7 Bcf equivalent. The decline in natural
gas production of 0.6 Bcf for the six-month period was more than offset by
increased oil production of 335,000 bbls (2 Bcf equivalent). In addition,
weighted average prices received for gas and oil production increased $0.67 per
Mcf and $4.94 per bbl, respectively.
Looking ahead, the Company expects that natural gas and oil production
volumes will be flat compared to the prior year.1 Factors contributing to this
include a very tight offshore rig market, which has delayed drilling plans by
six months, combined with a reduction in production volumes on Vermillion 252.
The fluctuation in prices denoted above does not reflect gains and
losses from hedging activities. These hedging activities resulted in pretax
losses of $7.4 million and $16.0 million, respectively, for the quarter and six
months ended March 31, 1997. For the quarter and six months ended March 31,
1996, hedging activities resulted in pretax losses of $3.9 million and $3.5
million, respectively. Refer to further discussion of the Company's hedging
activities under "Financing Cash Flow" and in Note 4 - Derivative Financial
Instruments.
PRODUCTION VOLUMES
Exploration and Production.
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
Gas Production - (MMcf)
Gulf Coast 7,719 8,703 (11.3) 15,520 15,999 (3.0)
West Coast 337 248 35.9 551 505 9.1
Appalachia 1,293 1,363 (5.1) 2,574 2,756 (6.6)
------ ------ ------ ------
9,349 10,314 (9.4) 18,645 19,260 (3.2)
====== ====== ====== ======
Oil Production - (Thousands of Barrels)
Gulf Coast 362 239 51.5 746 408 82.8
West Coast 124 126 (1.6) 250 250 -
Appalachia 3 5 (40.0) 5 8 (37.5)
--- --- ----- ---
489 370 32.2 1,001 666 50.3
=== === ===== ===
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
WEIGHTED AVERAGE PRICES*
Exploration and Production.
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
Weighted Avg. Gas Price/Mcf
Gulf Coast $2.96 $2.55 16.1 $2.95 $2.28 29.4
West Coast $2.18 $1.18 84.7 $1.96 $1.19 64.7
Appalachia $3.97 $2.97 33.7 $3.22 $2.51 28.3
Weighted Average Price $3.07 $2.58 19.0 $2.95 $2.28 29.4
Weighted Avg. Oil Price/bbl
Gulf Coast $22.44 $19.66 14.1 $23.39 $18.78 24.5
West Coast $19.97 $17.03 17.3 $20.41 $15.96 27.9
Appalachia $23.16 $17.17 34.9 $23.05 $16.84 36.9
Weighted Average Price $21.82 $18.73 16.5 $22.64 $17.70 27.9
*Weighted average prices do not reflect gains or losses from hedging
activities.
Other Nonregulated.
Operating income before income taxes associated with this segment
increased $3.1 million and $0.9 million, respectively, for the quarter and
six-month period, compared with the same periods a year ago. The increases can
be attributed primarily to developments in Horizon. Horizon was formed in 1995
to engage in the development and acquisition of foreign and domestic energy
projects, including foreign utility companies and wholesale generators of
electricity. Last year's second quarter included approximately $2.6 million of
development costs associated with a power project in Pakistan (Kabirwala
Project). Horizon subsequently withdrew from participation in the Kabirwala
Project during the fourth quarter of fiscal 1996 and sold its rights in that
project to El Paso Energy during the quarter ended March 31, 1997. Approximately
$2.3 million was recorded during the current quarter reflecting the proceeds
from the sale and the assumption of certain liabilities by El Paso Energy. For
the six months ended March 31, 1997, the contribution from the Kabirwala Project
sale was partly offset by expenses associated with the dissolution of the
Horizon partnership known as Sceptre Power Company. In addition, for both the
quarter and six months ended March 31, 1997, an increase in depletion expense in
this segment's timber operations related to cutting timber with a higher cost
partly offset the contribution associated with Horizon's activities.
Income Taxes.
Income taxes increased $0.5 million and $3.8 million, respectively, for
the quarter and six months ended March 31, 1997, 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 $0.5 million and $1.1 million,
respectively, for the quarter and six months ended March 31, 1997. Other
interest decreased $1.1 million and $1.6 million for the quarter and six-month
period, respectively, mainly as a result of lower interest expense on Amounts
Payable to Customers. Interest on long-term debt increased $0.6 million and $0.5
million, respectively, for the quarter and six-month period, mainly because of a
higher average amount of long-term debt compared to the same periods a year ago.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of cash during the six-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. Effective March 1,
1997, the Company's Customer Stock Purchase Plan, Dividend Reinvestment Plan and
section 401(k) Plans began 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 WNC
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 six months ended March 31 and
receivables and unbilled utility revenue historically increase from September to
March because 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. For storage gas inventory accounted for under the last-in, first-out
(LIFO) method, 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
Net cash provided by operating activities totaled $145.7 million for
the six months ended March 31, 1997, an increase of $45.7 million compared with
$100.0 million provided by operating activities for the six months ended March
31, 1996. The majority of this increase occurred in the Utility segment as an
increase in cash receipts from gas sales and transportation service combined
with a net increase in cash received as refunds from upstream pipelines more
than offset the increase in cash paid for gas purchases. The Pipeline and
Storage segment also experienced an increase in net cash provided by operating
activities as a result of an increase in cash receipts from transportation and
storage service combined with a reduction in federal tax payments.
Investing Cash Flow
Capital Expenditures
- --------------------
The Company's cash outlay for capital expenditures totaled $84.7
million during the six months ended March 31, 1997. Noncash capital expenditures
totaled $10.7 million and related to Seneca's issuance of long-term notes to
third parties in exchange for land and timber. Total capital expenditures of
$95.4 million for the six-month period represent 45% of the total current
capital expenditure budget for fiscal 1997 of $214.0 million.
The following table presents capital expenditures for the six months
ended March 31, 1997, by business segment:
(in thousands)
--------------
Utility $30,291
Pipeline and Storage 6,678
Exploration and Production 45,781
Other Nonregulated 12,627
-------
$95,377
=======
The bulk of the Utility segment's 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 segment's capital expenditures
were made for additions, improvements and replacements to this segment's
transmission and storage systems. The proposed 1997 Niagara Expansion Project,
which has been amended to provide approximately 34.0 MMcf per day of firm winter
capacity and 21.0 MMcf per day of firm year-round capacity from the Niagara
Falls, New York import point to an interconnection at Leidy, Pennsylvania, is
currently awaiting FERC approval.1 It is anticipated that such approval will be
received in the third quarter of fiscal 1997.1 Supply Corporation intends to
seek FERC approval for its 1998/1999 Niagara Expansion Project as two
independent projects. 1 The first project (the 1998 Expansion) encompasses the
transportation of 100 MMcf per day from the Canadian border at Niagara Falls,
New York, to Leidy, Pennsylvania and is expected to cost approximately $50
million. 1 Supply Corporation intends to file for FERC approval of the first
project in the third quarter of fiscal 1997.1 Upon receipt of FERC approval,
Supply Corporation intends to initiate construction
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
in the spring of 1998 with service to commence in November 1998.1 The second
project (the 1999 Expansion) would provide additional transportation capacity
from the Canadian border at Niagara Falls, New York, to Leidy, Pennsylvania
beginning in late 1999.1 An Open Season for the 1999 Expansion commenced on May
1, 1997 and will be held for thirty days. The volume and cost of the 1999
Expansion will be determined by the result of the open season. No amount has
been included in the budget for either the 1998 Expansion or the 1999 Expansion
as the timing of the "go ahead" will depend on several factors, including FERC
approval.1
The Exploration and Production segment spent approximately $38.4
million on its offshore program in the Gulf of Mexico during the six months
ended March 31, 1997, including offshore drilling expenditures, geological
expenditures and lease acquisitions. Offshore exploratory and development
drilling was concentrated on West Cameron 182, High Island 194, Galveston 210,
Galveston 316 and Main Pass 257. Offshore lease acquisitions included Mustang
Island 796 and 818 in Texas state waters and Eugene Island 9 in Louisiana state
waters.
Approximately $7.4 million was spent on the Exploration and Production
segment's onshore program during the six months ended March 31, 1997, including
horizontal onshore drilling in central Texas and Seneca's development drilling
program in California.
Other Nonregulated capital expenditures consisted primarily of timber
property purchases. Such purchases included Seneca's issuance of notes to third
parties totaling $10.7 million in connection with the acquisition of timber
properties. For further discussion, refer to Note 3 - Capitalization.
The Company's capital expenditure program is under continuous review.
The amounts are subject to modification for opportunities in the natural gas
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 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 $200 million.1 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 of the Project (offshore gas producers)
will not be ready to use the natural gas gathering and processing facilities in
1997. Such prospective customers are more likely to use the Project facilities
in 1998 or 1999.1
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
The Federal Energy Regulatory Commission ruled in March 1997 that
most of the Project would be jurisdictional, so the parties are preparing the
necessary regulatory filings seeking authorization to construct facilities and
place them in 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.1 As of March 31, 1997, Supply Corporation has
paid approximately $0.7 million of such development costs. Supply Corporation is
currently using short-term borrowings to finance the development costs of the
Project.
International Investment
In April 1997, Horizon's wholly owned subsidiary, Beheer-En
Beleggingsmaatschappij Bruwabel, B.V. (Bruwabel), acquired a 34% interest in
Severoceske Teplarny, a.s., (SCT). SCT is a power and heating utility located in
the northern part of the Czech Republic. Bruwabel paid $20.6 million for these
shares of SCT. Owners of an additional 34% of the shares of SCT have an option
to sell these shares to Bruwabel through April 1998. If this put option is not
exercised, Bruwabel has an option to purchase these shares during the period
from April 1998 to April 1999. The consideration to be paid with respect to
these options, if any, is expected to be approximately $21 - $24 million.
Consequently, 34% of the outstanding shares of SCT subject to these options have
been pledged to Bruwabel through April 1999. Bruwabel nominees have been elected
to the board of directors of SCT so that Bruwabel has majority representation on
the board. Bruwabel will be entitled to any dividends declared by SCT with
respect to both the shares it owns and the shares pledged to Bruwabel, while
they remain pledged.
Financing Cash Flow
Consolidated short-term debt decreased by $26.5 million during the
first six months of fiscal 1997. 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 March 31, 1997, the Company would have been
permitted to issue up to a maximum of $709 million in additional long-term
unsecured indebtedness, in light of then current long-term interest rates. In
addition, at March 31, 1997, the Company had regulatory authorizations and
unused short-term credit lines that would have permitted it to borrow an
additional $426.8 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 medium-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
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, is engaged in certain price swap
agreements as a means of managing 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 March 31,
1997, Seneca utilized natural gas and crude oil price swap agreements with
notional amounts of 5.9 equivalent Bcf and 360,000 equivalent bbl, respectively.
These hedging activities resulted in the recognition of a pretax loss of
approximately $7.4 million. For the six months ended March 31, 1997, Seneca
utilized natural gas and crude oil price swap agreements with notional amounts
of 12.4 equivalent Bcf and 670,000 equivalent bbl, respectively. These hedging
activities resulted in the recognition of a pretax loss of approximately $16.0
million. These losses were offset by higher prices received for actual natural
gas and crude oil production.
At March 31, 1997, Seneca had natural gas price swap agreements
outstanding with a notional amount of 37.3 equivalent Bcf at prices ranging from
$1.77 per Mcf to $2.29 per Mcf. The weighted average fixed price of these swap
agreements is approximately $2.03 per Mcf. Seneca also had crude oil price swap
agreements outstanding at March 31, 1997 with a notional amount of 1,353,000
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 $18.15
per bbl. In addition, the Company has Securities and Exchange Commission (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 materially change the Company's present liquidity
position, nor have a material adverse effect on the financial condition of the
Company at this time.1
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
RATE MATTERS
Utility
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 a
requested return on equity of 11.5%. A two-year settlement with the parties in
this rate proceeding was approved by the Public Service Commission of the State
of New York (PSC). Effective October 1, 1996, Distribution Corporation received
an annual base rate increase of $7.2 million. The settlement calls for an
additional annual base rate increase of $7.2 million on October 1, 1997.
Distribution Corporation will be filing tariff amendments no later than August
1997 designed to provide that increase. The settlement did not specify a 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 could 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.
On April 2, 1997, Distribution Corporation filed a proposal for a
customer choice pilot program, called Energy Select, with the PaPUC. The PaPUC
is expected to address this proposal in the third quarter of fiscal 1997. Under
this proposal, approximately 19,000 small commercial and residential customers
in Sharon, Farrell, Hermitage, Sharpsville, Shenango, West Middlesex and
Wheatland, Pennsylvania, would be able to purchase gas supplies from qualified,
participating non-utility suppliers (or marketers) of gas.1 Under the proposed
plan, Distribution Corporation would continue to deliver the gas to the
customer's home or business and would remain responsible for reading customer
meters, the safety and maintenance of its pipeline system and responding to gas
emergencies. Energy Select would last about one and one-half years.
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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
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-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 $8.3 million to
$9.7 million.1 At March 31, 1997, Distribution Corporation has recorded the
minimum liability of $8.3 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
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
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
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
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations (Cont.)
-----------------------------
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 2. Changes in Securities
- ------------------------------
On March 7, 1997, the Company issued 700 unregistered shares of Company
common stock to the seven non-employee directors of the Company, 100 shares to
each such director. These shares were issued as partial consideration for the
directors' service as directors during the quarter ended March 31, 1997,
pursuant to the Company's Retainer Policy for Non-Employee Directors.
These transactions were exempt from registration by Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The Annual Meeting of Shareholders of National Fuel Gas Company was
held on February 20, 1997. At that meeting, the shareholders elected directors
and appointed independent accountants.
The total votes were as follows:
Against Broker
For or Withheld Abstain Non-Votes
---------- ----------- --------- ---------
(i) Election of directors
to serve for a three-
year term:
- Eugene T. Mann 31,976,107 932,956 - -
- George L. Mazanec 32,064,528 844,535 - -
- George H. Schofield 32,045,797 863,266 - -
(ii) Appointment of Price
Waterhouse LLP as
independent accountants 32,379,598 282,478 246,987 -
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders (Cont.)
- --------------------------------------------------------------------
Against Broker
For or Withheld Abstain Non-Votes
---------- ----------- ---------- ---------
(iii) Approval of the 1997
Award and Option Plan 23,613,902 3,388,519 1,020,940 4,885,702
(iv) Approval of Certain
Amendments to the
1984 Stock Plan and
the 1993 Award and
Option Plan 24,566,914 2,185,937 1,067,737 5,088,475
(v) Approval of the
Retainer Policy
for Non-Employee
Directors 20,081,453 6,813,255 1,128,654 4,885,701
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
(12) Statements regarding Computation of Ratios:
Ratio of Earnings to Fixed Charges for the
Twelve Months Ended March 31, 1997 and the
fiscal years ended September 30, 1992
through 1996.
(27) Financial Data Schedule
(99) National Fuel Gas Company Consolidated
Statement of Income for the Twelve Months
Ended March 31, 1997 and 1996.
(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: May 15, 1997
------------
<PAGE>
EXHIBIT INDEX
(Form 10Q)
Exhibit 12 Ratio of Earnings to Fixed Charges for the Twelve
Months Ended March 31, 1997 and the Fiscal Year Ended
September 30, 1992 through 1996
Exhibit 27 Summary Financial Information Extracted from
National Fuel Gas Company's Consolidated Financial
Statements Six Months ending March 31, 1997
Exhibit 27-2 Summary Financial Information Extracted from National
Fuel Gas Company's Consolidated Financial Statements
Six Months ending March 31, 1996
Exhibit 99 Consolidated Statement of Income of National Fuel Gas
Company for the Twelve Months Ended March 31, 1997
and March 31, 1996
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EXHIBIT 12
EARNINGS TO FIXED CHARGES
UNAUDITED
Fiscal Year Ended September 30
Twelve Months -----------------------------------------------------------
Ended
March 31, 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
EARNINGS:
Income Before Interest Charges (2) $166,105 $159,599 $128,061 $127,885 $125,742 $118,222
Allowance for Borrowed Funds Used in Construction 285 205 195 209 174 1,088
Federal Income Tax 57,041 55,148 30,522 36,630 21,148 17,680
State Income Tax 7,451 7,266 4,905 6,309 2,979 3,426
Deferred Inc. Taxes - Net (3) 5,660 3,907 8,452 4,853 16,919 14,125
Investment Tax Credit - Net (670) (665) (672) (682) (693) (706)
Rentals (1) 5,545 5,640 5,422 5,730 5,621 5,857
-----------------------------------------------------------------------------
$241,417 $231,100 $176,885 $180,934 $171,890 $159,692
=============================================================================
FIXED CHARGES:
Interest & Amortization of Premium and
Discount of Funded Debt $41,354 $40,872 $40,896 $36,699 $38,507 $39,949
Interest on Commercial Paper and
Short-Term Notes Payable 8,043 7,872 6,745 5,599 7,465 12,093
Other Interest (2) 4,706 6,389 4,721 3,361 4,727 6,958
Rentals (1) 5,545 5,640 5,422 5,730 5,621 5,857
-----------------------------------------------------------------------------
$59,648 $60,773 $57,784 $51,389 $56,320 $64,857
=============================================================================
RATIO OF EARNINGS TO FIXED CHARGES 4.05 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 March 1997, Fiscal 1996, 1995, 1994, 1993 and
1992 reflect the reclassification of $1,716, $1,716, $1,716, $1,674,
$1,374 and $1,129, respectively, 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> 06-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,746,452
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 353,119
<TOTAL-DEFERRED-CHARGES> 9,464
<OTHER-ASSETS> 204,686
<TOTAL-ASSETS> 2,313,721
<COMMON> 38,138
<CAPITAL-SURPLUS-PAID-IN> 404,889
<RETAINED-EARNINGS> 486,696
<TOTAL-COMMON-STOCKHOLDERS-EQ> 929,723
0
0
<LONG-TERM-DEBT-NET> 531,739
<SHORT-TERM-NOTES> 153,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 20,000
<LONG-TERM-DEBT-CURRENT-PORT> 52,628
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 626,431
<TOT-CAPITALIZATION-AND-LIAB> 2,313,721
<GROSS-OPERATING-REVENUE> 862,196
<INCOME-TAX-EXPENSE> 56,411
<OTHER-OPERATING-EXPENSES> 682,821
<TOTAL-OPERATING-EXPENSES> 739,232
<OPERATING-INCOME-LOSS> 122,964
<OTHER-INCOME-NET> 1,322
<INCOME-BEFORE-INTEREST-EXPEN> 124,286
<TOTAL-INTEREST-EXPENSE> 28,587
<NET-INCOME> 95,699
0
<EARNINGS-AVAILABLE-FOR-COMM> 95,699
<COMMON-STOCK-DIVIDENDS> 31,877
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 145,739
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</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 IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND SCHEDULES.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 06-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,657,350
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 360,727
<TOTAL-DEFERRED-CHARGES> 9,774
<OTHER-ASSETS> 207,849
<TOTAL-ASSETS> 2,235,700
<COMMON> 37,599
<CAPITAL-SURPLUS-PAID-IN> 388,042
<RETAINED-EARNINGS> 437,913
<TOTAL-COMMON-STOCKHOLDERS-EQ> 863,554
0
0
<LONG-TERM-DEBT-NET> 574,000
<SHORT-TERM-NOTES> 40,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 70,000
<LONG-TERM-DEBT-CURRENT-PORT> 30,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 657,646
<TOT-CAPITALIZATION-AND-LIAB> 2,235,700
<GROSS-OPERATING-REVENUE> 808,704
<INCOME-TAX-EXPENSE> 52,584
<OTHER-OPERATING-EXPENSES> 640,146
<TOTAL-OPERATING-EXPENSES> 692,730
<OPERATING-INCOME-LOSS> 115,974
<OTHER-INCOME-NET> 1,806
<INCOME-BEFORE-INTEREST-EXPEN> 117,780
<TOTAL-INTEREST-EXPENSE> 29,697
<NET-INCOME> 88,083
0
<EARNINGS-AVAILABLE-FOR-COMM> 88,083
<COMMON-STOCK-DIVIDENDS> 30,293
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 99,988
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.35
</TABLE>
EXHIBIT 99
NATIONAL FUEL GAS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Twelve Months Ended
March 31,
1997 1996
(Thousands of Dollars)
INCOME
Operating Revenues $1,261,509 $1,126,105
---------- ----------
Operating Expenses
Purchased Gas 513,078 461,831
Operation 280,600 266,457
Maintenance 24,653 27,912
Property, Franchise and Other Taxes 100,231 96,429
Depreciation, Depletion and Amortization 108,363 81,478
Income Taxes - Net 70,148 51,369
---------- ----------
1,097,073 985,476
---------- ----------
Operating Income 164,436 140,629
Other Income 3,385 5,708
----------- ----------
Income Before Interest Charges 167,821 146,337
---------- ----------
Interest Charges
Interest on Long-Term Debt 41,354 40,001
Other Interest 14,180 16,237
---------- ----------
55,534 56,238
---------- ----------
Net Income Available for Common Stock $ 112,287 $ 90,099
========== ==========
Earnings Per Common Share
Net Income Available for Common Stock $2.96 $2.41
===== =====
Weighted Average Common Shares Outstanding 37,875,142 37,461,235
========== ==========
