SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number: 1-11156
NGC CORPORATION
(Exact name of registrant as specified in its charter)
AND EACH OF THE SUBSIDIARY GUARANTORS OF $250 MILLION OF DEBT SECURITIES
DELAWARE 75-2386657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13430 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
(713) 507-6400
(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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: Common stock, $.01 par value per share,
110,972,191 shares outstanding as of May 13, 1996.
<PAGE>
NGC CORPORATION
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets:
March 31, 1996 and December 31, 1995.................................3
Condensed Consolidated Statements of Operations:
For the three months ended March 31, 1996, and 1995..................4
Condensed Consolidated Statements of Cash Flows:
For the three months ended March 31, 1996 and 1995...................5
Notes to Condensed Consolidated Financial Statements....................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................18
Item 2. Not Applicable.................................................--
Item 3. Not Applicable.................................................--
Item 4. Not Applicable.................................................--
Item 5. Not Applicable.................................................--
Item 6. Exhibits and Reports on Form 8-K...............................18
<PAGE>
NGC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 57,745 $ 16,266
Accounts receivable, net ............................................... 611,077 562,278
Accounts receivable, affiliates ........................................ 1,584 1,624
Inventories ............................................................ 61,952 74,263
Assets from risk management activities ................................. 77,075 88,093
Prepayments and other assets ........................................... 10,088 20,415
----------- -----------
819,521 762,939
PROPERTY, PLANT AND EQUIPMENT .......................................... 1,023,286 1,013,354
Less: accumulated depreciation ......................................... (78,089) (64,843)
----------- -----------
945,197 948,511
----------- -----------
OTHER ASSETS:
Investments in unconsolidated affiliates ............................... 64,773 62,370
Assets from risk management activities ................................. 20,209 26,380
Other assets ........................................................... 84,474 75,052
----------- -----------
$ 1,934,174 $ 1,875,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................................... $ 607,450 $ 543,108
Accounts payable, affiliates ........................................... 2,555 22,547
Accrued liabilities .................................................... 60,405 58,736
Liabilities from risk management activities ............................ 63,977 81,283
----------- -----------
734,387 705,674
LONG-TERM DEBT ......................................................... 503,747 522,764
OTHER LIABILITIES:
Liabilities from risk management activities ............................ 16,106 22,570
Deferred income taxes .................................................. 59,520 43,227
Other long-term liabilities ............................................ 36,395 28,637
----------- -----------
1,350,155 1,322,872
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 50,000,000 shares authorized .......... -- --
Common stock, $.01 par value, 300,000,000 shares authorized;
110,725,647 shares issued and outstanding at March 31, 1996;
110,493,411 shares issued and 105,031,874 shares outstanding
at December 31, 1995 ... ........................................... 1,107 1,105
Additional paid-in capital ............................................. 518,034 515,785
Retained earnings ...................................................... 64,878 35,490
----------- -----------
584,019 552,380
----------- -----------
$ 1,934,174 $ 1,875,252
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 19
NGC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands,
except per share data)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
----------- ---------
Revenues ................................ $ 1,647,123 $ 802,944
Cost of sales ........................... 1,557,041 771,458
----------- ---------
Operating margin ........................ 90,082 31,486
Depreciation and amortization ........... 14,170 5,626
General and administrative expenses ..... 22,276 14,471
----------- ---------
Operating income ........................ 53,636 11,389
Equity in earnings of unconsolidated
affiliates ......................... 4,510 4,858
Other income ............................ 1,621 598
Interest expense ........................ (10,653) (3,732)
Other expenses .......................... (2,493) (1,366)
----------- ---------
Income before income taxes .............. 46,621 11,747
Income tax provision .................... 16,293 (43,527)
----------- ---------
NET INCOME .............................. $ 30,328 $ 55,274
=========== =========
NET INCOME PER SHARE: PRO FORMA
Income before income taxes .............. $ 46,621 $ 11,747
Income tax provision .................... 16,293 4,346
----------- ---------
Net income .............................. $ 30,328 $ 7,401
=========== =========
Net income per common and common
equivalent share ................... $ 0.26 $ 0.07
=========== =========
Weighted average number of common and
common equivalent shares outstanding 118,923 104,546
=========== =========
See notes to condensed consolidated financial statements.
Page 4 of 19
NGC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 30,328 $ 55,274
Items not affecting cash flows from operating activities:
Depreciation and amortization ...................................... 14,170 5,626
Equity in earnings of affiliates, net of cash distributions ........ (4,510) (4,858)
Risk management activities ......................................... (6,581) (441)
Deferred income taxes .............................................. 16,406 (43,527)
Amortization of bond premium ....................................... (1,017) (200)
Changes in assets and liabilities resulting from operating activities:
Accounts receivable ................................................ (33,192) 83,963
Inventories ........................................................ 16,921 5,432
Prepayments and other assets ....................................... 11,905 (3,267)
Accounts payable ................................................... 29,378 (77,648)
Accrued liabilities ................................................ (4,109) 2,629
Other, net ........................................................... 368 4,177
--------- ---------
Net cash provided by operating activities ............................ 70,067 27,160
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................. (13,788) (4,285)
Acquisition of Trident NGL Holding, Inc., net of cash acquired ....... -- (165,267)
Investment in unconsolidated affiliates, net ......................... 4,040 --
--------- ---------
Net cash used in investing activities ................................ (9,748) (169,552)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings ................................... 369,000 309,000
Repayments of long-term borrowings ................................... (387,000) (288,250)
Proceeds from sale of capital stock, options and warrants ............ 29 --
Capital contributions ................................................ -- 135,000
Dividends and other distributions .................................... (869) (5,582)
--------- ---------
Net cash provided by (used in) financing activities .................. (18,840) 150,168
--------- ---------
Net change in cash and cash equivalents .............................. 41,479 7,776
Cash and cash equivalents, beginning of period ....................... 16,266 15,219
--------- ---------
Cash and cash equivalents, end of period ............................. $ 57,745 $ 22,995
========= =========
</TABLE>
Page 5 of 19
NGC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Interim Periods Ended March 31, 1996 and 1995
(unaudited)
See notes to condensed consolidated financial statements.
NOTE 1 -- ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to interim financial reporting as
prescribed by the Securities and Exchange Commission ("SEC"). These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995, filed with the SEC.
The financial statements include all material adjustments consisting only of
normal recurring adjustments which, in the opinion of management, were necessary
for a fair presentation of the results for the interim periods. Interim period
results are not necessarily indicative of the results for the full year. The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to develop
estimates and make assumptions that affect reported financial position and
results of operations and that impact the nature and extent of disclosure, if
any, of contingent assets and liabilities. Actual results could differ from
those estimates.
NOTE 2 -- ACQUISITION OF GAS MARKETING AND MIDSTREAM ASSETS
NGC Corporation ("NGC" or the "Company") and Chevron Corporation ("Chevron")
announced on January 22, 1996, a proposed merger that would create a new company
comprised of all of NGC and substantially all of Chevron's gas gathering,
processing and marketing operations as well as establish certain strategic
alliances between the two companies. The companies anticipate that the
Combination Agreement and Plan of Merger will be executed by the end of May 1996
and that closing of the transaction will occur during the third quarter. Closing
of the merger is contingent on regulatory approval which is expected to be
obtained in the third quarter. The combined company, which will retain the name
NGC Corporation, will include all of NGC and most of two Chevron business units:
the Houston-based Natural Gas Business Unit and Tulsa-based Warren Petroleum
Company. For its contribution, Chevron will receive approximately 46 million
shares in the new company, in a combination of common and preferred shares, and
approximately $300 million in a combination of cash and debt assumption.
NOTE 3 -- BUSINESS COMBINATION WITH TRIDENT NGL HOLDING, INC. ("TRIDENT")
On March 14, 1995, Natural Gas Clearinghouse ("Clearinghouse") consummated a
strategic business combination ("Combination") with Trident and the combined
entities were renamed NGC Corporation ("NGC" or the "Company"). The purchase
price of approximately $350 million, excluding transaction costs and liabilities
assumed, was allocated to the assets acquired and liabilities assumed based on
their estimated fair values as of March 1, 1995, the effective date of the
Combination for accounting purposes. The Combination was accounted for under the
purchase method of accounting and the results of operations of Trident are
included in the accompanying financial statements effective March 1, 1995.
On March 22, 1996, the 5,461,538 contingent shares, representing shares of NGC
stock to be issued to the former owners of the partners of Clearinghouse
("Clearinghouse Owners") and the former shareholders of Trident ("Trident
Shareholders") in accordance with terms of the Combination, were allocated in a
ratio of 17 percent to the Trident Shareholders and 83 percent to the
Clearinghouse Owners.
Page 6 of 19
The following table reflects certain unaudited pro forma information for the
period presented as if the Combination took place at the beginning of 1995 (in
thousands, except per share data):
THREE MONTHS
ENDED
MARCH 31, 1995
--------
Pro forma revenues .................................... $891,868
========
Pro forma net income .................................. $ 7,910
========
Pro forma net income per share ........................ $ 0.07
========
NOTE 4 -- EARNINGS PER SHARE
Net income per share is based on the weighted average number of common stock
shares outstanding plus the common stock equivalents that would arise from the
exercise of outstanding options or warrants, when dilutive. Primary and fully
diluted earnings per share are the same for all periods presented.
Pro forma income taxes reflected in the Condensed Consolidated Statement of
Operations for the three-month period ended March 31, 1995, reflect the
incremental statutory federal and state income taxes that would have been
provided had Clearinghouse been a taxpaying entity during that period. Pro forma
net income per share is based on the weighted average number of shares of common
stock outstanding plus the common stock equivalents that would arise from the
exercise of outstanding options or warrants, when dilutive. The computations
assume the Company was incorporated during the period presented and gives effect
to the terms of the Combination.
Net income per common and common equivalent share based on reported net income
of $55.3 million for the three-month period ended March 31, 1995, computed using
the weighted average shares outstanding for the period was $0.53 per share. The
pro forma net income per share amount of $0.07 reported in the Condensed
Consolidated Statement of Operations for the three-months ended March 31, 1995,
reflects adjustments to reported net income for a non-recurring deferred income
tax benefit of $45.7 million recognized as a result of the Combination and the
incremental pro forma statutory income tax provision on Clearinghouse's
pre-combination partnership income.
NOTE 5 -- UNCONSOLIDATED AFFILIATES
At March 31, 1996, NGC's investment in unconsolidated affiliates accounted for
by the equity method included a 49.9 percent aggregate partnership interest in
Novagas Clearinghouse Ltd. ("NCL"), a Canadian limited partnership, a 49 percent
interest in Accord Energy Limited ("Accord"), a U.K. limited company, a 38.75
percent partnership interest in Gulf Coast Fractionators ("GCF") an approximate
28 percent interest in Avoca Natural Gas Storage ("Avoca"), a 50 percent
interest in Quicktrade L.L.C. and a 25 percent interest in Cayuta Natural Gas
Storage. Summarized unaudited combined income statement information for these
unconsolidated affiliates is presented in the table below:
Page 7 of 19
THREE MONTHS ENDED MARCH 31,
----------------------------------------------
1996 1995
--------------------- --------------------
EQUITY EQUITY
TOTAL SHARE TOTAL SHARE
-------- -------- -------- -------
($US IN THOUSANDS)
Revenues (1) ................ $550,226 $272,352 $187,679 $92,373
======== ======== ======== =======
Operating margin (1) ........ $ 24,487 $ 11,503 $ 21,286 $10,390
======== ======== ======== =======
Net income (1) .............. $ 10,192 $ 4,510 $ 9,909 $ 4,858
======== ======== ======== =======
- -------------------
(1) Includes GCF's operations from March 1, 1995 (effective date of the
Combination) forward.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
On February 12, 1996, Apache Corporation ("Apache") requested arbitration to
resolve issues arising under a gas marketing contract ("Contract") with
Clearinghouse pursuant to the arbitration provisions of such Contract. On
February 26, 1996, Clearinghouse responded by denying Apache's claims and by
alleging several counterclaims of its own with respect to Apache's performance
under the Contract. In connection with the arbitration proceedings, on April 9,
1996, Apache filed a lawsuit against Clearinghouse in the 55th Judicial District
Court of Harris County, Texas ("Court"). In that lawsuit, Apache alleges that
Clearinghouse is intentionally delaying the progress of the arbitration, and it
requests relief, pursuant to the Texas General Arbitration Act, in the form of
an order appointing a third arbitrator, compelling discovery and requiring
Clearinghouse to assign certain contracts allegedly belonging to Apache.
Clearinghouse filed a response to the lawsuit on May 6, 1996, asking that the
Court dismiss Apache's application for relief or abate the suit pending
resolution of all matters by the arbitration panel according to the terms of the
Contract. Clearinghouse has also requested payment of all attorneys' fees and
other litigation expenses incurred in responding to and defending the suit.
Clearinghouse intends to vigorously defend the Apache suit and the arbitration.
In the arbitration and again in the lawsuit, Apache claims that it is entitled
to actual damages in an undetermined amount in excess of $8 million, and
punitive damages calculated by tripling the amount of actual damages. NGC
management believes, based on its review of the facts and consultation with
outside counsel, that the ultimate resolution of the Apache suit will not have
an adverse impact on the Company's financial position or results of operations,
and that any payments eventually made in connection with the arbitration and/or
the lawsuit will be substantially less than the amount claimed.
Page 8 of 19
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements of NGC Corporation
included elsewhere herein and with the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
GENERAL
COMPANY PROFILE
NGC is a leading North American marketer of natural gas, natural gas liquids,
crude oil and electric power and is engaged in natural gas gathering, processing
and transportation through ownership and operation of natural gas processing
plants, storage facilities and pipelines. Through joint ventures in both Canada
and the United Kingdom, the Company has expanded geographically its vision of
providing customers having multiple energy commodity needs with cost-effective
products and value added services. Acting in the role of a large-scale
aggregator, processor, marketer and reliable supplier of multiple energy
products and services, NGC has evolved into a 'one-stop' energy commodity and
service provider.
NGC is a holding company that operates principally through two subsidiaries,
Clearinghouse, a Colorado partnership, and Trident NGL, Inc., a Delaware
corporation ("Trident NGL"). The Company has two primary business segments: the
natural gas and electric power marketing segment ("Marketing") and the natural
gas liquids, crude oil and gas transmission segment ("Liquids").
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
This quarterly report contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, words such as "anticipate", "estimate", "project", and "expect" are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
key factors that may have a direct bearing on NGC's results of operations and
financial condition are: (i) competitive practices in the industries which NGC
competes, (ii) fluctuations in energy commodity prices which have not been
properly hedged or which are inconsistent with NGC's open position in its energy
marketing activities, (iii) environmental liabilities to which NGC may become
subject in the future which are not covered by indemnity or insurance, and (iv)
the impact of current and future laws and governmental regulations (particularly
environmental regulations) affecting the energy industry in general and NGC's
operations in particular.
RECENT DEVELOPMENTS
NGC Corporation ("NGC" or the "Company") and Chevron Corporation ("Chevron")
announced on January 22, 1996, a proposed merger that would create a new company
comprised of all of NGC and substantially all of Chevron's gas gathering,
processing and marketing operations as well as establish certain strategic
alliances between the two companies. The companies anticipate that the
Combination Agreement and Plan of Merger will be executed by the end of May 1996
and that closing of the transaction will occur during the third quarter. Closing
of the merger is contingent on regulatory approval which is expected to be
obtained in the third quarter. The combined company, which will retain the name
NGC Corporation, will include all of NGC and most of two Chevron business units:
the Houston-based Natural Gas Business Unit and Tulsa-based Warren Petroleum
Company. For its contribution, Chevron will
Page 9 of 19
NGC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
receive approximately 46 million shares in the new company, in a combination of
common and preferred shares, and approximately $300 million in a combination of
cash and debt assumption.
The combination of NGC and the two Chevron business units will make the combined
company the leading marketer of natural gas in North America, with average daily
sales in excess of 10 billion cubic feet, or an estimated 14 percent of total
North American gas consumption. The proposed transaction will establish NGC as
the second largest producer and largest marketer of natural gas liquids ("NGL")
in North America, with production of approximately 140,000 barrels per day and
sales of approximately 470,000 barrels per day.
In February 1996, NGC Liquids Marketing, Inc., a wholly-owned subsidiary of NGC,
acquired 100 percent of the outstanding stock of LPG Services Group, Inc.
("LPG"), a Kansas City-based propane gas marketing and distribution company for
$6.1 million. LPG's well-developed wholesale propane marketing infrastructure
integrates well with NGC's established production base and reliable supply
system and with the wholesale propane marketing operations obtained in the
Chevron acquisition. The synergies to be obtained from the combination of these
three operations will provide NGC with a strong nationwide wholesale propane
distribution business.
RESULTS OF OPERATIONS
Provided below is a tabular presentation of certain domestic and international
operating and financial statistics for the Company's segments and subsegments
for the three-month periods ended March 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------
1996 1995 (1)
---------- --------
($ IN MILLIONS)
<S> <C> <C>
Natural Gas and Electric Power Marketing Segment:
Operating margin ......................................... $ 46.1 $ 15.2
Natural Gas Marketing -
Average sales volume per day (Bcf/d) (2) .............. 3.9 3.7
Operations of unconsolidated foreign equity affiliates (3)
Average gross sales volume per day (Bcf/d) (4) ........ 3.6 1.5
Average net sales volume per day (Bcf/d) (5) .......... 1.8 0.7
Electric Power Marketing -
Gross sales volumes (gigawatt hours) .................. 2,380.0 245.0
Average megawatts per hour ............................ 1,090.0 114.0
Natural Gas Liquids, Crude Oil and Gas Transmission
Segment:
Operating margin ......................................... $ 44.0 $ 16.3
Natural Gas Processing -
Operating margin ...................................... $ 22.0 $ 9.4
Gross gallons processed (MMGals) ...................... 240.0 165.4
Net gallons processed (MMGals) ........................ 184.7 120.9
Fractionation (6) -
Operating margin ...................................... $ 2.1 $ 2.1
Gallons received for fractionation (MMGals) ........... 451.9 180.5
Liquids and Crude Oil Marketing and Other -
Operating margin ...................................... $ 19.9 $ 4.8
NGL Marketing - sales volumes (MMGals) ................ 603.1 258.8
Crude Oil Marketing - sales volumes (MMBbls) .......... 102.2 46.0
</TABLE>
Page 10 of 19
(1) The Combination was accounted for under the purchase method of accounting
and the results of operations of Trident are included in the accompanying
financial statements and in these operating statistics effective March 1,
1995.
(2) Includes 0.03 Bcf/d in intercompany gas sales for the three-month periods
ended March 31, 1996 and 1995, respectively.
(3) Includes NCL and Accord.
(4) Includes 0.3 Bcf/d of inter-affiliate gas sales for both the 1996 and 1995
three-month periods, respectively.
(5) Represents NGC's aggregate equity interest in the sales volumes of its
unconsolidated foreign equity affiliates.
(6) Information excludes the Company's proportionate share of GCF's margin and
fractionation volumes.
THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
For the quarter ended March 31, 1996, NGC realized net income of $30.3 million,
or $0.26 per share, on total revenue of $1.6 billion compared with normalized
first quarter 1995 net income of $9.5 million, or $0.09 per share, on total
revenue of $802.9 million. Normalized results for 1995 are exclusive of a
non-recurring income tax benefit of $45.7 million, or $0.44 per share, related
to the Combination. NGC's first quarter 1995 reported net income, which included
the non-recurring benefit, was $55.3 million, or $0.53 per share. Income before
income taxes totaled $46.6 million for the three-months ended March 31, 1996, a
$34.9 million increase over the comparable 1995 period. Cash flows from
operating activities increased to $70.1 million in the first quarter of 1996
compared with $27.2 million reported in the first quarter of 1995. Increases in
both income and operating cash flow are largely a result of the extremely cold
temperatures during 1996 which increased the demand for energy products allowing
NGC to market record volumes of natural gas, NGLs and crude oil and to realize
improved margins over the 1995 period.
Operating margin for the first quarter of 1996 totaled $90.1 million compared
with $31.5 million in the corresponding 1995 period, reflecting improved margins
in both the Marketing and Liquids segments. Marketing contributed $46.1 million
to the consolidated margin, an improvement of $30.9 million over the first
quarter 1995 margin of $15.2 million; whereas, Liquids contributed $44.0 million
to the consolidated margin compared with $16.3 million in the comparable 1995
quarter. Operating income was $53.6 million in the first quarter of 1996
compared with $11.4 million for the first quarter of 1995, an increase of $42.2
million, reflecting the aforementioned increase in operating margin offset by
increases in depreciation and amortization and general and administrative
expenses. Increased depreciation and amortization expense in 1996 results
principally from the inclusion of Trident's operations for the entire 1996
quarter as opposed to only one month in 1995 combined with increased asset
capitalization resulting from other acquisitions completed during the four
quarters in the period ended March 31, 1996. Higher general and administrative
expenses resulted from the previously discussed incremental effect of Trident's
operations, increased overhead required to support NGC's growth and higher
variable compensation costs in 1996 as opposed to the comparable 1995 period.
NGC's quarterly results include the Company's equity share in the earnings of
its unconsolidated affiliates which contributed an aggregate $4.5 million to
first quarter 1996 pre-tax income compared with $4.9 million in the 1995 period.
NGC's investment in its foreign joint venture affiliates, NCL and Accord,
contributed $3.5 million to equity earnings compared with $4.9 million in 1995.
Combined, the foreign joint venture affiliates averaged 3.6 Bcf/d of gross gas
sales during the 1996 quarter, an increase of 2.1 Bcf/d over the average gross
sales volume reported in the first quarter of 1995. The significant increase in
volumes sold is primarily attributed to NCL and Accord's substantial growth over
the past year and NCL's acquisition of Pan-Alberta Gas Limited Partnership
("Pan-Alberta") in June 1995. The remaining $1.0 million of 1996 quarterly
equity earnings result from the Company's investment in GCF, which was acquired
by NGC in the Combination.
Page 11 of 19
Interest expense increased $7.0 million to $10.7 million in the quarter ended
March 31, 1996, compared with $3.7 million in the equivalent 1995 period. The
increase is reflective of higher outstanding debt balances resulting principally
from debt assumed in conjunction with the Combination, which amounts were
outstanding for the entire 1996 quarter as opposed to only one-month in 1995,
and borrowings for capital expenditures and investments in unconsolidated
affiliates. The Company benefitted in 1996 from lower average interest rates
applicable to its revolving credit facility.
The Company reported an income tax provision of $16.3 million for the
three-month period ended March 31, 1996, an effective rate of 35 percent. This
compares with an income tax provision of $2.2 million for the equivalent 1995
period, an effective rate of 19 percent. The 1995 amount does not include a
provision for federal income tax attributed to pre-combination earnings of
Clearinghouse which were predominantly taxed as partnership income. The
remaining differences between the effective rates and the statutory rate of 37
percent for each of the three-month periods ended March 31, 1996 and 1995,
respectively, are principally attributed to permanent differences and certain
foreign equity investments.
NATURAL GAS AND ELECTRIC POWER MARKETING
Marketing's operating margin of $46.1 million for the first quarter of 1996
reflected both higher sales volumes and improved physical gas sales margins as
compared with the equivalent 1995 period. The improved natural gas marketing
operating results were primarily a result of the extremely cold temperatures
that blanketed much of North America during the first quarter of 1996 which
created high energy demand and a volatile pricing environment resulting in
increased demand for premium services provided by the Company. Domestic gas
volumes sold increased 0.2 Bcf/d to 3.9 Bcf/d in 1996 as compared with 3.7 Bcf/d
in 1995. Marketing margins were also improved by the Company's hubbing
operations which contributed $1.7 million of operating margin in the first
three-months of 1996 as compared with $0.4 million in the comparable 1995
period.
NGC's electric power marketing business operates through Electric Clearinghouse,
Inc. ("ECI") which began marketing electric power in January 1995. For the
quarter ended March 31, 1996, ECI reported sales volumes of 2.4 million megawatt
hours which compares with total 1995 annual sales of 3.5 million megawatt hours.
Daily volumes increased almost tenfold, totaling 1,090 megawatts per hour,
compared with the first quarter of 1995 daily volumes of 114 megawatts per hour.
ECI is continuing to pursue opportunities to broaden its domestic marketing of
electric power and is introducing a variety of services to this burgeoning
industry.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids reported a first quarter 1996 operating margin of $44.0 million
reflecting improvement in all of the segment's businesses. The earnings
improvement is attributed to a number of factors including: (i) the acquisition
of Trident and the synergies realized from that merger; (ii) the acquisition and
efficient utilization of other assets such as the Ozark Gas Transmission System,
a crude oil pipeline acquired from Kerr-McGee and the operations of LPG
Services, Inc.; (iii) improved liquids processing margins; (iv) higher crude oil
sales volumes and margins; (v) significantly higher NGL Marketing sales volumes
partly as a result of the LPG Services, Inc. acquisition; and (vi) increased
volumes received for fractionation offset by higher third-party fractionation
fees resulting principally from the third quarter 1995 closure of the Lake
Charles, Louisiana fractionator.
Page 12 of 19
PRO FORMA THREE-MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
The pro forma information provided gives effect to the Combination as if it had
occurred on January 1, 1994 and, accordingly, combines the activities of both
Clearinghouse and Trident for the three-month period ended March 31, 1995. The
information for the three-months ended March 31, 1996, reflects the historical
operating results described previously herein. The pro forma results do not give
effect to any cost savings expected as a result of the Combination. The pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of what the actual results of operations would have been
had the Combination occurred at the beginning of the periods presented nor does
it purport to indicate the future results of the Company.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------
1996 1995 (1)
---------- --------
($ IN MILLIONS)
<S> <C> <C>
Natural Gas and Electric Power Marketing Segment:
Operating margin ......................................... $ 46.1 $ 15.2
Natural Gas Marketing -
Average sales volume per day (Bcf/d) (2) .............. 3.9 3.7
Operations of unconsolidated foreign equity affiliates (3)
Average gross sales volume per day (Bcf/d) (4) ........ 3.6 1.5
Average net sales volume per day (Bcf/d) (5) .......... 1.8 0.7
Electric Power Marketing -
Gross sales volumes (gigawatt hours) .................. 2,380.0 245.0
Average megawatts per hour ............................ 1,090.0 114.0
Natural Gas Liquids, Crude Oil and Gas Transmission
Segment:
Operating margin ......................................... $ 44.0 $ 30.0
Natural Gas Processing -
Operating margin ...................................... $ 22.0 $ 18.5
Gross gallons processed (MMGals) ...................... 240.0 336.4
Net gallons processed (MMGals) ........................ 184.7 260.0
Fractionation (6) -
Operating margin ...................................... $ 2.1 $ 3.9
Gallons received for fractionation (MMGals) ........... 451.9 485.7
Liquids and Crude Oil Marketing and Other -
Operating margin ...................................... $ 19.9 $ 7.6
NGL Marketing - sales volumes (MMGals) ................ 603.1 495.8
Crude Oil Marketing - sales volumes (MMBbls) .......... 102.2 46.0
</TABLE>
- -------------------
(1) The pro forma information assumes that Trident and NGC were combined for
the three-month period ended March 31, 1995.
(2) Includes 0.03 Bcf/d in intercompany gas sales for the quarters ended March
31, 1996 and 1995, respectively.
(3) Includes NCL and Accord.
(4) Includes 0.3 Bcf/d of inter-affiliate gas sales for the three-month periods
ended March 31,1996 and 1995, respectively.
(5) Represents NGC's aggregate equity interest in the sales volumes of its
unconsolidated foreign equity affiliates.
(6) Information excludes the Company's proportionate share of GCF's margin and
fractionation volumes.
Net income for the three-months ended March 31, 1996, was $30.3 million, or
$0.26 per share, compared with pro forma net income of $7.9 million, or $0.07
per share, for the same period in 1995. Pro forma 1995 net income excludes the
aforementioned non-recurring income tax benefit of $45.7 million and an
incremental pro forma tax provision related to Clearinghouse's pre-combination
earnings. Operating margin for the quarter ended March 31, 1996, increased $44.9
million over the pro forma operating margin of $45.2 million for the equivalent
1995 period. The increase in 1996's historical operating margin as compared with
the pro forma 1995 operating margin reflects
Page 13 of 19
significantly improved Marketing operating margins resulting principally from
the extremely colder temperatures in the first quarter of 1996. Liquids
operating margins were $11.9 million higher in 1996 as compared with the pro
forma 1995 period principally as a result of increased operating margins
associated with the Company's NGL Marketing, crude oil marketing and
transmission businesses. Operating income increased in 1996 as compared with the
pro forma 1995 period by $37.2 million as a result of the aforementioned
improved operating margins offset by higher depreciation and amortization and
general and administrative expenses. After adjusting for the impact of the
Combination, the higher 1996 expenses were generally attributable to the same
factors which affected actual results, as described previously.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
NGC has historically relied upon operating cash flow and borrowings under its
credit facilities for its liquidity and capital resource requirements. As a
result of the Company's continued positive operating results, combined with the
liquidity and flexibility provided by available funds under its credit
facilities, the Company believes it will be able to meet all foreseeable cash
requirements, including working capital, capital expenditures, debt service and
costs associated with the Chevron transaction.
OPERATING CASH FLOW
The Company's cash flow from operating activities differs from reported net
income principally as a result of adjustments for non-cash items and changes in
working capital resulting from operating activities. The significant increase in
operating cash flow in the first quarter of 1996 as compared with the comparable
1995 period is principally a result of improved earnings in 1996, increased cash
flow in 1996 as compared with 1995 resulting from inventory reductions required
to meet the market demands created by the extremely cold temperatures prevalent
in 1996 and the effect the non-cash adjustments had on operating cash flow
between periods. The following describes generally the impact working capital
changes may have on the Company's operating cash flow from period to period.
ACCOUNTS RECEIVABLE. Generally, the level of NGC's accounts receivable is
impacted primarily by sales volumes and prices. Given the impact of seasonal
demand factors on the Company's sales volumes and the prices of natural gas,
NGLs and crude oil, NGC's accounts receivable are typically higher in the winter
months than during the balance of the year.
INVENTORIES. The Company maintains varying levels of natural gas, NGL and crude
oil inventories. Due to seasonal demand factors, natural gas and NGL inventories
are typically purchased during the summer months and sold during the winter
months. Inventory volumes include product in pipelines, referred to as "line
fill", which represents perpetual inventory volumes. Otherwise, a large part of
the Company's product inventories held as of a year-end are expected to be sold
during the first quarter of the following year. Inventory purchases are
generally discretionary and not a prerequisite to maintaining deliveries or
sales due to the availability of supplies through term contracts and spot market
purchasing activities. However, periodic inventory accumulations allow the
Company to capture peak deliverability opportunities and to take advantage of
expected seasonal price differentials. Material and supplies inventory, used
primarily at the Company's processing plants and fractionation facilities,
typically turnover more slowly than product inventory volumes.
Page 14 of 19
ACCOUNTS PAYABLE. The level of the Company's trade accounts payable will
generally follow in tandem with the level of trade accounts receivable because
purchased volumes and product prices will typically fluctuate directionally with
sales volumes and prices.
OTHER WORKING CAPITAL ACCOUNTS. Other working capital accounts, which include
prepayments, other current assets and accrued liabilities, reflect expenditures
or recognition of liabilities for insurance costs, certain deposits, salaries,
taxes other than on income, certain deferred revenue accounts and other similar
items. Fluctuations in these accounts from period to period reflect changes in
facts or changes in the timing of payments or recognition of liabilities and are
not directly impacted by seasonal factors.
CAPITAL EXPENDITURES, COMMITMENTS AND DIVIDEND REQUIREMENTS
The Company's business strategy has been to grow horizontally across all sectors
of the midstream energy business segment through strategic acquisitions or
construction of core operating facilities in order to capture the significant
synergies which management believes exist among these types of assets and NGC's
natural gas and NGL marketing businesses. In the first quarter of 1996, the
Company spent $13.8 million principally for the acquisition of LPG Services,
Inc. and capital improvements at existing facilities and $0.6 million in
additional investment in its unconsolidated affiliates. The Company received a
payment of $4.6 million from Avoca representing a return of capital. During the
first quarter of 1995, the Company spent $4.3 million principally for capital
improvements.
In the first quarter of 1995, approximately $166.9 million, exclusive of
transaction related costs, was required to consummate the tender offer related
to the Combination. These funds were provided by British Gas, NOVA and
Clearinghouse. Specifically, British Gas and NOVA each contributed $67.5 million
to their respective subsidiaries that participated in the Combination and
Clearinghouse provided $31.9 million to fund the balance. Clearinghouse funded
the $31.9 million and certain other costs associated with the Combination
through a combination of cash on hand and $25.0 million in borrowings under its
then existing credit agreement.
NGC currently declares an annual dividend of $0.05 per common share payable in
quarterly installments. During the quarter ended March 31, 1996, the Company
paid $1.3 million in cash dividends and the Company's Board of Directors
declared a $1.4 million dividend payable to holders of record on March 25, 1996.
Such amount was paid on April 9, 1996. Prior to the Combination, Clearinghouse
made distributions primarily to enable Clearinghouse's partners to pay tax
liabilities incurred as a result of Clearinghouse generated income which was
taken into account by the Clearinghouse Owners in computing their separate
income tax liabilities. During the first quarter of 1996, the Company received
$0.4 million from the Clearinghouse Owners related to tax advances made by the
Company prior to the Combination in amounts in excess of actual tax liabilities.
During the first quarter of 1995, NGC paid $5.6 million in dividends and
distributions, principally to the Clearinghouse Owners.
REVOLVING CREDIT FACILITY
On March 14, 1995, the Company entered into the NGC Corporation Credit Agreement
("Credit Agreement"), which established a five-year $550 million revolving
credit facility. The Credit Agreement provides for letters of credit (up to $150
million) and borrowings for working capital, capital expenditures and general
corporate purposes of up to $550 million in the aggregate. The $550 million
commitment under the revolving credit facility reduces by $22.5 million each
quarter beginning in March 1998 and continuing through maturity. Generally,
Page 15 of 19
borrowings under the Credit Agreement bear interest at a Eurodollar rate plus a
margin that is determined based on the Company's debt to capitalization ratio.
The margin at March 31, 1996, was 0.5 percent and the average interest rate
applicable to borrowings under the Credit Agreement approximated 5.7 percent.
During the first quarter of 1995, NGC entered into arrangements with financial
institutions that effectively capped the base Eurodollar rate on $100 million of
borrowings at rates between 8.5 percent and 9.1 percent through January 1998.
The Credit Agreement contains certain financial covenants which require the
Company to meet certain financial position and performance tests. At March 31,
1996, letters of credit and borrowings outstanding under the Credit Agreement
aggregated $186.5 million and unused borrowing capacity under the revolving
credit facility approximated $363.5 million. Certain amendments will be made to
the Credit Agreement to accommodate the Chevron transaction. In management's
opinion, such amendments are of an immaterial nature.
SHELF REGISTRATION OF $250 MILLION OF SENIOR NOTES
The Company has issued $150 million of 6.75 percent Senior Notes ("Notes")
pursuant to a $250 million shelf registration. Interest on the Notes is payable
semiannually on June 15 and December 15 of each year, beginning June 15, 1996.
The Notes represent general unsecured obligations of the Company and are fully
and unconditionally guaranteed on a joint and several basis by certain of the
Company's wholly-owned subsidiaries ("Subsidiary Guarantors").Upon issuance, the
Notes were priced based on the then existing yield for 10-year U.S. Treasury
Notes ("Base Treasury Rate") plus a spread based principally on the Company's
credit rating. Prior to issuing the Notes, the Company entered into two separate
transactions with two separate financial institutions, the effect of which was
to lock in the Base Treasury Rate at approximately 6.2 percent on the full $150
million face value of the Notes.
Separate financial statements of each Subsidiary Guarantor have not been
provided herein because management has determined that such information would
not be material to investors AS the aggregate assets, liabilities, earnings and
equity of the subsidiary guarantors is substantially equivalent to the Company's
consolidated assets, liabilities, earnings and equity. The Company also has
direct and indirect subsidiaries that are not Subsidiary Guarantors
(collectively "Non-guarantor Subsidiaries"). These Non-guarantor Subsidiaries,
both individually and in the aggregate, are inconsequential to NGC as of and for
each of the quarterly periods contained in this document.
TRIDENT NOTES
At March 31, 1996, Trident had outstanding $105 million principal amount of
10.25% Subordinated Notes due 2003 and $65 million principal amount of 14%
Senior Subordinated Notes due 2001 with interest payable semi-annually on both
notes. Beginning in 1998, corresponding with the first call dates, the Company
may repurchase the Subordinated Notes and Senior Subordinated Notes at 104.5
percent and 107 percent of the principal amount, respectively, with such
reacquisition prices reducing as the notes mature. The indentures covering the
Subordinated Notes and Senior Subordinated Notes contain covenants that, among
other things, require Trident to meet certain financial tests; limit the amount
of investments, dividends and asset sales that can be made by Trident; and
restrict the ability of Trident and its subsidiaries to incur additional
indebtedness, create or permit liens and engage in certain transactions.
Although Trident's net assets at December 31,1995, approximated $350 million,
management does not believe that the terms of the indentures materially restrict
the ability of Trident to transfer funds to the Company given that Trident is a
Subsidiary Guarantor combined with the level of advances made by NGC to Trident.
Page 16 of 19
The unamortized premium balance associated with each of the Subordinated Notes
and Senior Subordinated Notes represents a fair value adjustment to the
aggregate principal balance of the notes recognized as part of the Combination.
The unamortized premium balance of $17.9 million at March 31, 1996, is being
amortized using the interest method.
Page 17 of 19
NGC CORPORATION
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On February 12, 1996, Apache Corporation ("Apache") requested arbitration to
resolve issues arising under a gas marketing contract ("Contract") with
Clearinghouse pursuant to the arbitration provisions of such Contract. On
February 26, 1996, Clearinghouse responded by denying Apache's claims and by
alleging several counterclaims of its own with respect to Apache's performance
under the Contract. In connection with the arbitration proceedings, on April 9,
1996, Apache filed a lawsuit against Clearinghouse in the 55th Judicial District
Court of Harris County, Texas ("Court"). In that lawsuit, Apache alleges that
Clearinghouse is intentionally delaying the progress of the arbitration, and it
requests relief, pursuant to the Texas General Arbitration Act, in the form of
an order appointing a third arbitrator, compelling discovery and requiring
Clearinghouse to assign certain contracts allegedly belonging to Apache.
Clearinghouse filed a response to the lawsuit on May 6, 1996, asking that the
Court dismiss Apache's application for relief or abate the suit pending
resolution of all matters by the arbitration panel according to the terms of the
Contract. Clearinghouse has also requested payment of all attorneys' fees and
other litigation expenses incurred in responding to and defending the suit.
Clearinghouse intends to vigorously defend the Apache suit and the arbitration.
In the arbitration and again in the lawsuit, Apache claims that it is entitled
to actual damages in an undetermined amount in excess of $8 million, and
punitive damages calculated by tripling the amount of actual damages. NGC
management believes, based on its review of the facts and consultation with
outside counsel, that the ultimate resolution of the Apache suit will not have
an adverse impact on the Company's financial position or results of operations,
and that any payments eventually made in connection with the arbitration and/or
the lawsuit will be substantially less than the amount claimed.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following instruments and documents are included as exhibits to this
Form 10-Q.
Exhibit
Number Description
------- -----------
2.1 Combination Agreement and Plan of Merger, dated October 21, 1994,
among Trident NGL Holding, Inc., Natural Gas Clearinghouse,
British Gas General Partner Inc., British Gas Limited Partner
Inc., British Gas NGC L.P., NOVA NGC, Inc., Participating Employee
Partners, C.L. Watson, Inc., Stephen W. Bergstrom, Inc., Gilbert
Burciaga, Inc., A.R. Cipriani, Jr., Inc., David C. Feldman, Inc.,
James T. Hackett, Inc., H. Keith Kaelber, Inc., Kenneth E.
Randolph, Inc., Donald R. Sinclair, Inc. and Jacob S. Ulrich, Inc.
(1)
3.1 Amended and Restated Certificate of Incorporation of NGC
Corporation (2)
3.2 Amended and Restated ByLaws of NGC Corporation (3)
- ------------------
(1) Incorporated by reference to exhibits to the Current Report on Form
8-K of Trident NGL Holding, Inc., Commission File No. 1-11156, dated
October 21, 1994.
(2) Incorporated by reference to exhibits to the Annual Report on Form
10-K of NGC Corporation for the Fiscal Year Ended December 31, 1994,
Commission File No. 1-11156.
(3) Incorporated by reference to exhibits to the Annual Report on Form
10-K of NGC Corporation for the Fiscal Year Ended December 31, 1995,
Commission File No. 1-11156.
b. Reports on Form 8-K
Current Report on Form 8-K, Commission File No. 1-11156, dated January 21,
1996, relating to the signing of the Exclusivity Agreement with Chevron
U.S.A. Inc. regarding the Combination.
Page 18 of 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned and thereunto duly authorized.
NGC CORPORATION
Date: MAY 14, 1996 By: /s/ H. KEITH KAELBER
H. Keith Kaelber, Senior Vice President
and Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Page 19 of 19
