NFR POWER, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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NFR POWER, INC.
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INDEX TO FINANCIAL STATEMENTS
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Page
Number
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Report of Independent Accountants 1
Financial Statements:
NFR Power, Inc. Balance Sheet at
September 30, 1999 2
NFR Power, Inc. Statement of Operations
for the Year Ended September 30, 1999 3
NFR Power, Inc. Statement of
Stockholder's Deficit at September 30, 1999 4
NFR Power, Inc. Statement of Cash
Flows for the Year Ended
September 30, 1999 5
Notes to Financial Statements 6 - 8
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Report of Independent Accountants
To the Board of Directors and Stockholder
of NFR Power, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operations, stockholder's deficit, and cash flows present fairly, in all
material respects, the financial position of NFR Power Inc. (the "Company") at
September 30, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP
April 17, 2000
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NFR Power, Inc.
Balance Sheet
September 30,
1999
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Assets
Current Assets:
Cash $ 14,550
Accounts Receivable 56,319
Taxes Receivable from the Parent 43,760
Prepayments 53,984
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168,613
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Property, Plant and Equipment:
Building 100,000
Industrial and Office Equipment 59,681
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159,681
Less: Accumulated Depreciation (6,761)
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152,920
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Total Assets $ 321,533
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Liabilities and Stockholder's Deficit
Liabilities
Current Liabilities:
Notes Payable - Intercompany $ 324,008
Accounts Payable - Intercompany 51,555
Accounts Payable 7,239
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382,802
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Stockholder's Deficit:
Common Stock, $1 par value;
authorized 20,000 shares; 500 shares
issued and outstanding 500
Paid in Capital 19,500
Accumulated Deficit (81,269)
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(61,269)
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Total Capitalization and Liabilities $ 321,533
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See Notes to Financial Statements
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NFR Power, Inc.
Statement of Operations
For the Year Ended
September 30, 1999
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Operating Revenues $ 41,156
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Operating Expenses:
Utilities 55,305
Property, Franchise and Other Taxes 54,763
Contractors 24,000
Repairs and Maintenance 17,914
Depreciation 6,761
Other 5,381
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164,124
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Operating Loss (122,968)
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Interest Expense:
Intercompany Interest Expense 2,061
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Income Taxes:
Current (43,760)
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Net Loss $ (81,269)
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See Notes to Financial Statements
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NFR Power, Inc.
Statement of Stockholder's Deficit
<TABLE>
<CAPTION>
Total
Common Paid-in Deficit Stockholder's
Stock Capital Accumulated Deficit
------------ ------------ ---------------------- ------------------
<S> <C> <C> <C> <C>
Balance at October 1, 1998 $ - $ - $ - $ -
Common Stock Issued 500 19,500 - 20,000
Net Loss - - (81,269) (81,269)
------------ ------------ ---------------------- ------------------
Balance at September 30, 1999 $ 500 $ 19,500 $ (81,269) $ (61,269)
============ ============ ====================== ==================
</TABLE>
See Notes to Financial Statements
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NFR Power, Inc.
Statement of Cash Flows
For the Year Ended
September 30, 1999
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Operating Activities
Net Loss $ (81,269)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 6,761
Change in:
Accounts Receivable (56,319)
Taxes Receivable from the Parent (43,760)
Prepayments (53,984)
Accounts Payable - Intercompany 51,555
Accounts Payable 7,239
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Net Cash Used in Operating Activities (169,777)
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Investing Activities
Capital Expenditures (159,681)
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Net Cash Used in Investing Activities (159,681)
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Financing Activities
Change in Notes Payable - Intercompany 324,008
Proceeds from Common Stock Issuance 20,000
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Net Cash Provided by Financing Activities 344,008
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Net Increase in Cash 14,550
Cash at October 1, 1998 -
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Cash at September 30, 1999 $ 14,550
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See Notes to Financial Statements
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NFR Power, Inc.
Notes to Financial Statements
Note 1: Description of Business
NFR Power, Inc. (Power), a New York corporation, is a wholly owned subsidiary of
National Fuel Gas Company (NFG). Power purchased a shell co-generation plant on
June 29, 1999 through the use of an intercompany demand note payable to National
Fuel Resources, Inc. (NFR) (see Note 3: Notes Payable - Intercompany), another
wholly owned subsidiary of NFG. In March 2000, Power purchased a 50% partnership
interest in a company that generates electricity from the methane gas created in
a landfill (see further discussion in Note 4: Subsequent Event). Power is
designated as an "exempt wholesale generator" under the Public Utility Holding
Company Act of 1935. Power is currently in the process of installing new
generation equipment which will produce 40 to 50 megawatts of electricity upon
completion. Power anticipates electric generation will begin in the latter part
of fiscal 2001 or during fiscal 2002.
Note 2: Summary of Significant Accounting Policies
Property, Plant and Equipment
At September 30, 1999, property, plant and equipment consisted primarily of a
building and miscellaneous equipment. The building is a former co-generation
plant which is in the process of being redesigned for electric generation. All
property, plant and equipment has been recorded at fair value as of the date of
the acquisition. Depreciation is computed using the Modified Accelerated Cost
Recovery System over the following estimated useful lives:
Years
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Building 39
Office and Industrial Equipment 7 - 15
Operating Revenues and Utility Expenses
The former co-generation plant has boilers which generate steam for a
manufacturer adjacent to the plant. As an interim solution until the power plant
is made operational, the manufacturer owns the boilers while Power operates the
boilers for the manufacturer. The manufacturer reimburses Power for its utility
costs plus a 10% service charge. Power records the 10% service charge and the
reimbursement of utility costs as operating revenues.
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NFR Power, Inc.
Notes to Financial Statements (Continued)
Income Taxes
NFG and its domestic subsidiaries, which includes Power, file a consolidated
federal income tax return. The Company determines its federal income tax
liability in accordance with the intercompany tax allocation agreement between
NFG and its subsidiaries. Pursuant to this agreement, tax benefits relating to
net operating losses are recognized as amounts are receivable from NFG upon
utilization of such losses in the consolidated federal income tax return.
Statement of Cash Flows
For purposes of the Statement of Cash Flows, Power considers all highly liquid
debt instruments purchased with a maturity of generally three months or less to
be cash equivalents. Power did not pay any income taxes or interest during the
year ended September 30, 1999.
Use of Estimates
The preparation of 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.
Note 3: Notes Payable - Intercompany
Notes Payable - Intercompany consisted of the following at September 30, 1999:
Demand Note Payable to NFR $125,931
Line of Credit with NFR 198,077
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$324,008
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The Demand Note and amounts drawn from the Line of Credit are variable rate
debt. The interest rate on both was approximately 5.5% at September 30, 1999.
The Line of Credit is for a maximum amount of $1.0 million.
Note 4: Subsequent Event (Unaudited)
In March 2000, Power purchased a 50% interest in Seneca Energy II, LLC (Seneca
Energy) for $2.6 million. Seneca Energy is in the business of generating and
selling electricity to a public utility. Seneca Energy generates the electricity
by using methane
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NFR Power, Inc.
Notes to Financial Statements (Continued)
gas obtained from a landfill in Seneca Falls, New York, which is owned by an
outside party.
To finance this investment, Power received a $5.0 million capital contribution
from NFG in February 2000. This capital contribution was recorded as an addition
to Paid in Capital on Power's balance sheet. The excess proceeds, after making
the investment, were used to repay the amounts borrowed from NFR under the
Demand Note and Line of Credit discussed above in Note 3: Notes Payable -
Intercompany. Upon repayment, the Line of Credit with NFR was cancelled and a
new Line of Credit of up to $5.0 million was established with NFG.
