- --------------------------------------------------------------------------------
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, 1999
-----------------
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, 2000:
39,087,263 shares.
- --------------------------------------------------------------------------------
<PAGE>
Company or Group of Companies for which Report is Filed:
- --------------------------------------------------------
NATIONAL FUEL GAS COMPANY (Company or Registrant)
DIRECT
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)
Upstate Energy, Inc. (Upstate)
NFR Power, Inc. (NFR Power)
Niagara Independence Marketing Company (NIM)
Seneca Independence Pipeline Company (SIP)
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, 1999 and 1998 4
b. Consolidated Balance Sheets - December 31, 1999
and September 30, 1999 5 - 6
c. Consolidated Statement of Cash Flows - Three Months
Ended December 31, 1999 and 1998 7
d. Consolidated Statement of Comprehensive Income - Three
Months Ended December 31, 1999 and 1998 8
e. Notes to Consolidated Financial Statements 9 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
Part II. Other Information
--------------------------
Item 1. Legal Proceedings o
Item 2. Changes in Securities 31
Item 3. Defaults Upon Senior Securities o
Item 4. Submission of Matters to a Vote of Security Holders o
Item 5. Other Information o
Item 6. Exhibits and Reports on Form 8-K 32
Signature 33
o The Company has nothing to report under this item.
<PAGE>
Reference to "the Company" in this report means the Registrant or the Registrant
and its subsidiaries collectively, as appropriate in the context of the
disclosure. All references to a certain year in this report are to the Company's
fiscal year ended September 30 of that year, unless otherwise noted.
This Form 10-Q contains "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
should be read with the cautionary statements and important factors 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 "*" 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
--------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statements of Income and Earnings
----------------------------------------------
Reinvested in the Business
--------------------------
(Unaudited)
-----------
Three Months Ended
December 31,
(Thousands of Dollars, Except Per Common Share Amounts) 1999 1998
---- ----
<S> <C> <C>
INCOME
Operating Revenues $377,031 $340,422
- --------------------------------------------------------- ----------------- -----------------
Operating Expenses
Purchased Gas 128,089 111,006
Fuel Used in Heat and Electric Generation 17,780 19,973
Operation 77,137 76,993
Maintenance 5,155 5,583
Property, Franchise and Other Taxes 22,792 22,005
Depreciation, Depletion and Amortization 34,103 30,127
Income Taxes 21,738 17,900
- --------------------------------------------------------- ----------------- -----------------
306,794 283,587
- --------------------------------------------------------- ----------------- -----------------
Operating Income 70,237 56,835
Other Income 1,172 4,742
- --------------------------------------------------------- ----------------- -----------------
Income Before Interest Charges and
Minority Interest in Foreign Subsidiaries 71,409 61,577
- --------------------------------------------------------- ----------------- -----------------
Interest Charges
Interest on Long-Term Debt 16,671 17,367
Other Interest 8,559 5,327
- --------------------------------------------------------- ----------------- -----------------
25,230 22,694
- --------------------------------------------------------- ----------------- -----------------
Minority Interest in Foreign Subsidiaries (1,311) (1,264)
- --------------------------------------------------------- ----------------- -----------------
Net Income Available for Common Stock 44,868 37,619
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1 472,517 428,112
- --------------------------------------------------------- ----------------- -----------------
517,385 465,731
Dividends on Common Stock
(1999 - $0.465; 1998 - $0.45) 18,084 17,298
========================================================= ================= =================
Balance at December 31 $499,301 $448,433
========================================================= ================= =================
Earnings Per Common Share:
Basic $1.15 $0.98
========================================================= ================= =================
Diluted $1.14 $0.97
========================================================= ================= =================
Weighted Average Common Shares Outstanding:
Used in Basic Calculation 38,923,141 38,527,543
========================================================= ================= =================
Used in Diluted Calculation 39,413,008 38,945,864
========================================================= ================= =================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
December 31,
1999 September 30,
(Unaudited) 1999
-------------------- -------------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Property, Plant and Equipment $3,427,727 $3,390,875
Less - Accumulated Depreciation, Depletion
and Amortization 1,054,799 1,029,643
- ------------------------------------------------- -------------------- -------------------
2,372,928 2,361,232
- ------------------------------------------------- -------------------- -------------------
Current Assets
Cash and Temporary Cash Investments 26,078 29,222
Receivables - Net 149,834 97,828
Unbilled Utility Revenue 55,085 18,674
Gas Stored Underground 27,072 41,099
Materials and Supplies - at average cost 25,191 23,631
Unrecovered Purchased Gas Costs 11,819 4,576
Prepayments 19,166 35,072
- ------------------------------------------------- -------------------- -------------------
314,245 250,102
- ------------------------------------------------- -------------------- -------------------
Other Assets
Recoverable Future Taxes 87,724 87,724
Unamortized Debt Expense 21,174 21,717
Other Regulatory Assets 21,015 25,214
Deferred Charges 12,477 14,266
Other 86,336 82,331
- ------------------------------------------------- -------------------- -------------------
228,726 231,252
- ------------------------------------------------- -------------------- -------------------
$2,915,899 $2,842,586
================================================= ==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Balance Sheets
---------------------------
December 31,
1999 September 30,
(Unaudited) 1999
-------------------- -------------------
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock Equity
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued
and Outstanding - 38,985,131 Shares and
38,837,499 Shares, Respectively $ 38,985 $ 38,837
Paid in Capital 438,351 431,952
Earnings Reinvested in the Business 499,301 472,517
Accumulated Other Comprehensive Loss (12,916) (4,013)
- ------------------------------------------- -------------------- -------------------
Total Common Stock Equity 963,721 939,293
Long-Term Debt, Net of Current Portion 816,585 822,743
- ------------------------------------------- -------------------- -------------------
Total Capitalization 1,780,306 1,762,036
- ------------------------------------------- -------------------- -------------------
Minority Interest in Foreign Subsidiaries 26,369 27,589
- ------------------------------------------- -------------------- -------------------
Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 458,695 393,495
Current Portion of Long-Term Debt 62,371 69,608
Accounts Payable 68,990 82,747
Amounts Payable to Customers 5,789 5,934
Other Accruals and Current Liabilities 102,906 87,310
- ------------------------------------------- -------------------- -------------------
698,751 639,094
- ------------------------------------------- -------------------- -------------------
Deferred Credits
Accumulated Deferred Income Taxes 288,701 275,008
Taxes Refundable to Customers 14,814 14,814
Unamortized Investment Tax Credit 10,739 11,007
Other Deferred Credits 96,219 113,038
- ------------------------------------------- -------------------- -------------------
410,473 413,867
- ------------------------------------------- -------------------- -------------------
Commitments and Contingencies - -
- ------------------------------------------- -------------------- -------------------
$2,915,899 $2,842,586
=========================================== ==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Item 1. Financial Statements (Cont.)
----------------------------
National Fuel Gas Company
-------------------------
Consolidated Statement of Cash Flows
------------------------------------
(Unaudited)
-----------
Three Months Ended
December 31,
-----------------------------------------
(Thousands of Dollars) 1999 1998
------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income Available for Common Stock $44,868 $37,619
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation, Depletion and Amortization 34,103 30,127
Deferred Income Taxes 13,996 12,367
Minority Interest in Foreign Subsidiaries 1,311 1,264
Other (838) 2,462
Change in:
Receivables and Unbilled Utility Revenue (89,122) (99,201)
Gas Stored Underground and Materials and
Supplies 12,040 5,601
Unrecovered Purchased Gas Costs (7,243) (1,132)
Prepayments 14,797 (164)
Accounts Payable (14,706) 10,720
Amounts Payable to Customers (145) 119
Other Accruals and Current Liabilities 16,605 9,596
Other Assets 4,739 (4,020)
Other Liabilities (16,818) 6,269
- ---------------------------------------------------------- ------------------- ---------------------
Net Cash Provided by
Operating Activities 13,587 11,627
- ---------------------------------------------------------- ------------------- ---------------------
INVESTING ACTIVITIES
Capital Expenditures (57,817) (56,808)
Investment in Partnerships (950) (1,833)
Other 436 1,117
- ---------------------------------------------------------- ------------------- ---------------------
Net Cash Used in Investing Activities (58,331) (57,524)
- ---------------------------------------------------------- ------------------- ---------------------
FINANCING ACTIVITIES
Change in Notes Payable to Banks and Commercial Paper 65,330 65,900
Reduction of Long-Term Debt (9,279) (1,866)
Dividends Paid on Common Stock (18,015) (17,261)
Proceeds from Issuance of Common Stock 4,300 2,410
- ---------------------------------------------------------- ------------------- ---------------------
Net Cash Provided by Financing Activities 42,336 49,183
- ---------------------------------------------------------- ------------------- ---------------------
Effect of Exchange Rates on Cash (736) (1,496)
- ---------------------------------------------------------- ------------------- ---------------------
Net Increase (Decrease) in Cash and Temporary Cash
Investments (3,144) 1,790
Cash and Temporary Cash Investments at October 1 29,222 30,437
- ---------------------------------------------------------- ------------------- ---------------------
Cash and Temporary Cash Investments at December 31 $26,078 $32,227
========================================================== =================== =====================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
National Fuel Gas Company
-------------------------
Consolidated Statement of Comprehensive Income
----------------------------------------------
(Unaudited)
-----------
Three Months Ended
December 31,
-----------------------------------------
(Thousands of Dollars) 1999 1998
------------------- ---------------------
<S> <C> <C>
Net Income Available for Common Stock $44,868 $37,619
- ----------------------------------------------------- ------------------- ---------------------
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment (9,501) 130
Unrealized Gain on Securities Available for Sale 748 -
- ----------------------------------------------------- ------------------- ---------------------
Other Comprehensive Income (Loss), Before Tax (8,753) 130
Income Tax Expense Related to Unrealized Gain
on Securities Available for Sale 150 -
- ----------------------------------------------------- ------------------- ---------------------
Other Comprehensive Income (Loss), Net of Tax (8,903) 130
===================================================== =================== =====================
Comprehensive Income $35,965 $37,749
===================================================== =================== =====================
</TABLE>
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
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and its majority owned subsidiaries. The equity method
is used to account for the Company's investment in minority owned entities. All
significant intercompany balances and transactions have been eliminated where
appropriate.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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
reported 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, 1999, 1998 and 1997 that are included in
the Company's combined Annual Report to Shareholders/Form 10-K for 1999. The
2000 consolidated financial statements will be examined by the Company's
independent accountants after the end of the fiscal year.
The earnings for the three months ended December 31, 1999 should not be
taken as a prediction of earnings for the entire year ending September 30, 2000.
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 (WNC) included in Distribution Corporation's New
York tariff. The WNC is effective for October through May billings. Distribution
Corporation's tariff for its Pennsylvania jurisdiction does not have a WNC. 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 fluctuations.
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,
1999 and 1998 amounted to $27.9 million and $21.2 million, respectively. Income
taxes paid during the three months ended December 31, 1999 and 1998 amounted to
$1.6 million and $1.8 million, respectively. In November 1999, the Company
entered into a non-cash investing activity whereby it issued 54,674 shares of
Company common stock to Supply Corporation, which in turn exchanged those shares
for the assets of Cunningham Natural Gas Corporation. The assets included
approximately $1.2 million of property, plant and equipment and $1.6 million of
other assets.
Reclassification. Certain prior year amounts have been reclassified to conform
with current year presentation.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Accumulated Other Comprehensive Income (Loss). The components of Accumulated
Other Comprehensive Income (Loss) are as follows (in thousands):
At December 31, 1999 At September 30, 1999
-------------------- ---------------------
Foreign Currency Translation Adjustment $(13,973) $(4,472)
Net Unrealized Gain on Securities
Available for Sale 1,057 459
-------- -------
Accumulated Other Comprehensive Loss $(12,916) $(4,013)
======== =======
Earnings Per Common Share. Basic earnings per common share is computed by
dividing income available for common stock by the weighted average number of
common shares outstanding for the period. Diluted earnings per common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The only potentially dilutive securities the Company has outstanding are stock
options. The diluted weighted average shares outstanding shown on the
Consolidated Statement of Income reflects the potential dilution as a result of
these stock options as determined using the Treasury Stock Method.
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,
--------------------------------------
1999 1998
----------------- --------------------
Operating Expenses:
Current Income Taxes
Federal $ 7,709 $ 2,661
State 1,214 1,586
Deferred Income Taxes
Federal 12,022 12,202
State 429 707
Foreign Income Taxes 364 744
- ----------------------------------------- ----------------- -------------------
21,738 17,900
Other Income:
Deferred Investment Tax Credit (263) (167)
Minority Interest in Foreign Subsidiaries (57) (264)
- ----------------------------------------- ----------------- -------------------
Total Income Taxes $21,418 $17,469
========================================= ================= ===================
The U.S. and foreign components of income before income taxes are as follows:
Three Months Ended
December 31,
1999 1998
------------------- --------------------
U.S. $59,914 $49,038
Foreign 6,372 6,050
================================= =================== ====================
$66,286 $55,088
================================= =================== ====================
<PAGE>
Item 1. Financial Statements (Cont.)
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,
-----------------------------
1999 1998
--------------- -------------
Net income available for common stock $ 44,868 $ 37,619
Total income taxes 21,418 17,469
- -------------------------------------------------- --------------- -------------
Income before income taxes $ 66,286 $ 55,088
================================================== =============== =============
Income tax expense, computed at
statutory rate of 35% $ 23,200 $ 19,281
Increase (reduction) in taxes resulting from:
State income taxes 1,068 1,490
Depreciation 476 544
Prior years tax adjustment - (1,286)
Foreign tax in excess of (less than)
statutory rate (1,924) (1,638)
Miscellaneous (1,402) (922)
- -------------------------------------------------- --------------- -------------
Total Income Taxes $ 21,418 $ 17,469
================================================== =============== =============
Significant components of the Company's deferred tax liabilities
(assets) were as follows (in thousands):
<TABLE>
<CAPTION>
At December 31, 1999 At September 30, 1999
-------------------- ---------------------
<S> <C> <C>
Deferred Tax Liabilities:
Abandonments $ 7,430 $ 7,274
Excess of tax over book depreciation 223,944 227,881
Exploration and intangible well drilling costs 102,998 95,034
Other 36,262 31,766
------------------------------------------------------ -------------------- ---------------------
Total Deferred Tax Liabilities 370,634 361,955
------------------------------------------------------ -------------------- ---------------------
Deferred Tax Assets:
Capitalized overheads (27,689) (26,861)
Other (54,244) (60,086)
- ------------------------------------------------------ -------------------- ---------------------
Total Deferred Tax Assets (81,933) (86,947)
- ------------------------------------------------------ -------------------- ---------------------
Total Net Deferred Income Taxes $288,701 $275,008
====================================================== ==================== =====================
</TABLE>
The Internal Revenue Service audits of the Company for the years 1977
- - 1994 were settled during December 1998. Net income for the three months ended
December 31, 1998 was increased by approximately $3.9 million as a result of
interest, net of tax and other adjustments, related to this settlement.
<PAGE>
Item 1. Financial Statements (Cont.)
Note 3 - Capitalization
Common Stock. During the three months ended December 31, 1999, the Company
issued 92,958 shares of common stock under the Company's stock and benefit
plans. As previously discussed, 54,674 shares were issued for the purchase of
the assets of Cunningham Natural Gas Corporation.
Note 4 - Derivative Financial Instruments
Seneca has entered into certain price swap agreements and options to manage a
portion of the market risk associated with fluctuations in the price of natural
gas and crude oil in an effort to provide more stability to its operating
results. These agreements and options are not held for trading purposes. The
price swap agreements call for Seneca 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 Seneca for its natural gas and crude oil production.
The fair value of outstanding natural gas and crude oil price swap agreements
and options discussed below reflect the estimated amounts Seneca would pay or
receive to terminate its derivative financial instruments at December 31, 1999.
At December 31, 1999, Seneca had natural gas price swap agreements
covering a notional amount of 32.8 billion cubic feet (Bcf) extending through
2002 at a weighted average fixed rate of $2.69 per thousand cubic feet (Mcf).
Seneca also had crude oil price swap agreements covering a notional amount of
3,362,000 bbls extending through 2002 at a weighted average fixed rate of $19.08
per barrel (bbl). The fair value of Seneca's outstanding natural gas and crude
oil price swap agreements at December 31, 1999 was a net loss of approximately
$10.4 million. This loss was offset by corresponding unrecognized gains from
Seneca's anticipated natural gas and crude oil production over the terms of the
price swap agreements.
Seneca recognized net gains (losses) of $(4.1) million and $1.6
million related to settlements of its price swap agreements during the quarters
ended December 31, 1999 and 1998, respectively. Gains or losses from Seneca's
price swap agreements are accrued in operating revenues on the Consolidated
Statement of Income at the contract settlement dates. As the price swap
agreements have been designated as hedges, these gains (losses) were offset by
corresponding gains (losses) from Seneca's natural gas and crude oil production.
At December 31, 1999, Seneca had the following options outstanding:
<TABLE>
<CAPTION>
Type of Option Notional Amount Weighted Average Strike Price
- -------------- --------------- -----------------------------
<S> <C> <C>
Written Call Options (1) 13.9 Bcf or 732,000 bbls $2.62/Mcf or $18.00/bbl
Written Put Option 732,000 bbls $12.50/bbl
Purchased Call Option 1,096,000 bbls $20.00/bbl
</TABLE>
(1) The counterparty has a choice between a natural gas call option and a crude
oil call option, depending on whichever option has greater value to the
counterparty.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Seneca's call and put options are being marked-to-market on a quarterly
basis with gains or losses recorded in Operating Revenues on the Consolidated
Statement of Income. The mark-to-market adjustment for the quarter ended
December 31, 1999 was a gain of $2.5 million. There was not a corresponding
mark-to-market adjustment during the quarter ended December 31, 1998. The fair
value of the call and put options at December 31, 1999 was a net loss of $1.1
million. During the quarter ended December 31, 1999, Seneca paid the
counterparty $1.5 million related to the exercise of a portion of the written
call options and received $1.7 million from the counterparty related to Seneca's
exercise of a portion of the $20.00 per bbl call options that it had purchased.
There were no settlements related to Seneca's call or put options during the
quarter ended December 31, 1998.
The Company is exposed to credit risk on the price swap agreements that
Seneca has entered into, as well as on the call options that Seneca has
purchased. 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. To mitigate such credit risk, management performs an
initial credit check, and then on an ongoing basis monitors counterparty credit
exposure.
NFR utilizes exchange-traded futures and exchange-traded options to
manage a portion of the market risk associated with fluctuations in the price of
natural gas. Such futures and options are not held for trading purposes. At
December 31, 1999, NFR had an insignificant amount of natural gas futures
contracts. NFR had sold natural gas options covering 17.1 Bcf of gas at a
weighted average strike price of $3.05 per Mcf. NFR also had purchased natural
gas options covering 6.6 Bcf of gas at a weighted average strike price of $2.84
per Mcf. The exchange-traded futures and exchange-traded options are used to
hedge NFR's purchase and sale commitments and storage gas inventory. The fair
value of NFR's outstanding exchange-traded futures and exchange-traded options
at December 31, 1999 was a net gain of approximately $1.0 million. This fair
value reflects the estimated net amount that NFR would receive to terminate its
exchange-traded futures and exchange-traded options at December 31, 1999. Since
these exchange-traded futures contracts and exchange-traded options qualify and
have been designated as hedges, any gains or losses resulting from market price
changes would be substantially offset by the related commodity transaction.
Gains or losses from natural gas futures and options are recorded in
Other Deferred Credits on the Consolidated Balance Sheet until the hedged
commodity transaction occurs, at which point they are reflected in operating
revenues on the Consolidated Statement of Income.
NFR recognized net gains (losses) of $1.5 million and $(1.0) million
related to futures contracts and options during the quarters ended December 31,
1999 and 1998, respectively. Since these futures contracts and options qualify
and have been designated as hedges, these net gains (losses) were substantially
offset by the related commodity transactions.
Privni severozapadni teplarenska, a.s. (PSZT) utilizes an interest rate
swap to mitigate interest rate fluctuations on its CZK 1,595,924,000 term loan
($44.5 million at December 31, 1999), which carries a variable interest rate of
six month Prague Interbank Offered Rate (PRIBOR) plus 0.475%. Under the terms of
the interest rate swap, which extends until 2001, PSZT pays a fixed rate of
8.31% and receives a floating rate of six month PRIBOR. PSZT recognized a loss
of approximately $0.1 million related to this interest rate swap during the
quarter ended December 31, 1999. The fair value of PSZT's interest rate swap at
December 31, 1999 was a loss of approximately $1.7 million.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
Note 5 - Commitments and Contingencies
Environmental Matters. It is the Company's policy to accrue estimated
environmental clean-up costs (investigation and remediation) when such amounts
can reasonably be estimated and it is probable that the Company will be required
to incur such costs. Distribution Corporation and Supply Corporation have
estimated their clean-up costs related to former manufactured gas plant and
former gasoline plant sites and third party waste disposal sites will be in the
range of $9.0 million to $10.0 million. The minimum liability of $9.0 million
has been recorded on the Consolidated Balance Sheet at December 31, 1999. Other
than discussed in Note H of the 1999 Form 10-K (referred to below), the Company
is currently not aware of any material additional exposure to environmental
liabilities. However, adverse changes in environmental regulations or other
factors could impact the Company.
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 the ongoing evaluation of its operations to identify
potential environmental exposures and comply with regulatory policies and
procedures.
For further discussion refer to Note H - Commitments and Contingencies
under the heading "Environmental Matters" in Item 8 of the Company's 1999 Form
10-K.
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 in the year of resolution,
none of this litigation, and none of these regulatory matters, are expected to
have a material adverse effect on the financial condition of the Company at this
time.
Note 6 - Business Segment Information. The Company has six reportable segments:
Utility, Pipeline and Storage, Exploration and Production, International, Energy
Marketing and Timber. The breakdown of the Company's reportable segments is
based upon a combination of factors including differences in products and
services, regulatory environment and geographic factors.
The data presented in the tables below reflect the reportable segments
and reconciliations to consolidated amounts. There have been no changes in the
basis of segmentation nor in the basis of measuring segment profit or loss from
those used in the 1999 Form 10-K. There have been no material changes in the
amount of assets for any operating segment from the amounts disclosed in the
1999 Form 10-K.
<PAGE>
Item 1. Financial Statements (Cont.)
----------------------------
<TABLE>
<CAPTION>
Quarter Ended December 31, 1999 (Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Pipeline Exploration Total Corporate and
and and Energy Reportable Intersegment Total
Utility Storage Production International Marketing Timber Segments All Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
External
Customers $228,910 $21,071 $49,794 $38,073 $29,175 $8,740 $375,763 $1,268 $ - $377,031
Intersegment
Revenues 4,306 22,094 224 - - - 26,624 - (26,624) -
Segment Profit
(Loss):
Net Income 21,753 9,282 8,005 4,683 (17) 931 44,637 (146) 377 44,868
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended December 31, 1998 (Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Pipeline Exploration Total Corporate and
and and Energy Reportable Intersegment Total
Utility Storage Production International Marketing Timber Segments All Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
External
Customers $220,988 $20,778 $29,176 $40,265 $20,427 $8,090 $339,724 $698 $ - $340,422
Intersegment
Revenues 1,162 21,317 2,452 - - - 24,931 - (24,931) -
Segment Profit
Net Income 18,679 12,330 288 4,283 221 1,329 37,130 42 447 37,619
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------
RESULTS OF OPERATIONS
Earnings. The Company's earnings were $44.9 million, or $1.15 per common share
($1.14 per common share on a diluted basis), for the quarter ended December 31,
1999. This compares to earnings of $37.6 million, or $0.98 per common share
($0.97 per common share on a diluted basis), for the quarter ended December 31,
1998. The increase in earnings of $7.2 million is the result of higher earnings
in the Exploration and Production, Utility and International segments. These
higher earnings were offset in part by lower earnings in the Pipeline and
Storage, Energy Marketing and Timber segments. Additional discussion of earnings
in each of the business segments can be found in the business segment
information that follows.
Earnings (Loss) by Segment
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- -------------------------------------------- ---------------- -----------------
Utility $21,753 $18,679
Pipeline and Storage 9,282 12,330
Exploration and Production 8,005 288
International 4,683 4,283
Energy Marketing (17) 221
Timber 931 1,329
- -------------------------------------------- ---------------- -----------------
Total Reportable Segments 44,637 37,130
All Other (146) 42
Corporate 377 447
- -------------------------------------------- ---------------- -----------------
Total Consolidated $44,868 $37,619
- -------------------------------------------- ---------------- -----------------
Utility
Utility Operating Revenues
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- -------------------------------------------- ---------------- -----------------
Retail Sales Revenues:
Residential $169,643 $165,081
Commercial 27,160 29,180
Industrial 4,491 3,405
- -------------------------------------------- ---------------- -----------------
201,294 197,666
- -------------------------------------------- ---------------- -----------------
Off-System Sales 8,366 6,849
Transportation 23,804 18,952
Other (248) (1,317)
- -------------------------------------------- ---------------- -----------------
$233,216 $222,150
- -------------------------------------------- ---------------- -----------------
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations (Cont.)
---------------------
Utility Throughput
- ----------------------------------------- ---------------- -----------------
Three Months Ended December 31 (MMcf) 1999 1998
- ----------------------------------------- ---------------- -----------------
Retail Sales:
Residential 20,466 20,215
Commercial 3,678 3,939
Industrial 986 846
- ----------------------------------------- ---------------- -----------------
25,130 25,000
- ----------------------------------------- ---------------- -----------------
Off-System Sales 2,760 2,776
Transportation 16,808 14,971
- ----------------------------------------- ---------------- -----------------
44,698 42,747
- ----------------------------------------- ---------------- -----------------
1999 Compared with 1998
Operating revenues for the Utility segment increased $11.1 million for the
quarter ended December 31, 1999, as compared with the same period a year ago.
The increase in gas sales and transportation revenue of $10.0 million (on a
combined basis) for the quarter is primarily the result of colder weather in the
current year quarter as compared to the prior year quarter. Increased gas
revenues reflects the recovery of higher gas costs, which resulted mainly from
an increase in the average cost of purchased gas ($4.43 and $3.81 per thousand
cubic feet (Mcf) during the quarters ended December 31, 1999 and 1998,
respectively). The increase in transportation volumes and revenues reflect the
colder weather and the migration of residential and small commercial retail
customers to transportation service. This is the result of customers turning to
marketers for their gas supplies while using Distribution Corporation for gas
transportation service. (Restructuring in the Utility segment's service
territory is further discussed in the "Rate Matters" section that follows.)
Other operating revenues increased $1.1 million for the quarter ended
December 31, 1999, as compared with the same period a year ago. Other operating
revenues in the quarter ended December 31, 1998 were reduced by $1.7 million for
the recording of a special gas restructuring reserve to be applied against
incremental costs that could result from the New York Public Service
Commission's (NYPSC) gas restructuring effort. No such reserve is required in
2000 by the terms of the current rate settlement. Partly offsetting this
increase to other operating revenues in the current quarter was the accrual of a
$1.1 million estimated refund provision for a 50% sharing with customers of
earnings over a predetermined amount in accordance with the New York rate
settlement of 1998.
The Utility segment's first quarter 2000 earnings were $21.8 million,
an increase of $3.1 million when compared with first quarter 1999 earnings. The
most significant reason for the increase was an after tax charge in December
1998 of approximately $3.0 million for an early retirement offer. In addition,
as noted above, last year's quarter included a portion (approximately $1.1
million reduction to earnings) of the 1999 special gas restructuring reserve.
Weather, which in the Pennsylvania jurisdiction was approximately 7% colder than
last year's quarter, also contributed to higher earnings in the current period.
The impact of weather variations on earnings in the New York jurisdiction is
mitigated by that jurisdiction's weather normalization clause (WNC). The WNC in
New York, which covers the eight-month period from October through May, has had
a stabilizing effect on earnings for the New York rate jurisdiction. In
addition, in periods of colder than normal weather, the WNC benefits
Distribution Corporation's New York customers. For the quarters ended December
31, 1999 and 1998, as the weather was warmer than normal in both periods, the
WNC preserved earnings of $2.6 million and $2.9 million, respectively.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
<TABLE>
<CAPTION>
Degree Days
- ---------------------------------- -------------- -------------- -------------------- --------------------------------
Percent (Warmer)
Three Months Ended Colder Than
--------------------------------
December 31 Normal 1999 1998 Normal Prior Year
- ---------------------------------- -------------- -------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Buffalo 2,327 2,096 1,972 (9.9%) 6.3%
Erie 2,035 1,854 1,732 (8.9%) 7.0%
- ---------------------------------- -------------- -------------- -------------------- ----------------- --------------
</TABLE>
Pipeline and Storage
Pipeline and Storage Operating Revenues
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- -------------------------------------------- ---------------- -----------------
Firm Transportation $22,761 $23,284
Interruptible Transportation 60 166
- -------------------------------------------- ---------------- -----------------
22,821 23,450
- -------------------------------------------- ---------------- -----------------
Firm Storage Service 15,984 15,657
Interruptible Storage Service 122 129
- -------------------------------------------- ---------------- -----------------
16,106 15,786
- -------------------------------------------- ---------------- -----------------
Other 4,238 2,859
- -------------------------------------------- ---------------- -----------------
$43,165 $42,095
- -------------------------------------------- ---------------- -----------------
Pipeline and Storage Throughput
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 (MMcf) 1999 1998
- -------------------------------------------- ---------------- -----------------
Firm Transportation 82,630 79,523
Interruptible Transportation 241 2,015
- -------------------------------------------- ---------------- -----------------
82,871 81,538
- -------------------------------------------- ---------------- -----------------
1999 Compared with 1998
Operating revenues for the Pipeline and Storage segment increased $1.1 million
for the quarter ended December 31, 1999, as compared with the same period a year
ago. This increase was due mainly to higher revenues from unbundled pipeline
sales and open access transportation.
Earnings in the Pipeline and Storage segment decreased $3.0 million
from $12.3 million for the quarter ended December 31, 1998 to $9.3 million for
the quarter ended December 31, 1999. Included in the December 31, 1998 quarter
earnings were interest income and a reduction in income taxes related to the
final settlement of Internal Revenue Service (IRS) audits for the years 1997 -
1994. These items, which did not recur in the current year's quarter, increased
last year's first quarter earnings by approximately $3.0 million, after tax. The
higher revenues noted above were basically offset by higher operation and
maintenance expense.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Exploration and Production
Exploration and Production Operating Revenues
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- -------------------------------------------- ---------------- -----------------
Gas (after Hedging) $26,631 $18,149
Oil (after Hedging) 17,575 10,533
Gas Processing Plant 4,092 2,727
Other 1,720 219
- -------------------------------------------- ---------------- -----------------
$50,018 $31,628
- -------------------------------------------- ---------------- -----------------
1999 Compared with 1998
Operating revenues for the Exploration and Production segment increased $18.4
million for the quarter ended December 31, 1999, as compared with the quarter
ended December 31, 1998. Gas production revenue (after hedging) and oil
production revenue (after hedging) increased $8.5 million and $7.0 million,
respectively, due to increased production and prices. Refer to tables below for
production and price information. Revenue from Seneca's gas processing plant was
up $1.4 million for the quarter ended December 31, 1999 as compared with the
prior year's quarter. Other revenue increased $1.5 million primarily as a result
of a mark-to-market revenue adjustment related to written options. Refer to
further discussion of written options in the "Market Risk Sensitive Instruments"
section that follows and in Item 1, Note 4 - Derivative Financial Instruments.
The Exploration and Production segment's first quarter 2000 earnings
were $8.0 million, an increase of $7.7 million when compared with the first
quarter of 1999's earnings of $0.3 million. As discussed above, significant
improvement in oil and gas pricing in the current quarter and a 21% increase in
gas production, attributable mainly to offshore Gulf of Mexico production at
Vermilion 309 "A" and "B", were the main reasons for higher earnings. Partly
offsetting these increases in earnings were increases in depletion expense and
lease operating costs, and a decrease in interest income. Depletion expense was
higher mainly as a result of a higher depletable base. Lease operating costs
increased due to increased production. Interest income decreased as a result of
interest received from the final settlement of the IRS audits in December 1998.
Production Volumes
- ------------------------------------------ ---------------- -----------------
Three Months Ended December 31 1999 1998
- ------------------------------------------ ---------------- -----------------
Gas Production (million cubic feet)
Gulf Coast 7,946 6,435
West Coast 1,116 803
Appalachia 1,107 1,157
- ------------------------------------------ ---------------- -----------------
10,169 8,395
- ------------------------------------------ ---------------- -----------------
Oil Production (thousands of barrels)
Gulf Coast 322 333
West Coast 686 636
Appalachia 3 3
- ------------------------------------------ ---------------- -----------------
1,011 972
- ------------------------------------------ ---------------- -----------------
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Average Prices
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 1999 1998
- -------------------------------------------- ---------------- -----------------
Average Gas Price/Mcf
Gulf Coast $2.57 $1.99
West Coast $2.90 $2.39
Appalachia $2.90 $2.41
Weighted Average $2.64 $2.09
Weighted Average After Hedging $2.62 $2.16
Average Oil Price/bbl
Gulf Coast $23.36 $11.86
West Coast $19.97 $8.82
Appalachia $21.67 $12.99
Weighted Average $21.06 $9.88
Weighted Average After Hedging $17.39 $10.84
- -------------------------------------------- ---------------- -----------------
International
International Operating Revenues
- -------------------------------------------- --------------- -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- -------------------------------------------- --------------- -----------------
Heating $27,359 $29,062
Electricity 9,243 9,913
Other 1,471 1,290
- -------------------------------------------- --------------- -----------------
$38,073 $40,265
- -------------------------------------------- --------------- -----------------
International Heating and Electric Volumes
- -------------------------------------------- ---------------- -----------------
Three Months Ended December 31 1999 1998
- -------------------------------------------- ---------------- -----------------
Heating Sales (Gigajoules) (1) 3,967,768 3,971,971
Electricity Sales (megawatt hours) 317,655 306,281
- -------------------------------------------- ---------------- -----------------
(1) Gigajoules = one billion joules. A joule is a unit of energy.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
1999 Compared with 1998
Operating revenues for the International segment decreased $2.2 million for the
quarter ended December 31, 1999 as compared to the quarter ended December 31,
1998. The decrease was primarily due to a decrease in the value of the Czech
koruna, which declined from an average exchange rate of CZK30/USD during the
quarter ended December 31, 1998 to an average exchange rate of CZK35/USD during
the quarter ended December 31, 1999.
Focusing on operations at the Czech koruna level, the quarter ended
December 31, 1999 included the operating revenues from Jablonecka teplarenska a
realitni, a.s. (JTR), a majority-owned district heating plant of Severoeeske
teplarny, a.s. (SCT). SCT owned a minority interest during the quarter ended
December 31, 1998 and JTR's results of operations were not consolidated at that
time. The additional heating revenues from JTR during the quarter ended December
31, 1999 (JTR does not generate electricity), combined with additional electric
revenues from Horizon's other district heating and power generation plants,
offset lower heating revenues at the other district heating and power generation
plants. Lower heating volumes, due to warm weather and conservation efforts by
customers, contributed to the decline in heating revenues. However, as a result
of the lower demand for heat, the plants were able to use the additional steam
to generate more electricity.
The International segment's first quarter 2000 earnings were $4.7
million, an increase of $0.4 million when compared with the first quarter of
1999's earning's of $4.3 million. While earnings were hurt by the decline in the
value of the Czech koruna, as discussed above, the addition of JTR's
consolidated operating results combined with lower operating expenses allowed
for this segment's slight increase in earnings.
Energy Marketing
Energy Marketing Operating Revenues
- ------------------------------------------- ------------------ -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- ------------------------------------------- ------------------ -----------------
Natural Gas (after Hedging) $28,627 $20,143
Electricity 360 284
Other 188 -
- ------------------------------------------- ------------------ -----------------
$29,175 $20,427
- ------------------------------------------- ------------------ -----------------
Energy Marketing Volumes
- -------------------------------------------- ------------------ ----------------
Three Months Ended December 31 1999 1998
- -------------------------------------------- ------------------ ----------------
Natural Gas - (MMcf) 9,161 7,401
- -------------------------------------------- ------------------ ----------------
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
1999 Compared with 1998
Operating revenues for the Energy Marketing segment increased $8.7 million for
the quarter ended December 31, 1999, as compared with the quarter ended December
31, 1998. This increase reflects higher marketing volumes as NFR's customer base
continues to increase.
NFR utilizes exchange-traded futures and exchange-traded options to
manage a portion of the market risk associated with fluctuations in the price of
natural gas. Refer to further discussion of these hedging activities in Item 1,
Note 4 - Derivative Financial Instruments.
The Energy Marketing segment experienced a loss of $17,000 for the
first quarter of 2000. This compares to earnings of $0.2 million for the quarter
ended December 31, 1998. The number of residential customers continues to
increase in the Energy Marketing segment and is currently in excess of 26,000.
However, the significant advertising costs related to marketing efforts aimed at
these customers caused the decrease in this segment's earnings for the quarter.
Timber
Timber Operating Revenues
- ------------------------------------------- ------------------ -----------------
Three Months Ended December 31 (Thousands) 1999 1998
- ------------------------------------------- ------------------ -----------------
Operating Revenues $8,740 $8,090
- ------------------------------------------- ------------------ -----------------
1999 Compared with 1998
Operating revenues for the Timber segment increased $0.7 million for the quarter
ended December 31, 1999, as compared with the quarter ended December 31, 1998.
This increase was due to an increase in kiln dry lumber sales during the quarter
ended December 31, 1999, which resulted from the operation of additional kilns
purchased late in the quarter ended December 31, 1998.
The Timber segment's first quarter 2000 earnings were $0.9 million, a
decrease of $0.4 million when compared with the first quarter 1999 earnings of
$1.3 million. Despite increased revenues noted above, earnings decreased
primarily as a result of higher interest expense related to financing of timber
acquisitions late in 1999 and to the warm, wet weather that has delayed the
cutting of timber.
In January 2000, this segment sold land and timber with a book value of
$3.0 million for $5.4 million. The resulting gain on this sale of $2.4 million
will be included in earnings for the quarter ending March 31, 2000.
Other Income and Interest Charges
Although variances in Other Income items and Interest Charges are discussed in
the earnings discussion by segment above, following is a recap on a consolidated
basis:
Other Income
Other income decreased $3.6 million for the quarter ended December 31, 1999
compared with the quarter ended December 31, 1998. This decrease resulted mainly
from interest income related to the final settlement of IRS audits for years
1977 - 1994, which is included in the quarter ended December 31, 1998, and did
not recur in the current year's quarter.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Interest Charges
Interest on long-term debt decreased $0.7 million for the quarter ended December
31, 1999 as compared with the quarter ended December 31, 1998. This decrease can
be attributed to a lower average amount of long-term debt outstanding, offset in
part by higher weighted average interest rates.
Other interest charges increased $3.2 million for the quarter ended
December 31, 1999. This increase resulted mainly from an increase in the average
amount of short-term debt outstanding and higher weighted average interest rates
in the current quarter, as well as a reduction in interest charges recorded in
the quarter ended December 31, 1998 related to the final settlement of IRS
audits of years 1977 - 1994.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of cash during the three-month period ended
December 31, 1999, 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 stock and benefit plans.
Operating Cash Flow.
Internally generated cash from operating activities consists of net income
available for common stock, adjusted for non-cash expenses, non-cash income and
changes in operating assets and liabilities. Non-cash items include
depreciation, depletion and amortization, deferred income taxes and minority
interest in foreign subsidiaries.
Cash provided by operating activities in the Utility and the Pipeline
and Storage segments may vary 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 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 straight fixed-variable rate design.
Because of the seasonal nature of the Company's heating business,
revenues are relatively high during the three months ended December 31 and
receivables historically increase from September to December because of winter
weather.
The storage gas inventory normally declines during the first and second
quarters of the 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 Statements of Income and a reserve for gas replacement is
recorded in the Consolidated Balance Sheets 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 $13.6 million for the
three months ended December 31, 1999, an increase of $2.0 million compared with
$11.6 million provided by operating activities for the three months ended
December 31, 1998. The increase can be attributed primarily to higher cash
receipts from the sale of oil and gas and lower interest payments in the
Exploration and Production segment. Oil and gas production and prices are up in
this segment and interest payments are down in this segment due to the
retirement of the HarCor Energy, Inc. 14.875% Senior Secured Notes in March 1999
and July 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Investing Cash Flow.
Expenditures for Long-Lived Assets
Expenditures for long-lived assets include additions to property, plant and
equipment (capital expenditures) and investments in corporations (stock
acquisitions) or partnerships, net of any cash acquired.
The Company's expenditures for long-lived assets totaled $60.0 million
during the three months ended December 31, 1999. The table below presents these
expenditures:
<TABLE>
<CAPTION>
- ---------------------------------------------------- ----------------------- ----------------------- ------------------------
Three Months Ended December 31, 1999
(in millions of dollars)
- ---------------------------------------------------- ----------------------- ----------------------- ------------------------
Investments in Total
Capital Corporations Expenditures for
Expenditures and Partnerships Long-Lived Assets
- ---------------------------------------------------- ----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Utility $16.3 - $16.3
Pipeline and Storage 6.3 $1.0 7.3
Exploration and Production 28.9 - 28.9
International 3.0 - 3.0
Timber 3.5 - 3.5
Energy Marketing - - -
All Other - 1.0
1.0
- ---------------------------------------------------- ----------------------- ----------------------- ------------------------
$59.0 (1) $1.0 $60.0
- ---------------------------------------------------- ----------------------- ----------------------- ------------------------
</TABLE>
(1)Includes non-cash acquisition of $1.2 million in a stock-for-asset swap.
Utility
The majority of the Utility capital expenditures were made for replacement of
mains and main extensions, as well as for the replacement of service lines.
Pipeline and Storage
The majority of the Pipeline and Storage capital expenditures were made for
additions, improvements, and replacements to this segment's transmission and
storage systems. The capital expenditures also include approximately $1.2
million of natural gas wells and related pipelines as well as some undeveloped
timber property acquired from Cunningham Natural Gas Corporation (Cunningham).
These assets were acquired through the issuance of 54,674 shares of Company
common stock. In addition to the assets identified above, the Company received
Cunningham's temporary cash investments in exchange for the shares of Company
common stock.
During the quarter, SIP made a $1.0 million investment in Independence
Pipeline Company, a Delaware general partnership, bringing its total investment
through December 31, 1999 to $11.4 million. This investment represents a
one-third partnership interest. The investment has been financed with short-term
borrowings. Independence Pipeline Company intends to build a 370 mile natural
gas pipeline (Independence Pipeline) from Defiance, Ohio to Leidy, Pennsylvania
at an estimated cost of $680 million.* If the Independence Pipeline project is
not constructed, SIP's share of the development costs
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
(including SIP's investment in Independence Pipeline Company) is estimated not
to exceed $15.0 million.*
On December 17, 1999, the Federal Energy Regulatory Commission (FERC)
issued an Interim Order on the various proceedings making up the Independence
Pipeline project. The Interim Order concluded that construction and operation of
the proposed project would be an environmentally acceptable action, subject to
environmental conditions listed in the Order. The Order conditionally approved
the project, but stated that the FERC would issue a final certificate only after
the project sponsors file new evidence of market support in the form of
long-term transportation contracts with non-affiliates for at least 35% of the
capacity of their pipelines. Construction would not be permitted to begin until,
among other things, executed contracts for about 69% of the project's capacity
are executed. The Independence Pipeline project sponsors are working on
obtaining the required customer commitments.*
Exploration and Production
The Exploration and Production segment capital expenditures for the three months
ended December 31, 1999 included approximately $19.3 million for Seneca's
offshore program in the Gulf of Mexico, including offshore drilling
expenditures, offshore construction, lease acquisition costs and geological and
geophysical expenditures. The remaining $9.6 million of capital expenditures
included onshore drilling, construction and recompletion costs for wells located
in Louisiana, Texas and California as well as onshore geological and geophysical
costs, including the purchase of certain 3-D seismic data and fixed asset
purchases.
International
The majority of the International segment capital expenditures were concentrated
in the areas of improvements and replacements within the district heating and
power generation plants in the Czech Republic.
Timber
The majority of the Timber segment capital expenditures were made for purchases
of timber for Seneca's timber operations, as well as equipment for Highland's
sawmill and kiln operations. As discussed under the Timber segment's results of
operations, in January 2000, this segment sold land and timber with a book value
of $3.0 million for $5.4 million. The resulting gain on this sale of $2.4
million will be included in earnings for the quarter ending March 31, 2000.
All Other
Capital expenditures for all other subsidiaries consisted primarily of a
purchase of a 50% interest in a gas processing facility.
The Company continuously evaluates capital expenditures and investments
in corporations and partnerships. The amounts are subject to modification for
opportunities such as the acquisition of attractive oil and gas properties,
timber 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 or other investments
in the Company's other business segments depends, to a large degree, upon market
conditions.*
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Financing Cash Flow.
Consolidated short-term debt increased $65.2 million during the first three
months of 2000. The Company continues to consider short-term bank loans and
commercial paper important sources of cash for temporarily financing capital
expenditures and investments in corporations and/or partnerships, gas-in-storage
inventory, unrecovered purchased gas costs, exploration and development
expenditures and other working capital needs. Fluctuations in these items can
have a significant impact on the amount and timing of short-term debt.
In March 1998, the Company obtained authorization from the Securities
and Exchange Commission (SEC), under the Holding Company Act, to issue long-term
debt securities and equity securities in amounts not exceeding $2.0 billion at
any one time outstanding during the order's authorization period, which extends
to December 31, 2002. In August 1999, the Company obtained authorization from
the SEC under the Securities Act of 1933 to issue up to $625 million of debt and
equity securities.
The Company's present liquidity position is believed to be adequate to
satisfy known demands.* Under the Company's existing indenture covenants, at
December 31, 1999, the Company would have been permitted to issue up to a
maximum of $538.0 million in additional long-term unsecured indebtedness at
projected market interest rates. In addition, at December 31, 1999, the Company
had regulatory authorizations and unused short-term credit lines that would have
permitted it to borrow an additional $291.3 million of short-term debt.
The amounts and timing of the issuance and sale of debt and/or equity
securities will depend on market conditions, regulatory authorizations, and the
requirements of the Company.
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.*
Market Risk Sensitive Instruments
For a complete discussion of market risk sensitive instruments, refer to "Market
Risk Sensitive Instruments" in Item 7 of the Company's 1999 Form 10-K. There
have been no subsequent material changes to the Company's exposure to market
risk sensitive instruments.
RATE MATTERS
Utility Operation
New York Jurisdiction
On October 21, 1998, the NYPSC approved a rate plan for Distribution Corporation
for the period beginning October 1, 1998 and ending September 30, 2000. The plan
was the result of a settlement agreement entered into by Distribution
Corporation, Staff for the NYPSC (Staff), Multiple Intervenors (an advocate for
large industrial customers) and the State Consumer Protection Board. Under the
plan,
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Distribution Corporation's rates decreased by $7.2 million, or 1.1%. In
addition, the plan provided customers with up to $6.0 million in bill credits,
disbursed volumetrically over the two year term, reflecting a predetermined
share of excess earnings under a 1996 settlement. An allowed return on equity of
12%, above which additional earnings are to be shared equally with the
customers, was maintained from a 1996 settlement. Finally, as provided by the
rate plan, $7.2 million of 1999 revenues were set aside in a special reserve to
be applied against Distribution Corporation's incremental costs resulting from
the NYPSC's gas restructuring effort further described below.
On November 3, 1998, the NYPSC issued its Policy Statement Concerning
the Future of the Natural Gas Industry in New York State and Order Terminating
Capacity Assignment (Policy Statement). The Policy Statement sets forth the
NYPSC's "vision" on "how best to ensure a competitive market for natural gas in
New York." That vision includes the following goals:
(1) Effective competition in the gas supply market for retail
customers;
(2) Downward pressure on customer gas prices;
(3) Increased customer choice of gas suppliers and service options;
(4) A provider of last resort (not necessarily the utility);
(5) Continuation of reliable service and maintenance of operations
procedures that treat all participants fairly;
(6) Sufficient and accurate information for customers to use in making
informed decisions;
(7) The availability of information that permits adequate oversight of
the market to ensure fair competition; and
(8) Coordination of Federal and State policies affecting gas supply
and distribution in New York State.
The Policy Statement provides that the most effective way to establish
a competitive market in gas supply is "for local distribution companies to cease
selling gas." The NYPSC indicated in its order that it hopes to accomplish that
objective over a three-to-seven year transition period from the date the Policy
Statement was issued, taking into account "statutory requirements" and the
individual needs of each local distribution company (LDC).* The Policy Statement
directs Staff to schedule "discussions" with each LDC on an "individualized plan
that would effectuate our vision." In preparation for negotiations, LDCs will be
required to address issues such as a strategy to hold new capacity contracts to
a minimum, a long-term rate plan with a goal of reducing or freezing rates, and
a plan for further unbundling. In addition, Staff was instructed to hold
collaborative sessions with multiple parties to discuss generic issues including
reliability and market power regulation. Distribution Corporation has
participated in the collaborative sessions. These collaborative sessions have
not yet produced a consensus document on all issues before the NYPSC.
Distribution Corporation will continue to participate in all future
collaborative sessions.*
Distribution Corporation was recently advised, on an informal basis,
that its "individualized plan" for restructuring to "effectuate [the NYPSC's]
vision" may be included in discussions anticipated in connection with the
current rate settlement, which expires on its own terms on September 30, 2000.
On June 7, 1999, the NYPSC issued a notice requesting comments on
Staff's proposal for a "single retailer" billing environment. The proposal
recommends that electric and gas utilities exit the billing function at an
undetermined future date. The retail billing function would then be performed
solely by unregulated marketers. Included in the billing proposal is a
recommendation that utilities design a "back-out" credit equal to the long run
costs avoided by each utility when billing is provided by another party.
Distribution Corporation filed comments opposing much of the proposal but
supporting a
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations (Cont.)
---------------------
suggested interim regime where multiple billing arrangements, including utility
billing, would be permitted. This proceeding remains pending. In anticipation of
a NYPSC order partially adopting Staff's recommendation, Distribution
Corporation is exploring the development of a retail billing service for sale to
marketers serving aggregated customers. There is a market for retail billing
services in Distribution Corporation's service territory, and Distribution
Corporation believes that a service can be designed that will meet the approval
of the regulators.*
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.
Effective October 1, 1997, Distribution Corporation commenced a PaPUC
approved customer choice pilot program called Energy Select. Energy Select,
which lasted until April 1, 1999, allowed approximately 19,000 small commercial
and residential customers of Distribution Corporation in the greater Sharon,
Pennsylvania area to purchase gas supplies from qualified, participating
non-utility suppliers (or marketers) of gas. Distribution Corporation was not a
supplier of gas in this pilot. Under Energy Select, Distribution Corporation
delivered the gas to the customer's home or business and remained responsible
for reading customer meters, the safety and maintenance of its pipeline system
and responding to gas emergencies. NFR was a participating supplier in Energy
Select.
Effective February 11, 1999, Distribution Corporation's System Wide
Energy Select tariff was approved by the PaPUC. This program is intended to
expand the Energy Select pilot program described above to apply across
Distribution Corporation's entire Pennsylvania service territory. The plan
borrows many features of the Energy Select pilot, but several important changes
were adopted. Most significantly, the new program includes Distribution
Corporation as a choice for retail consumers, in furtherance of Distribution
Corporation's objective to remain a merchant. Also departing from the pilot
scheme, Distribution Corporation resumes its role as provider of last resort and
maintains customer contact by providing a billing service on its own behalf and,
as an option, for participating marketers.
A natural gas restructuring bill was signed into law on June 22, 1999.
Entitled the Natural Gas Choice and Competition Act (Act), the new law requires
all Pennsylvania LDCs to file tariffs designed to provide retail customers with
direct access to competitive gas markets. Distribution Corporation submitted its
compliance filing on October 1, 1999 for an effective date on or about July 1,
2000. The filing largely mirrors the System Wide Energy Select program currently
in effect, which substantially complies with the Act's requirements. Currently
the parties to the proceeding are engaged in settlement discussions.
Distribution Corporation is unable to predict the outcome of the proceeding at
this time.
Base rate adjustments 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
appropriate regulatory authorities.
Pipeline and Storage
Supply Corporation currently does not have a rate case on file with the Federal
Energy Regulatory Commission (FERC). Its last case was settled with the FERC in
February 1996. As part of that settlement, Supply Corporation agreed not to seek
recovery of revenues related to certain terminated service from storage
customers until April 1, 2000, as long as the terminations were not greater than
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
approximately 30% of the terminable service. Supply Corporation has been
successful in marketing and obtaining executed contracts for such terminated
storage service (at discounted rates) and expects to continue obtaining executed
contracts for additional terminated storage service as it arises.*
Other Matters
Environmental Matters
It is the Company's policy to accrue estimated environmental clean-up costs
(investigation and remediation) when such amounts can reasonably be estimated
and it is probable that the Company will be required to incur such costs.
Distribution Corporation and Supply Corporation have estimated their clean-up
costs related to former manufactured gas plant and former gasoline plant sites
and third party waste disposal sites will be in the range of $9.0 million to
$10.0 million.* The minimum liability of $9.0 million has been recorded on the
Consolidated Balance Sheet at December 31, 1999. Other than discussed in Note H
of the 1999 Form 10-K (referred to below), the Company is currently not aware of
any material additional exposure to environmental liabilities. However, adverse
changes in environmental regulations or other factors could impact the Company.*
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 the ongoing evaluation of its operations to identify
potential environmental exposures and comply with regulatory policies and
procedures.
For further discussion refer to Note H - Commitments and Contingencies
under the heading "Environmental Matters" in Item 8 of the Company's 1999 Form
10-K.
Year 2000
During the late 1990s, numerous media reports heightened concern that
information technology computer systems, software programs and semiconductors
might not be capable of recognizing dates after December 31, 1999 and, in
certain instances, might fail to function properly. For a further discussion of
the Year 2000 computer issue and the Company's related remediation and
contingency planning, refer to "Other Matters" in Item 7 of the Company's 1999
Form 10-K.
The Company has experienced no disruptions in its business operations
as a result of the Year 2000 computer issue and has encountered no significant
internal computer errors related to the Year 2000. The Company's Year 2000
command centers were in operation on the evening of December 31, 1999 and
morning of January 1, 2000 and reported normal operations across all business
activities and computer systems within the Company. The Company's computer
systems have continued to experience normal operations. Furthermore, the Company
has experienced no disruptions in its supply chain as a result of the Year 2000.
The Company intends to continue monitoring its computer systems and business
operations for Year 2000 errors throughout the remainder of the year and intends
to deploy the necessary portions of its Year 2000 contingency plan in the event
any Year 2000 disruptions arise in either the Company's internal systems or the
systems of its critical vendors over the upcoming year.*
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
The cost of upgrading both vendor supplied and internally developed
systems and services was expensed as incurred and has amounted to approximately
$2.4 million in total. The Company does not expect to incur any significant
future costs as a result of the Year 2000 computer issue.*
All of the above Year 2000 information is a YEAR 2000 READINESS
DISCLOSURE made pursuant to the Year 2000 Information and Readiness Disclosure
Act of 1998.
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 without limitation those which are
designated with a "*", 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 statements:
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 or changes in project
costs
8. The nature and projected profitability of pending and potential projects
and other investments
9. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Concl.)
----------------------
10. Uncertainty of oil and gas reserve estimates
11. Ability to successfully identify and finance oil and gas property
acquisitions and ability to operate existing and any subsequently
acquired properties
12. Ability to successfully identify, drill for and produce economically
viable natural gas and oil reserves
13. Changes in the availability and/or price of derivative financial
instruments
14. Inability of the various counterparties to meet their obligations with
respect to the Company's financial instruments
15. 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
16. Significant changes in tax rates or policies or in rates of inflation or
interest
17. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur
18. Changes in accounting principles and/or the application of such
principles to the Company
19. Unanticipated or residual problems related to the Company's internal Year
2000 initiative as well as potential adverse consequences related to
third party Year 2000 compliance.
The Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date hereof.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Refer to the "Market Risk Sensitive Instruments" section in Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Part II. Other Information
- ---------------------------
Item 2. Changes in Securities
---------------------
On October 1, 1999, 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' services during the quarter ended December 31, 1999, 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 a public offering.
<PAGE>
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 December 31, 1999 and
the Fiscal Years Ended September 30, 1995
through 1999.
(27) Financial Data Schedules
27.1 Financial Data Schedule for the Three Months
Ended December 31, 1999.
27.2 Restated Financial Data Schedule for the
Three Months Ended December 31, 1998.
27.3 Restated Financial Data Schedule for the
Twelve Months Ended September 30, 1999.
(99) National Fuel Gas Company Consolidated
Statement of Income for the Twelve Months
Ended December 31, 1999 and 1998.
(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, 2000
-----------------
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EXHIBIT 12
EARNINGS TO FIXED CHARGES
UNAUDITED
Twelve Months Fiscal Year Ended September 30
Ended --------------------------------------------------------
December 31, 1999 1999 1998 1997 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income Before Interest Charges and Minority
Interest in Foreign Subsidiaries (2) $212,256 $202,512 $118,085 $169,783 $159,599 $128,061
Allowance for Borrowed Funds Used in
Construction 335 303 110 346 205 195
Federal Income Tax 47,168 44,583 43,626 57,807 55,148 30,522
State Income Tax 5,844 6,215 6,635 7,067 7,266 4,905
Deferred Inc. Taxes - Net (3) 15,660 14,030 (26,237) 3,800 3,907 8,452
Investment Tax Credit - Net (830) (729) (663) (665) (665) (672)
Rentals (1) 4,182 4,281 4,672 5,328 5,640 5,422
------------------------------------------------------------------------------
$284,615 $271,195 $146,228 $243,466 $231,100 $176,885
==============================================================================
FIXED CHARGES:
Interest & Amortization of Premium and
Discount of Funded Debt $ 64,706 $ 65,402 $ 53,154 $ 42,131 $ 40,872 $ 40,896
Interest on Commercial Paper and
Short-Term Notes Payable 18,245 17,319 13,605 8,808 7,872 6,745
Other Interest (2) 5,691 2,835 16,919 4,502 6,389 4,721
Rentals (1) 4,182 4,281 4,672 5,328 5,640 5,422
------------------------------------------------------------------------------
$ 92,824 $ 89,837 $ 88,350 $ 60,769 $ 60,773 $ 57,784
==============================================================================
RATIO OF EARNINGS TO FIXED CHARGES 3.07 3.02 1.66 4.01 3.80 3.06
</TABLE>
Notes:
(1) Rentals shown above represent the portion of all rentals (other than
delay rentals) deemed representative of the interest factor.
(2) The twelve months ended December 31, 1999 and, fiscal 1999, 1998, 1997,
1996 and 1995 reflect the reclassification of $1,927, $1,839, $1,716,
$1,716, $1,716 and $1,716, representing the loss on reacquired debt
amortized during each period, from Other Interest Charges to Operation
Expense.
(3) Deferred Income Taxes - Net for fiscal 1998 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,372,928
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 314,245
<TOTAL-DEFERRED-CHARGES> 12,477
<OTHER-ASSETS> 216,249
<TOTAL-ASSETS> 2,915,899
<COMMON> 38,985
<CAPITAL-SURPLUS-PAID-IN> 438,351
<RETAINED-EARNINGS> 499,301
<TOTAL-COMMON-STOCKHOLDERS-EQ> 963,721
0
0
<LONG-TERM-DEBT-NET> 816,585
<SHORT-TERM-NOTES> 259,295
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 199,400
<LONG-TERM-DEBT-CURRENT-PORT> 62,371
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 614,527
<TOT-CAPITALIZATION-AND-LIAB> 2,915,899
<GROSS-OPERATING-REVENUE> 377,031
<INCOME-TAX-EXPENSE> 21,738
<OTHER-OPERATING-EXPENSES> 285,056
<TOTAL-OPERATING-EXPENSES> 306,794
<OPERATING-INCOME-LOSS> 70,237
<OTHER-INCOME-NET> 1,172
<INCOME-BEFORE-INTEREST-EXPEN> 71,409
<TOTAL-INTEREST-EXPENSE> 25,230
<NET-INCOME> 44,868
0
<EARNINGS-AVAILABLE-FOR-COMM> 44,868
<COMMON-STOCK-DIVIDENDS> 18,084
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 13,587
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.14
</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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 03-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,272,867
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 307,178
<TOTAL-DEFERRED-CHARGES> 10,514
<OTHER-ASSETS> 221,308
<TOTAL-ASSETS> 2,811,867
<COMMON> 38,555
<CAPITAL-SURPLUS-PAID-IN> 419,579
<RETAINED-EARNINGS> 448,433
<TOTAL-COMMON-STOCKHOLDERS-EQ> 913,962
0
0
<LONG-TERM-DEBT-NET> 694,574
<SHORT-TERM-NOTES> 242,200
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 150,000
<LONG-TERM-DEBT-CURRENT-PORT> 214,655
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 596,476
<TOT-CAPITALIZATION-AND-LIAB> 2,811,867
<GROSS-OPERATING-REVENUE> 340,422
<INCOME-TAX-EXPENSE> 17,900
<OTHER-OPERATING-EXPENSES> 265,687
<TOTAL-OPERATING-EXPENSES> 283,587
<OPERATING-INCOME-LOSS> 56,835
<OTHER-INCOME-NET> 4,742
<INCOME-BEFORE-INTEREST-EXPEN> 61,577
<TOTAL-INTEREST-EXPENSE> 22,694
<NET-INCOME> 37,619
0
<EARNINGS-AVAILABLE-FOR-COMM> 37,619
<COMMON-STOCK-DIVIDENDS> 17,298
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 11,627
<EPS-BASIC> .98
<EPS-DILUTED> .97
</TABLE>
<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.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,361,232
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 250,102
<TOTAL-DEFERRED-CHARGES> 14,266
<OTHER-ASSETS> 216,986
<TOTAL-ASSETS> 2,842,586
<COMMON> 38,837
<CAPITAL-SURPLUS-PAID-IN> 431,952
<RETAINED-EARNINGS> 472,517
<TOTAL-COMMON-STOCKHOLDERS-EQ> 939,293
0
0
<LONG-TERM-DEBT-NET> 822,743
<SHORT-TERM-NOTES> 245,995
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 147,500
<LONG-TERM-DEBT-CURRENT-PORT> 69,608
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 617,447
<TOT-CAPITALIZATION-AND-LIAB> 2,842,586
<GROSS-OPERATING-REVENUE> 1,263,274
<INCOME-TAX-EXPENSE> 64,829
<OTHER-OPERATING-EXPENSES> 1,006,437
<TOTAL-OPERATING-EXPENSES> 1,071,266
<OPERATING-INCOME-LOSS> 192,008
<OTHER-INCOME-NET> 12,343
<INCOME-BEFORE-INTEREST-EXPEN> 204,351
<TOTAL-INTEREST-EXPENSE> 87,698
<NET-INCOME> 115,037
0
<EARNINGS-AVAILABLE-FOR-COMM> 115,037
<COMMON-STOCK-DIVIDENDS> 70,632
<TOTAL-INTEREST-ON-BONDS> 54,501
<CASH-FLOW-OPERATIONS> 271,890
<EPS-BASIC> 2.98
<EPS-DILUTED> 2.95
</TABLE>
Exhibit 99
Form 10-Q
December 31, 1999
<TABLE>
<CAPTION>
NATIONAL FUEL GAS
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Twelve Months Ended
December 31,
------------------------------
1999 1998
(Thousands of Dollars)
<S> <C> <C>
INCOME
Operating Revenues $ 1,299,883 $ 1,217,401
------------- -------------
Operating Expenses
Purchased Gas 423,009 388,484
Fuel Used in Heat and Electric Generation 53,594 53,477
Operation 305,064 307,145
Maintenance 23,453 25,029
Property, Franchise and Other Taxes 91,932 90,612
Depreciation, Depletion and Amortization 128,754 116,246
Impairment of Oil & Gas Producing Properties - 128,996
Income Taxes - Net 68,667 18,925
------------- -------------
1,094,473 1,128,914
------------- -------------
Operating Income 205,410 88,487
Other Income 8,773 39,445
------------- -------------
Income Before Interest Charges and Minority
Interest in Foreign Subsidiaries 214,183 127,932
------------- -------------
Interest Charges
Interest on Long-Term Debt 64,706 59,033
Other Interest 25,528 33,458
------------- -------------
90,234 92,491
------------- -------------
Minority Interest in Foreign Subsidiaries (1,663) (3,051)
------------- -------------
Net Income Available for Common Stock $ 122,286 $ 32,390
============= =============
Basic Earnings Per Common Share: $ 3.15 $ 0.84
============= =============
Diluted Earnings Per Common Share: $ 3.12 $ 0.84
============= =============
Weighted Average Common Shares Outstanding:
Used in Basic Calculation 38,763,563 38,399,524
============= =============
Used in Diluted Calculation 39,152,655 38,783,179
============= =============
</TABLE>
