- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSIONUnited States
Securities and Exchange Commission
Washington, D.C. 20549---------------------- FORMForm 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13orOR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended
June 30,December 31, 2000-------------Commission File Number 1-3880
----------------------------- NATIONAL FUEL GAS COMPANY (ExactNational 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
| New Jersey | 13-1086010 |
|---|---|
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| 10 Lafayette Square | 14203 |
| Buffalo, New York | (Zip Code) |
(Address of principal executive offices) (Zip Code)
(716) 857-6980
--------------
(Registrant's857-7000
(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,Stock, $1 par value,Par Value, outstanding at Julyas of January 31, 2000:
39,279,8862001: 39,488,393 shares.
- --------------------------------------------------------------------------------
| DIRECT SUBSIDIARIES: | National Fuel Gas Distribution Corporation (Distribution Corporation) |
| National Fuel Gas Supply Corporation (Supply Corporation) | |
| Seneca Resources Corporation (Seneca) | |
| Highland Forest Resources, Inc. (Highland) | |
| Leidy Hub, Inc. (Leidy Hub) | |
| Data-Track Account Services, Inc. (Data-Track) | |
| National Fuel Resources, Inc. (NFR) | |
| Highland Forest Resources, Inc. (Highland) | |
| 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 Pageo The Company has nothing to report under this item.----------------------------- ----
Item 1. Financial Statements a. Consolidated Statements of Income and Earnings Reinvested in the Business - Threeand NineMonths EndedJune 30,December 31, 2000 and 1999 4- 5b. Consolidated Balance Sheets -June 30,December 31, 2000 and September 30,19992000 5 - 6- 7c. Consolidated Statement of Cash Flows -NineThree Months EndedJune 30,December 31, 2000 and 199987 d. Consolidated Statement of Comprehensive Income - Threeand NineMonths EndedJune 30,December 31, 2000 and 199998 e. Notes to Consolidated Financial Statements109 -1713 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations1814 -3930 Item 3. Quantitative and Qualitative Disclosures About Market Risk4030 Part II. Other Information--------------------------Item 1. Legal Proceedings4030 Item 2. Changes in Securities4030 Item 3. Defaults Upon Senior Securities o Item 4. Submission of Matters to a Vote of Security Holders o Item 5. Other Information40o Item 6. Exhibits and Reports on Form 8-K40 - 4131 Signature4232
Reference to the "Company"“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'sCompany’s fiscal year ended September 30 of that year, unless otherwise noted.
This Form 10-Q contains "forward-looking statements"“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“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” (MD&A), under the heading "Safe“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,"“anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” and similar expressions.
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) 2000 1999
INCOME
Operating Revenues $559,504 $377,031 Operating Expenses
Purchased Gas 273,080 128,089
Fuel Used in Heat and Electric Generation 16,064 17,780
Operation 96,324 77,524
Maintenance 4,967 5,155
Property, Franchise and Other Taxes 21,453 22,792
Depreciation, Depletion and Amortization 39,136 33,716
Income Taxes 33,359 21,738 484,383 306,794 Operating Income 75,121 70,237
Other Income 8,165 1,172 Income Before Interest Charges andMinority Interest in Foreign Subsidiaries 83,286 71,409 Interest Charges
Interest on Long-Term Debt 19,058 16,671
Other Interest 10,329 8,559 29,387 25,230 Minority Interest in Foreign Subsidiaries (915) (1,311) Net Income Available for Common Stock 52,984 44,868
EARNINGS REINVESTED IN THE BUSINESS
Balance at October 1 525,847 472,517
578,831 517,385
Dividends on Common Stock
(2000 - $0.48; 1999 - $0.465) 18,891 18,084 Balance at December 31 $559,940 $499,301
=================================================================================
Earnings Per Common Share:
Basic $1.35 $1.15
=================================================================================
Diluted $1.32 $1.14
=================================================================================
Weighted Average Common Shares Outstanding:
Used in Basic Calculation 39,380,113 38,923,141
=================================================================================
Used in Diluted Calculation 40,173,174 39,413,008
=================================================================================
See Notes to Consolidated Financial Statements
National Fuel Gas Company
Consolidated Balance Sheets
December 31,
2000 September 30,
(Unaudited) 2000
(Thousands of Dollars)
ASSETS
Property, Plant and Equipment $3,912,994 $3,829,637
Less - Accumulated Depreciation, Depletion
and Amortization 1,188,062 1,146,246 2,724,932 2,683,391 Current Assets
Cash and Temporary Cash Investments 36,880 32,125
Receivables - Net 262,071 122,127
Unbilled Utility Revenue 96,833 27,105
Gas Stored Underground 62,175 55,795
Materials and Supplies - at average cost 25,325 25,145
Unrecovered Purchased Gas Costs 49,336 29,681
Prepayments 20,209 32,293 552,829 324,271 Other Assets
Recoverable Future Taxes 84,199 84,199
Unamortized Debt Expense 21,853 19,841
Other Regulatory Assets 14,199 17,518
Deferred Charges 8,719 12,497
Other 98,714 95,171 227,684 229,226
$3,505,445 $3,236,888
=======================================================================================
See Notes to Consolidated Financial Statements
National Fuel Gas Company
Consolidated Balance Sheets
December 31,
2000 September 30,
(Unaudited) 2000
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders' Equity
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued
and Outstanding - 39,418,824 Shares and
39,329,803 Shares, Respectively $ 39,419 $ 39,330
Paid in Capital 455,795 452,217
Earnings Reinvested in the Business 559,940 525,847
Total Common Shareholder Equity Before
Items of Other Comprehensive Loss 1,055,154 1,017,394
Accumulated Other Comprehensive Loss (97,527) (29,957) Total Comprehensive Shareholders' Equity 957,627 987,437
Long-Term Debt, Net of Current Portion 1,153,652 953,622 Total Capitalization 2,111,279 1,941,059 Minority Interest in Foreign Subsidiaries 25,681 23,031 Current and Accrued Liabilities
Notes Payable to Banks and
Commercial Paper 480,392 619,502
Current Portion of Long-Term Debt 11,232 11,262
Accounts Payable 167,643 88,853
Amounts Payable to Customers 7,707 9,583
Other Accruals and Current Liabilities 140,861 72,513 807,835 801,713 Deferred Credits
Accumulated Deferred Income Taxes 293,312 326,994
Taxes Refundable to Customers 14,410 14,410
Unamortized Investment Tax Credit 9,777 9,951
Other Deferred Credits 121,935 107,165
Fair Value of Derivative Financial Instruments 121,216 12,565 560,650 471,085 Commitments and Contingencies - -
$3,505,445 $3,236,888
============================================================================================
See Notes to Consolidated Financial Statements
National Fuel Gas Company
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
December 31,
(Thousands of Dollars) 2000 1999 OPERATING ACTIVITIES
Net Income Available for Common Stock $52,984 $44,868
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation, Depletion and Amortization 39,136 33,716
Deferred Income Taxes 12,459 13,996
Minority Interest in Foreign Subsidiaries 915 1,311
Other (26) (838)
Change in:
Receivables and Unbilled Utility Revenue (208,770) (89,122)
Gas Stored Underground and Materials and
Supplies (6,206) 12,427
Unrecovered Purchased Gas Costs (19,655) (7,243)
Prepayments 12,086 14,797
Accounts Payable 77,845 (14,706)
Amounts Payable to Customers (1,876) (145)
Other Accruals and Current Liabilities 68,389 16,605
Other Assets 350 4,739
Other Liabilities 252 (16,818) Net Cash Provided by Operating Activities 27,883 13,587 INVESTING ACTIVITIES
Capital Expenditures (69,319) (57,817)
Investment in Partnerships (30) (950)
Other 8,229 436 Net Cash Used in Investing Activities (61,120) (58,331) FINANCING ACTIVITIES
Change in Notes Payable to Banks and Commercial Paper (137,938) 65,330
Net Proceeds from Issuance of Long-Term Debt 197,294 -
Reduction of Long-Term Debt (3,024) (9,279)
Dividends Paid on Common Stock (18,844) (18,015)
Proceeds from Issuance of Common Stock 2,310 4,300 Net Cash Provided by Financing Activities 39,798 42,336 Effect of Exchange Rates on Cash (1,806) (736) Net Increase (Decrease) in Cash and Temporary Cash
Investments 4,755 (3,144)
Cash and Temporary Cash Investments at October 1 32,125 29,222 Cash and Temporary Cash Investments at December 31 $36,880 $26,078
==================================================================================================
See Notes to Consolidated Financial Statements
National Fuel Gas Company
Consolidated Statement of Comprehensive Income
(Unaudited)
Three Months Ended
December 31,
(Thousands of Dollars) 2000 1999 Net Income Available for Common Stock $52,984 $44,868
Other Comprehensive Income (Loss), Before Tax:
Foreign Currency Translation Adjustment 8,606 (9,501)
Unrealized Gain on Securities Available for Sale 1,565 748
Unrealized Loss on Derivative Financial Instruments (41,658) -
Reclassification Adjustment for Realized Losses on Derivative
Financial Instruments in Net Income 30,332 - Other Comprehensive Loss, Before Tax (1,155) (8,753)
Income Tax Expense Related to Unrealized Gain
on Securities Available for Sale Arising During the Period 548 150
Income Tax Benefit Related to Unrealized Loss
on Derivative Financial Instruments Arising During the Period (15,495) -
Reclassification Adjustment for Income Tax Benefit on Realized
Losses from Derivative Financial Instruments in Net Income 11,595 - Income Taxes - Net (3,352) 150
Other Comprehensive Income (Loss), Before Cumulative Effect,
Net of Tax 2,197 (8,903) Cumulative Effect of Change in Accounting, Net of Tax (69,767) -
Other Comprehensive Loss, After Cumulative Effect, Net
of Tax (67,570) (8,903)
Comprehensive (Loss) Income $(14,586) $35,965
=======================================================================================================
See Notes to Consolidated Financial Statements
National Fuel Gas Company
Notes to Consolidated Financial Statements
Item 1. Financial Statements (Cont.)
----------------------------
National Fuel Gas Company
-------------------------
Notes to Consolidated Financial Statements
------------------------------------------
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, 2000, 1999 1998 and 19971998 that are included in the Company'sCompany’s combined Annual Report to Shareholders/Form 10-K for 1999.2000. The 20002001 consolidated financial statements will be examined by the Company'sCompany’s independent accountants after the end of the fiscal year.
The earnings for the ninethree months ended June 30,December 31, 2000 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2000.2001. Most of the Company'sUtility segment’s business is seasonal in nature and is influenced by weather conditions. Because of the seasonal nature of the Company'sUtility segment’s heating business, earnings during the winter months normally represent a substantial part of the Utility segment’s 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'sCorporation’s New York tariff. The WNC is effective for October through May billings. Distribution Corporation'sCorporation’s tariff for its Pennsylvania jurisdiction does not have a WNC. In
addition,While the Pipeline and Storage segment’s business is influenced by weather conditions, Supply Corporation'sCorporation’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 nine months ended June 30, 2000
and 1999 amounted to $70.8 million and $64.1 million, respectively. Income taxes
paid during the nine months ended June 30, 2000 and 1999 amounted to $33.0
million and $30.4 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.
In June 2000, Seneca acquired 100% of the stock of Tri Link Resources,
Ltd. (Tri Link). Details of the acquisition are as
follows (dollars in millions):
Assets acquired $260.7
Liabilities assumed (136.9)
Cash acquired at acquisition -
--------
Cash paid, net of cash acquired $123.8
======
Further discussion of this acquisition can be found at Note 3 - Stock
Acquisition.
Item 1. Financial Statements (Cont.)
----------------------------
Reclassification. Certain prior year amounts have been reclassified to conform with current year presentation.
Cumulative Effect of Change in Accounting. Effective October 1, 2000, the Company adopted the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as amended by SFAS 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB Statement No. 133” and by SFAS 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of Statement 133.” The cumulative effect of this change decreased other comprehensive income by $69.8 million after tax. The cumulative effect of this change did not have a material impact on net income. The derivative financial instruments that comprise the cumulative effect recorded in other comprehensive income have been designated and qualify as cash flow hedges. These instruments hedge the Company’s exposure to variability in expected future cash flows and relate primarily to the Company’s use of derivative financial instruments to manage a portion of the market risk associated with the fluctuations in the price of natural gas and crude oil. The liability for all of the Company’s derivative financial instruments was $121.2 million at December 31, 2000, and is reflected on the Consolidated Balance Sheet as Fair Value of Derivative Financial Instruments. The Consolidated Balance Sheet does not reflect the anticipated physical transactions related to the Company’s cash flow hedges.
Accumulated Other Comprehensive Income (Loss). The components of Accumulated Other Comprehensive Income (Loss)are as follows (in thousands):
AtJune 30,December 31, 2000At September 30,1999 ---------------- ---------------------2000 Cumulative Foreign Currency Translation Adjustment$(20,274) $(4,472)$(23,329) $(31,935) Net Unrealized Loss on Derivative Financial Instruments (77,193) - Net Unrealized Gain on Securities Available for Sale1,606 4592,995 1,978 ----------------------- Accumulated Other Comprehensive Loss$(18,668) $(4,013)$(97,527) $(29,957) =======================
Earnings Per Common Share.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 that couldas a result from the exercise of these stock options as determined using the Treasury Stock Method.
The components of federal and state income taxes included in the Consolidated Statement of Income are as follows (in thousands):
Nine
Three Months Ended
June 30,
---------------------------------December 31,
----------------------------------------
2000 1999
---------------- ----------------------------------- --------------------
Operating Expenses:
Current Income Taxes
Federal $49,979 $35,940$13,656 $ 7,709
State 13,538 6,0503,835 1,214
Foreign 3,409 (1,177)
Deferred Income Taxes
Federal 9,834 13,58510,844 12,022
State 660 1,7061,250 429
Foreign Income Taxes 2,986 3,046365 1,541
- ----------------------------------------------------------------------------
76,997 60,327------------------------------------------------------------- --------------------
33,359 21,738
Other Income:
Deferred Investment Tax Credit (788) (499)(175) (263)
Minority Interest in Foreign Subsidiaries (479) (705)(407) (57)
- ----------------------------------------------------------------------------------------------------------------------------------------- --------------------
Total Income Taxes $75,730 $59,123
============================================================================
$32,777 $21,418
============================================================= ====================
Three Months Ended
June 30,December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------------- ------------------- --------------------
U.S. $193,042 $155,553$76,751 $59,914
Foreign 13,075 14,1749,010 6,372
- -------------------------------------------------------------------------------
$206,117 $169,727
===============================================================================------------------------------------------- ------------------- --------------------
$85,761 $66,286
=========================================== =================== ====================
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):
Nine
Three Months Ended
June 30,
---------------------------December 31,
----------------------------------------
2000 1999
---------------------------
Net income available for common stock $130,387 $110,604
Total income taxes 75,730 59,123
- -------------------------------------------------------------------------------
Income before income taxes $206,117 $169,727
===============================================================================------------------- --------------------
Income tax expense, computed at
statutory rate of 35% $ 72,141 $ 59,404$30,016 $23,200
Increase (reduction) in taxes resulting from:
State income taxes 9,229 5,0453,304 1,068
Depreciation 1,387 1,492
Prior years tax adjustment 37 (1,329)445 476
Foreign tax in excess of (less than)
statutory rate (2,629) (2,620)214 (1,924)
Miscellaneous (4,435) (2,869)(1,202) (1,402)
- --------------------------------------------------------------------------------------------------------------------------------- ------------------- --------------------
Total Income Taxes $ 75,730 $ 59,123
===============================================================================
$32,777 $21,418
================================================== =================== ====================
Significant components of the Company's deferred tax liabilities (assets) were as follows (in thousands):
At December 31, 2000 At September 30, 2000
--------------------------------- ----------------------------
Deferred Tax Liabilities:
Property, Plant and Equipment $382,907 $375,660
Deferred Gas Costs 17,593 10,454
Other 12,345 13,322
- -------------------------------------- --------------------------------- ----------------------------
Total Deferred Tax Liabilities 412,845 399,436
- -------------------------------------- --------------------------------- ----------------------------
Deferred Tax Assets:
Tax Impact in Accumulated Other
Comprehensive Loss (45,811) 1,065
Other (73,722) (73,507)
- -------------------------------------- --------------------------------- ----------------------------
Total Deferred Assets (119,533) (72,442)
- -------------------------------------- --------------------------------- ----------------------------
Total Net Deferred Income Taxes $293,312 $326,994
====================================== ================================= ============================
Common Stock.During the ninethree months ended June 30,December 31, 2000, the Company issued 330,88889,021 shares of common stock under the Company'sCompany’s stock and benefit plans. As
previously discussed, 54,674 shares were issued for the purchase of the assets
of Cunningham Natural Gas Corporation.
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 $8.1 million to $9.1 million. The minimum liability of $8.1 million has
been recorded on the Consolidated Balance Sheet at June 30, 2000. Other than as
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.
Item 1. Financial Statements (Cont.)
----------------------------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. At December 31, 2000, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites and third party waste disposal sites will be in the range of $5.7 million to $6.9 million. The minimum liability of $5.7 million has been recorded on the Consolidated Balance Sheet at December 31, 2000. Other than discussed in Note H of the 2000 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.
For further discussion refer to Note H - Commitments and Contingencies under the heading "Environmental Matters"“Environmental Matters” in Item 8 of the Company's 1999Company’s 2000 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 7 -5 – Business Segment Information.Information. The Company has six reportable segments: Utility, Pipeline and Storage, Exploration and Production, International, Energy Marketing and Timber. The breakdown of the Company'sCompany’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 19992000 Form 10-K. There have been no material changes in the amount of assets for any operating segment from the amounts disclosed in the 19992000 Form 10-K, except for the Exploration and Production segment. On June 15,
2000, the Exploration and Production segment, through NFEC, acquired the
outstanding shares of Tri Link, which included assets of $260.7 million. See
further discussion of this acquisition in Note 3 - Stock Acquisition.
10-K.
Quarter Ended December 31, 2000 (Thousands)
Exploration Total Corporate and
Pipeline and Energy Reportable Intersegment Total
Utility and Storage Production International Marketing Timber Segments All Other Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------------------------
Revenue from
External Customers $348,131 $20,432 $101,254 $31,224 $48,186 $10,937 $560,164 $(660) $ - $559,504
Intersegment
Revenues 6,037 22,233 - - - - 28,270 1,959 (30,229) -
Segment Profit
(Loss):
Net Income 18,287 6,595 23,001 2,240 1,344 2,396 53,863 (732) (147) 52,984
Quarter Ended December 31, 1999 (Thousands)
- --------------------------------------------------------------------------------------------------------------------------------------------
Exploration Total Corporate and
Pipeline and Energy Reportable Intersegment Total
Utility and Storage Production International Marketing Timber Segments All Other Eliminations Consolidated
- --------------------------------------------------------------------------------------------------------------------------------------------
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
Earnings. The Company'sCompany’s earnings were $14.5$53.0 million, or $0.37$1.35 per common share ($0.361.32 per common share on a diluted basis), for the quarter ended June 30,December 31, 2000. This compares withto earnings of $11.8$44.9 million, or $0.31$1.15 per common share ($0.301.14 per common share on a diluted basis), for the quarter ended June 30,December 31, 1999. The increase in earnings of approximately $2.7$8.1 million is the result of higher earnings in the Exploration and Production, Utility, Timber and Pipeline
and StorageEnergy Marketing segments. The increase in earnings also reflects a lower loss in the
current quarter for the International segment. These higher earnings were offset
in part by a loss in the Energy Marketing segment this year compared with the
earnings reported in the prior year's quarter.
The Company's earnings were $130.4 million, or $3.34 per common share
($3.30 per common share on a diluted basis), for the nine months ended June 30,
2000. This compares with earnings of $110.6 million, or $2.86 per common share
($2.84 per common share on a diluted basis), for the nine months ended June 30,
1999. The increase in earnings of $19.8 million is the result of higher earnings
in the Exploration and Production, Utility and Timber segments. These increases were offset in part by lower earnings in the Utility, Pipeline and Storage and International segments and a loss in the Energy Marketing segment.
Due to the precipitous rise in natural gas prices this quarter, the
Company took a $12.7 million pretax, or $8.3 million after tax charge to
earnings for the quarter ended June 30, 2000. This charge recognizes the
estimated net value related to written put and call gas option contracts
scheduled to be settled over various periods of time from July 2000 through
February 2001. Generally Accepted Accounting Principles require the Company to
mark these contracts to market at the end of each quarter. The contracts relate
to price risk management activities in the Exploration and Production and Energy
Marketing segments. This mark-to-market adjustment does not reflect the actual
gain or loss that will be realized upon settlement of the option contracts. Additional discussion of earnings in each of the business segments can be found in the business segment information that follows.
Three Months Ended December 31 (Thousands) 2000 1999
- ---------------------------------------------- ---------------- -----------------
Retail Sales Revenues:
Residential $252,558 $169,643
Commercial 43,819 27,160
Industrial 11,405 4,491
- ---------------------------------------------- ---------------- -----------------
307,782 201,294
- ---------------------------------------------- ---------------- -----------------
Off-System Sales 21,987 8,366
Transportation 24,511 23,804
Other (112) (248)
- ---------------------------------------------- ---------------- -----------------
$354,168 $233,216
- ---------------------------------------------- ---------------- -----------------
Operating revenues for the Utility segment increased $21.3$121.0 million and $33.2
million, respectively, for the quarter and nine months ended June 30,December 31, 2000 as compared with the same periodsperiod a year ago. For the quarter, this increase
resulted from higher retail, transportation, off-system sales and other revenue.
For the nine months ended, this increase resulted from higher transportation,
off-system sales and other revenue, offset in part by lower retail gas sales
revenues. The increase in retail gas sales revenue for the quarter wasrevenues is primarily the result of the recovery of higher gas costs stemming from an increase in retail gas sales volumes, as shown above (6.1 billion cubic feet (Bcf) increase for the quarter ended December 31, 2000), and slightly higher volumes sold.
The recovery of higher gas costs resulted from a much higher cost of purchased
gas (thean increase in the average cost of purchased gas was $5.21($7.43 and $4.43 per Mcf and $3.87 per Mcf forthousand cubic feet (Mcf) during the three monthsquarters ended June 30,December 31, 2000 and 1999, respectively). The slight
increase in sales volumestransportation revenues is a result of higher transportation volumes. Colder weather, as shown below, was the result of colder weather, offset bymajor factor for the impact
of the migration of residential and small commercial retail customers to
transportation service in both the New York and Pennsylvania jurisdictions. This
migration to transportation service was also the primary cause of the increase
in volumes transported and transportation revenue.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
The decrease in retail gas sales revenue for the nine months was the
result of lower volumes of retail gas sales because of the migration of
residential and small commercial retail customers to transportation service.
This was offset in part by a higher average cost of purchased gas (the average
cost of purchased gas was $4.55 per Mcf and $3.64 per Mcf, for the nine months
ended June 30, 2000 and 1999, respectively). This migration to transportation
service was also the primary cause of the increase in volumes transported and transportation revenue. Restructuring in the Utility segment's service territory
is further discussed in the "Rate Matters" section that follows.volumes. Off-system gas sales revenuerevenues increased $4.0 million and $15.7 million,
respectively, for the quarter and nine months ended June 30, 2000, as compared
with the same periods a year ago, largely due to increased gas prices in
combination withand slightly higher volumes. However, due to profit sharing with retail customers, the margins resulting from off-system sales are minimal. Other operating revenues increased $3.0 million and $6.9 million,
respectively, for the quarter and nine months ended June 30, 2000, as compared
with the same periods a year ago. Other operating revenues in the quarter and
nine months ended June 30, 1999 were reduced by $1.6 million and $6.5 million,
respectively, 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 New York rate settlement of 1998. Other
operating revenues for the quarter and nine months ended June 30, 2000, include
revenue of $2.0 million accrued to offset additional state income taxes which
resulted from the enactment of tax changes in New York State. The revenue and
related regulatory asset were recorded as the NYPSC has provided for the
opportunity of rate recovery by New York State utilities of such additional
taxes. Partly offsetting these increases to other operating revenues,
Distribution Corporation accrued an estimated refund provisionrevenue was the impact of a $10.0 million rate decrease for a 50% sharingthe Utility’s New York customers that went into effect October 1, 2000 in connection with customers of earnings over a predetermined amount in accordancethe three year rate settlement reached with the New York State Public Service Commission. This rate settlementdecrease is provided in the form of 1998. The estimated refund provision was $1.1
million fora bill credit included in rates during the quarter ended June 30, 2000 and $3.3 million for the nine months
ended June 30, 2000.November 1 through March 31 heating season.
The Utility segment's thirdfirst quarter 20002001 earnings were $5.6$18.3 million, an
increasea decrease of $2.1$3.5 million when compared with thirdthe first quarter 19992000 earnings. The most significant reasons for this decrease are the decrease in rates for the Utility's New York customers, mentioned above, as well as an increase were that last year's quarter included
a portion (approximately $1.0 million reduction to earnings) of the 1999 special
gas restructuring reserve, as discussed above,in Operating and the current quarter had lower
operation and maintenanceMaintenance (O&M) expense. The increase in O&M expense resulted from an after tax charge in December 2000 of approximately $1.3$0.6 million (after tax). This lower O&M expense is due in part to a charge for an early retirement offer accepted by certain employees in 1999. PartiallyPennsylvania and higher stock appreciation rights (SARs) expense of $2.6 million (after tax) compared to last year’s first quarter. Partly offsetting these increases,decreases was the third quarter 2000impact of weather, which in the Pennsylvania jurisdiction was approximately 26% colder than last year's first quarter. The impact of weather variations on earnings included an estimated refund provision (approximately $0.7 million
reduction to earnings),in the New York jurisdiction is mitigated by that jurisdiction's weather normalization clause (WNC). The WNC in New York, which is also discussed above.
The Utility segment'scovers the eight-month period from October through May, has had a stabilizing effect on earnings for the nine monthsNew York rate jurisdiction. In addition, in periods of colder than normal weather, the WNC benefits Distribution Corporation's New York customers. For the quarter ended June 30,December 31, 2000, were $68.8the WNC resulted in a benefit to customers of $1.1 million an increase of $6.4 million when compared with(after tax) since it was colder than normal, while for the quarter ended December 31, 1999, the WNC preserved earnings for the nine months ended June 30, 1999. This increase can be attributed
primarily to expenses related to early retirement offers in 1999 (approximately
$3.7Distribution Corporation of $2.6 million reduction to earnings in 1999) as well as the 1999 special gas
restructuring reserve (approximately $4.2 million reduction to earnings in
1999), which(after tax) since it was discussed above. Both the early retirement offers and the gas
restructuring reserve did not recur in 2000. Partly offsetting these increases,
the nine months ended June 30, 2000 earnings included an estimated refund
provision (approximately $2.1 million reduction to earnings), as previously
discussed.
warmer than normal.
Three Months Ended December 31 (MMcf) 2000 1999
- ----------------------------------------- ---------------- -----------------
Firm Transportation 89,542 82,630
Interruptible Transportation 5,950 241
- ----------------------------------------- ---------------- -----------------
95,492 82,871
- ----------------------------------------- ---------------- -----------------
Operating revenues for the Pipeline and Storage segment increased $1.4 million
and $1.5decreased $0.5 million for the quarter and nine months ended June 30,December 31, 2000
respectively, as compared with the same period a year ago. Approximately, $1.3
millionThis decrease was due mainly to lower revenues from firm storage service and lower revenues from unbundled pipeline sales and open access transportation offset, in part, by higher interruptible transportation revenues. While transportation volumes increased significantly, volume fluctuations generally do not have a significant impact on revenues as a result of these increases relatesSupply Corporation’s straight fixed-variable rate design. However, higher interruptible transportation volumes did contribute to a "pass through" type item (which did not
recuran increase in 2000) that reducedinterruptible transportation revenues, as shown above.
Earnings in the prior year and correspondingly
reduced O&M expense in the prior year, thus having no bottom line earnings
impact.
The Pipeline and Storage segment's thirdsegment decreased $2.7 million from $9.3 million for the quarter 2000 earnings were
$7.3ended December 31, 1999 to $6.6 million an increase of $0.3 million when compared withfor the third quarter of 1999's earnings.ended December 31, 2000. Lower operating revenues, as mentioned above, and higher O&M expense, duecontributed to this decrease. The increase in part toO&M expense was the result of a $0.6 million after tax charge in the prior year for an early retirement increasedoffer in Pennsylvania in December 2000 and higher SARs expense (an increase of $3.3 million after tax) compared to last year’s first quarter. Partly offsetting these negative impacts to earnings forwas an increase in other income realized upon the quarter. The impactbuy-out by a customer of the
recently enacted New York State tax changes, as discussed in the Utility segment
above, mostly offset the O&M savings. The Federal Energy Regulatory Commission
(FERC), which regulates this segment, has not provided for the recovery of
additional taxes as has the NYPSC.
a long-term transportation contract ($2.6 million after tax).
Three Months Ended December 31 (Thousands) 2000were $26.8 million, a decrease of $3.3 million when compared with the earnings for the nine months ended June 30, 1999. The most significant reason for this decrease is that the prior year's earnings included interest income and a reduction in income taxes related to the final settlement of Internal Revenue Service audits of years 1977-1994. This, coupled with the negative impact of New York State tax changes, discussed above, resulted in decreased earnings.
- ------------------------------------------ ---------------- -----------------
Three Months Ended December 31 2000 1999
- ------------------------------------------ ---------------- -----------------
Gas Production(million cubic feet)
Gulf Coast 6,429 7,946
West Coast 1,044 1,116
Appalachia 1,043 1,107
Canada 122 -
- ------------------------------------------ ---------------- -----------------
8,638 10,169
- ------------------------------------------ ---------------- -----------------
Oil Production(thousands of barrels)
Gulf Coast 356 322
West Coast 745 686
Appalachia 2 3
Canada 741 -
- ------------------------------------------ ---------------- -----------------
1,844 1,011
- ------------------------------------------ ---------------- -----------------
- --------------------------------------- ---------------- ----------------- Three Months Ended December 31 2000 1999 - --------------------------------------- ---------------- ----------------- Average Gas Price/Mcf Gulf Coast $5.91 $2.57 West Coast $9.36 $2.90 Appalachia $4.18 $2.90 Canada $4.75 - Weighted Average $6.10 $2.64 Weighted Average After Hedging $3.74 $2.62 Average Oil Price/barrel (bbl) Gulf Coast $31.80 $23.36 West Coast $26.94 $19.97 Appalachia $30.90 $21.67 Canada $28.01 - Weighted Average $28.31 $21.06 Weighted Average After Hedging $23.03 $17.39 - --------------------------------------- ---------------- -----------------
Operating revenues for the Exploration and Production segment increased $13.3$51.2 million and $48.4 million, respectively, for the quarter and nine months ended June 30,December 31, 2000 as compared with the same periods a year ago. For the quarter ended June 30, 2000, gasDecember 31, 1999. Oil production revenue (after hedging)after hedging increased $4.5$24.9 million from last year’s first quarter as the weighted average price of oil after hedging increased 32% and oil production revenue (after hedging) increased $14.482%. Oil production from Canadian wells acquired as part of the June 2000 acquisition of Tri Link Resources, Ltd. (Tri Link), now known as National Fuel Exploration Corp. (NFE), added $15.8 million to oil revenues. Gas production revenues after hedging increased $5.7 million principally due to increasedthe 43% increase in the weighted average price of gas after hedging. Higher gas prices more than compensated for an overall decrease in gas production. The decrease in production was greatest in the Gulf Coast region as there was a delay in placing new platforms on production and prices. For the nine months ended June 30, 2000, gas
production revenue (after hedging) and oil production revenue (after hedging)
increased $22.0 million and $30.5 million, respectively,delays in work-over activity. These delays are due to increasedpersonnel and equipment shortages and a tight rig market. Based on these delays, the Company has lowered its total production and prices. Referestimate for the year to the tables below90–95 Bcfe (see Outlook for production volumes and
average price information.2001 below). Revenue from Seneca'sSeneca’s gas processing plant was up $1.4$6.4 million and $4.2 million, respectively, for the quarter and nine months
ended June 30, 2000 as compared with the same periods a year ago due to increased prices forhigher gas liquids and residue. Other revenue decreased $7.0prices. In addition, this segment recognized an increase of $13.6 million and $8.4 million, respectively, for the quarter and nine months ended
June 30, 2000, as compared with the same periods a year ago. The decreases to
otherin revenues resulted primarilyresulting from mark-to-market and other revenue adjustments related to written options.derivative financial instruments. Refer to tables below for production and price information. Refer to further discussion of written
optionsderivative financial instruments in the "Market“Market Risk Sensitive Instruments"Instruments” section that follows and in
Item 1, Note 5 - Derivative Financial Instruments.follows.
The Exploration and Production segment's thirdsegment’s first quarter 20002001 earnings were $6.0$23.0 million, an increase of $3.4$15.0 million when compared with thirdthe first quarter 1999 earnings.2000 earnings of $8.0 million. As discussed above, significant improvementincreases in oil and gas pricing combined within the current quarter, an 82% increase in oil production, attributable mainly to NFE, and mark-to-market adjustments on derivative financial instruments, contributed to this earnings increase. Partly offsetting higher revenues was an increase in production were the main reasons forrelated expenses, including higher earnings. A 20% increase in oil production was attributable largely to
production from the Canadian wells acquired by National Fuel Exploration
Corporation (NFEC) (a 100% wholly-owned subsidiary of Seneca) as part of the Tri
Link Resources, Ltd. (Tri Link) stock acquisition in mid-June. Partly offsetting
these increases in revenues were increases in depletion expense, (due to higher
production volumes and higher depletable base), lease operating costs, (duegeneral and administrative expenses and production taxes, primarily attributable to NFE. Interest expense increased production), a negative mark-to-market revenue adjustment related to
written options, and increased interest expense due to higher borrowings and
higher weighted average interest rates.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations (Cont.)
---------------------
The Exploration and Production segment's earnings for the nine months
ended June 30, 2000 were $21.9 million, an increase of $18.9 million when
compared with the earnings for the nine months ended June 30, 1999. As discussed
above, significant improvement in oil and gas pricing combined with an increase
in production were the main reasons for higher earnings. Partly offsetting these
increases were higher depletion expense and lease operating costs. Earnings were
also reduced due to revenue adjustments related to written options discussed
above. Also, there was a decrease in interest income asthe acquisition of Tri Link.
Three Months Ended December 31 (Thousands) 2000 1999included nonrecurring interest received from the final settlement of the IRS audits in December 1998. In addition, there was an increase in interest expense as a result of increased borrowings and higher weighted average interest rates.
(1) Gigajoules = one billion joules. A joule is a unit of energy.
2000 Compared with 1999
Operating revenues for the International segment decreased $0.8 million and $4.2
million, respectively, for the quarter and nine months ended June 30, 2000 as
compared to the same periods a year ago. The decrease reflects a decrease in the
value of the Czech koruna as well as the impact of warm weather and conservation
efforts by customers.
The International segment experienced a loss of $1.4 million for the
third quarter 2000, $1.1 million lower than the loss of $2.5 million for the
third quarter of 1999. This lower loss was primarily due to lower O&M expenses
and additional consideration received on the sale of a previous project.
The International segment's earnings for the nine months ended June 30,
2000 were $7.6 million, a decrease of $0.4 million when compared with the
earnings for the nine months ended June 30, 1999. This decrease can be
attributed primarily to lower margins stemming from warm weather and
conservation efforts by customers combined with the decline in the value of the
Czech koruna. These factors were offset, in part, by lower O&M expenses.
Operating revenues for the International segment decreased $6.8 million for the quarter ended December 31, 2000 as compared to the quarter ended December 31, 1999. The decrease was primarily due to a decrease in heat sales resulting from warmer weather during the quarter ended December 31, 2000 compared to the quarter ended December 31, 1999. Also, the value of the Czech koruna (CZK) compared to the U.S. dollar was significantly lower than the first quarter of last year, further contributing to a decrease in revenues.
The International segment’s first quarter 2001 earnings were $2.2 million, a decrease of $2.4 million when compared with the first quarter 2000 earnings of $4.6 million. This decrease can be attributed to lower margins resulting from warmer weather and a non-recurring income tax adjustment made in the prior year. Also, the exchange rate impact discussed above had a negative impact on earnings. These decreases to earnings were partly offset by lower O&M expense and lower interest expense.
Three Months Ended December 31 (Thousands) 2000 1999
- --------------------------------------------- ------------------ -----------------
Natural Gas (after Hedging) $46,781 $28,627
Electricity 448 360
Other 957 188
- --------------------------------------------- ------------------ -----------------
$48,186 $29,175
- --------------------------------------------- ------------------ -----------------
Three Months Ended December 31 2000 1999 - ---------------------------------------- ------------------ ----------------- Natural Gas - (MMcf) 8,231 9,161 - ---------------------------------------- ------------------ -----------------
Operating revenues for the Energy Marketing segment increased $8.2$19.0 million and
$34.9 million, respectively, for the quarter and nine months ended June 30,December 31, 2000 as compared with the same periods a year ago.quarter ended December 31, 1999. This increase reflects higher marketing volumesgas sales revenue due to the increased price of natural gas and revenues as NFR's customer base continues to
increase. These increases were partly offset by a negative $5.3 million
mark-to-market adjustment related to written put and call gas option contracts
for the quarter and nine months ended June 30, 2000 (included in "Other"gain on the
table above). The mark-to-market adjustment does not reflect the actual gain or
loss that will be realized upon settlement of the option contracts. At July 31,
2000, NFR had settled 73% of these written put and call gas option contracts at
a net gain of approximately $0.9 million.certain derivative financial instruments.
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 the further discussion of these hedging activities and
discussion of written options in the "Market“Market Risk Sensitive Instruments"Instruments” section that follows and in Item 1, Note 5 - Derivative Financial Instruments.follows.
The Energy Marketing segment incurred losses for bothsegment’s first quarter 2001 earnings were $1.3 million compared with a loss of $17,000 during the first quarter of 2000. This increase is a result of higher margins and nine months ended June 30, 2000. When compared to the same periods a year ago,
earnings decreased $4.8 million for the quartermark-to-market gain on certain derivative financial instruments offset, in part, by higher interest and $4.3 million for the nine
month period. The most significant reason for these decreases were the
mark-to-market adjustments related to written put and call gas option contracts,
noted above.
Three Months Ended December 31 (Thousands) 2000 1999
- ------------------------------------------------- ------------------ -----------------
Log Sales 2,061 2,533
Green Lumber Sales 2,266 1,994
Kiln Dry Lumber Sales 2,068 1,608
- ------------------------------------------------- ------------------ -----------------
6,395 6,135
- ------------------------------------------------- ------------------ -----------------
Operating revenues for the Timber segment increased $4.3$2.2 million and $6.8
million, respectively, for the quarter and nine months ended June 30,December 31, 2000 as compared with the same periods a year ago. Thequarter ended December 31, 1999. This increase foris primarily the quarter and nine
month period resulted primarilyresult of higher revenue from higher veneer log sales, green lumber sales and kiln dry lumber sales. The increase in log sales revenues is the result of increased sales of higher quality logs at higher average prices which more than compensated for the overall decline in log sales as measured in board feet. The increase in green and kiln dry lumber sales is due to the operation of additionaltwo more kilns purchased latebrought on-line in theAugust 2000.
The Timber segment’s first quarter ended December 31, 1998.
Earnings in the Timber segment increased $0.62001 earnings were $2.4 million, and $1.7an increase of $1.5 million respectively, for the quarter and nine months ended June 30, 2000, aswhen compared with the same periods a year ago. Thefirst quarter 2000 earnings of $0.9 million. This increase for the quarter and nine months
is primarily the result of higher log and lumber sales, partly offset by higher interest
expense resulting from higher debt related to the PennzEnergy Company
acquisition in July 1999. For the nine month period a pretax gain of $2.3$2.1 million pre tax ($1.51.3 million after tax) gain on the sale of land and standingcertain timber increased earnings of this segment.
properties. Higher revenues from timber sales also contributed to the increase, offset partially by higher O&M expenses.
Although variances in Other Incomeother income items and Interest Chargesinterest charges are discussed in the earnings discussion by segment above, following is a recap on a consolidated basis:
Other income increased $0.6$7.0 million for the quarter ended June 30,December 31, 2000 compared with the quarter ended June 30,December 31, 1999. This increase resulted primarily fromwas principally due to a buyout of a long-term transportation contract by a customer in the $0.5 million of additional consideration receivedPipeline and Storage segment as well as a gain realized on the sale of a previous
projectcertain timber properties in the InternationalTimber segment.
Other income decreased $0.2 million for the nine months ended June 30,
2000 compared with the nine months ended June 30, 1999. This decrease resulted
mainly from approximately $3.2 million of interest income related to the final
settlement of IRS audits for years 1977 - 1994 which was recorded during 1999
and did not recur this year. Partially offsetting this decrease was the gain on
the sale of land and standing timber in the second quarter of 2000, as well as
the additional consideration received on the sale of a previous project, both
noted above.
Interest on long-term debt increased $1.4 million and $0.8$2.4 million for the quarter and nine months ended June 30,December 31, 2000 respectively, as compared with the quarter and nine months ended June 30,December 31, 1999. This increase can be attributed
primarily to a higher average amount of long-term debt outstanding combined withand slightly higher weighted average interest rates.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations (Cont.)
---------------------
Other interest charges increased $0.8$1.8 million for the quarter ended June 30,December 31, 2000. This increase resulted mainly from higher weighted average
interest rates in the current quarter, offset partially by a decrease in the
average amount of short-term debt outstanding. For the nine months ended June
30, 2000, other interest charges increased $4.5 million. Higher weighted average
interest rates for the nine-month period together with an increase in the average amount of short-term debt outstanding contributed to this increase.
Also, a reductionand higher weighted average interest rates in interest charges was recordedeffect during the current quarter.
This outlook for 2001 section contains forward-looking statements, all of which are based on current expectations. There is no assurance that the Company’s projections will in 1999 relatedfact be achieved and these projections do not reflect any acquisitions or divestitures which may occur during the remainder of 2001. Reference should be made to the final
settlementvarious important factors listed under the heading “Safe Harbor for Forward-Looking Statements” that could cause actual future results to differ materially.
The Company continues to expect that earnings for 2001 will fall within the range of IRS audits$168 million to $172 million, or $4.25 per basic common share to $4.35 per basic common share.* The Company further expects that earnings for the second quarter of years 1977 - 1994.
2001 will be within the range of $1.90 to $2.00 per basic common share.* Higher earnings in the Exploration and Production segment continue to be the main driver of the expected increase in earnings for 2001 as compared with actual earnings for 2000.* Production estimates for 2001 are in the range of 90 to 95 Bcfe (with oil representing 54% of that production).* Information on the Exploration and Production segment’s hedging program is provided in the “Market Risk Sensitive Instruments” section in Item 7 of the Company’s 2000 Form 10-K.
The Company'sCompany’s primary sources of cash during the nine-monththree-month period ended June
30,December 31, 2000 consisted of cash provided by operating activities and long-term debt and
short-term bank loans and commercial paper.debt. These sources were supplemented by issuances of common stock under the Company'sCompany’s stock and benefit plans.
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 may also significantly impact cash flow. The impact of weather on cash flow is tempered in the Utility segment'ssegment’s New York rate jurisdiction by its WNC and in the Pipeline and Storage segment by Supply Corporation'sCorporation’s straight fixed-variable rate design.
Because of the seasonal nature of the Company's heating business in the Utility, Energy Marketing and International segments, revenues in these segments are relatively high during the nine months ended June 30heating season,
primarily the first and second quarters of the year, and receivables historically increase during these periods from what was receivable at September to June because of winter
weather.30.
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“Other Accruals and Current Liabilities."” Such reserve is reduced as the inventory is replenished.
Net cash provided by operating activities totaled $261.1$27.9 million for the ninethree months ended June 30,December 31, 2000, an increase of $13.0$14.3 million compared with $248.0the $13.6 million provided by operating activities for the ninethree months ended June
30,December 31, 1999. 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. Higher cash receipts for oilOil and gas production resulted
from increased oil and gas production and significantly higher prices. Interest
payments are downprices were up in this segment and oil production increased significantly due to the retirementacquisition of Tri Link in June 2000. Partly offsetting this increase, higher working capital requirements in the HarCor Energy Inc. 14.875% Senior Secured NotesMarketing segment contributed to higher cash outflows in March 1999 and July 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations (Cont.)
---------------------
this segment.
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'sCompany’s expenditures for long-lived assets totaled $314.2$69.3 million during the ninethree months ended June 30,December 31, 2000. The table below presents these expenditures:
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.
The majority of the Pipeline and Storage capital expenditures were made for additions, improvements, and replacements to this segment'ssegment’s transmission and storage systems. Of the total capital expenditures, $9.2 million was related to
Supply Corporation's acquisition of another company's interest in the Niagara
Spur Loop Line and the Ellisburg-Leidy pipeline in January 2000. This
acquisition was financed with short-term borrowings. 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) in November 1999. 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations (Cont.)
---------------------
During the nine months ended June 30,
At December 31, 2000, SIP madehad a $1.8$13.7 million investment in Independence Pipeline Company, a Delaware general partnership (Independence), and had an aggregate investment balance of $12.9 million at June
30, 2000.. This investment represents a one-third partnership interest. The investment has been financed with short-term borrowings. Independence intends to build a 370400 mile natural gas pipeline (the Independence Pipeline) from Defiance, Ohio to Leidy, Pennsylvania at an estimated cost of $680 million.* If construction never begins on the Independence Pipeline project SIP'sis not constructed, SIP’s share of the development costs (including SIP'sSIP’s investment in Independence) is estimated not to exceed $15.0 million.*
On July 12, 2000, the FERCFederal Energy Regulatory Commission (FERC) issued a certificateCertificate of public conveniencePublic Convenience and necessityNecessity (the Certificate) authorizing, among other things, the construction and operation of the Independence Pipeline, subject to satisfaction of various conditions spelled out in the Certificate and in previous FERC orders. Among those conditions is the requirement that, before construction may commence, Independence must file at FERC executed, firm transportation agreements with "no out"“no out” clauses for at least 68.2% of its capacity. (Independence already filed, on June 26 and July 6, 2000, precedent agreements for firm transportation amounting to about 38% of the capacity of the Independence Pipeline, thereby satisfying a FERC requirement previously imposed as a precondition to FERC'sFERC’s issuance of the Certificate.) The Independence Pipeline sponsorspartners are working on obtaining the required customer commitments. The Certificate also requires that the Independence Pipeline be constructed and placed in service by July 12, 2003. Assuming contracts are in place in quantities satisfactory to the partners by July 1, 2001, the Independence Pipeline'sPipeline’s planned in service date is November 1, 2002.*
The Certificate also includes an environmental condition that Independence file an "implementation plan" within 60 days after Independence accepted the Certificate. In October and November 2000, Independence timely filed a preliminary implementation plan which included a request for an extension of time to provide certain technical information, in order to allow the remaining field surveys (for example, for endangered species) to be commenced in spring 2001. This timing would be consistent with Independence's planned in service date of November 1, 2002, and the Certificate's deadline of July 12, 2003 to complete construction. On November 20, 2000, a FERC official issued a letter requiring Independence to file a full implementation plan, including the necessary technical information, by May 1, 2001, and warning that if Independence cannot comply with these terms, its Certificate authority could be in jeopardy. This letter also requires Independence to file monthly status reports on environmental permitting and land acquisition activities. Independence may be unable to file timely an implementation plan which meets the requirements set out in the November 20 letter.* It is therefore possible, but not likely, that Independence's application could be dismissed.* Dismissal of the application would jeopardize the project.* Independence continues to work on the activities which it believes are necessary to keep the Certificate in effect.
The Exploration and Production segment capital expenditures for the ninethree months ended June 30,December 31, 2000 included approximately $76.4$24.1 million for Seneca'sSeneca’s offshore program in the Gulf of Mexico, including offshore drilling expenditures, offshore construction, lease acquisition costs and geological and geophysical expenditures. The remaining $20.0$18.6 million of capital expenditures included onshore drilling, construction and recompletion costs for wells located in Louisiana, Texas, California and CaliforniaCanada as well as onshore geological and geophysical costs, including the purchase of certain 3-Dthree-dimensional seismic data and fixed asset purchases. In June 2000, NFEC acquiredOf the outstanding shares of Tri Link, a
Calgary-Alberta based oil$18.6 million disclosed above, $10.9 million was spent on the Exploration and gas exploration and production company. This
acquisition builds Seneca's total reserve base to approximately one trillion
cubic feet equivalent.* The cost of acquiring the outstanding shares of Tri Link
was approximately $123.8 million. The acquisition was financed with short-term
borrowings. Refer to "Financing Cash Flow" for a discussion of the redemption of
the debt that was assumed as part of the Tri Link acquisition.
Production segment’s Canadian properties.
The majority of the International segment capital expenditures were concentrated inon the areasconstruction of improvements and replacements within thea boiler at a district heating and power generation plantsplant in the Czech Republic.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations (Cont.)
---------------------
The majority of the Timber segment capital expenditures were made for the
purchasepurchases of land and timber in Pennsylvania, and the construction and/or
purchase of new facilities andfor Seneca’s timber operations, as well as equipment for this segment'sHighland’s sawmill and kiln operations. As discussed under the Timber segment'ssegment’s results of operations, in JanuaryNovember 2000 this segment sold land and timber properties with a book value of $3.0$5.2 million for $5.3$7.3 million. The resulting gain on this sale of $2.3 million is
included in earnings for the nine months ending June 30, 2000.
All Other
- ---------
Expenditures for Long-Lived Assets for all other subsidiaries consisted of
Upstate's purchase of a 50% interest in a gas processing facility and NFR
Power's purchase of a 50% partnership interest in Seneca Energy II, LLC (Seneca
Energy). Seneca Energy generates and sells electricity to a public utility.
Seneca Energy generates the electricity by using methane gas obtained from a
landfill in Seneca Falls, New York, which is owned by an outside party.
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'sCompany’s other business segments depends, to a large degree, upon market conditions.*
In November 2000, the Company issued $200.0 million of 7.50% medium-term notes due in November 2010. After deducting underwriting discounts and commissions, the net proceeds to the Company amounted to $197.3 million. The proceeds of this debt issuance were used to reduce short-term debt.
Consolidated short-term debt increased $125.3decreased $139.1 million during the first nine
monthsquarter of 2000.2001. The Company continues to consider short-term debt an important source 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 June 2000, NFEC paid approximately $96.2 million to redeem the bank
loans and convertible debentures of the former Tri Link. These redemptions were
financed with short-term debt.
In February 2000, the Company issued $150.0 million of 7.30%
medium-term notes due in February 2003. After deducting underwriting discounts
and commissions, the net proceeds to the Company amounted to $149.3 million. The
proceeds of this debt issuance were used to redeem $50.0 million of 6.60%
medium-term notes which matured in February 2000 and to reduce short-term debt.
In March 1998, the Company obtained authorization from the Securities and Exchange Commission (SEC), under the Public Utility Holding Company Act of 1935, to issue long-term debt securities and equity securities in amounts not exceeding $2.0 billion at any one time outstanding during the order'sorder’s authorization period, which extends to December 31, 2002. In August 1999, the Company registered $625.0$625 million of debt and equity securities under the Securities Act of 1933. After the FebruaryNovember 2000 medium-term note issuance discussed above, the Company currently has $475.0$275.0 million of debt and equity securities registered under the Securities Act of 1933.
The Company'sCompany’s present liquidity position is believed to be adequate to satisfy known demands.* Under the Company'sCompany’s existing indenture covenants, at June 30,December 31, 2000, the Company would have been permitted to issue up to a maximum of $510.0$245.0 million in additional long-term unsecured indebtedness at projected market interest rates. Excluding the unrealized loss for derivative financial instruments reflected in Accumulated Other Comprehensive Loss on the Consolidated Balance Sheet, the Company would have been permitted to issue up to a maximum of $361.0 million in additional long-term unsecured indebtedness at projected market interest rates. In addition, at June 30,December 31, 2000, the Company had regulatory authorizations and unused short-term credit lines that would have permitted it to borrow an additional $231.2$269.6 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'sCompany’s present liquidity position, nor have a material adverse effect on the financial condition of the Company.*
For a complete discussion of market risk sensitive instruments, refer to "Market“Market Risk Sensitive Instruments"Instruments” in Item 7 of the Company's 1999Company’s 2000 Form 10-K. The
following discussion is an updateThere have been no subsequent material changes to that disclosure.
Energy Commodity Price Risk
Certainthe Company’s exposure to market risk sensitive instruments.
On October 11, 2000, the State of New York Public Service Commission (NYPSC) approved a settlement agreement (Agreement) between Distribution Corporation, Staff of the Company's subsidiaries (primarily Seneca and NFR) utilize various
derivative financial instruments (derivatives), including price swap agreements,
options, no cost collars, exchange-traded futures and exchange-traded options,
as partDepartment of the Company's overall energy commodity price risk management
strategy. Under this strategy, the Company manages a portion of the market risk
associated with fluctuations in the price of natural gas and crude oil, thereby
providing more stability to operating results. The derivatives entered into by
these subsidiaries are not held for trading purposes.
The following tables disclose natural gas and crude oil price swap
information by expected maturity dates for agreements in which Seneca receives a
fixed price in exchange for paying a variable price as quoted in "Inside FERC"
or onPublic Service, the New York Mercantile Exchange. Notional amounts (quantities) are used
to calculate the contractual payments to be exchanged under the contract. The
tables do not reflect the earnings impact of the physical transactions that are
expected to offset any financial gainsState Consumer Protection Board and losses arising from the use of the
price swap agreements. The weighted average variable prices represent the prices
as of June 30, 2000. At June 30, 2000, Seneca had not entered into any natural
gas or crude oil price swap agreements with maturity dates extending beyond
2003.
On November 3, 1998, the NYPSC issued itsPolicy 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"NYPSC’s “vision” on "how“how best to ensure a competitive market for natural gas in New York."” That vision includes the following goals:
(1)
The Policy Statement provides that the most effective way to establish a competitive market in gas supply is "for“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"“statutory requirements” and the individual needs of each local distribution company (LDC).* The Policy Statement directs Staff to schedule "discussions"“discussions” with each LDC on an "individualized“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.*
On March 22, 2000, the NYPSC issued an order directing electric and gas utilities to file tariff amendments "to“to accommodate the wishes of retail access customers who prefer to receive combined, single bills from either their utility company or their [marketer]" (the Billing” (Billing Order). The tariff amendments will provide for marketer single-bill or utility single-bill services, thereby allowing a customer to choose a billing preference through the customer'scustomer’s choice of suppliers -– utility or marketer. Distribution Corporation has permitted marketer single billing since 1996. The
On November 1, 2000, Distribution Corporation filed tariff amendments in compliance with the Billing Order will permit(and a subsequent order on rehearing of the Billing Order). Consistent with the provisions of the Billing Order, Distribution CorporationCorporation’s filing proposes to providemaintain its long-standing marketer single-bill model and add a permanent version of a utility-provided competitive single-bill service that has been available since May 2000. In addition, the filing proposes a credit (called a “backout credit”), available to marketers that issue single retail bill service for marketers.
Includedbills, equal to the long-run marginal cost of billing services avoided by Distribution Corporation. Based on the methodology set forth in the Billing Order, is a requirement that utilities design a
"back-out" credit equal to the long run costs avoided by each utility when
billing is provided by another party. On April 24, 2000 Distribution Corporation submitted draft tariff sheets setting forthcalculated a backout credit of $0.66 per bill avoided. The charge for Distribution Corporation’s competitive billing service was set at $0.71 (with a backout credit). Distribution Corporation’s filing proposed back-out credit
methodology foran effective date of February 1, 2001 and is subject to review and commentapproval by the NYPSC. On January 24, 2001 the NYPSC Staff and other interested parties.
Although a methodology is described, no back-out credit was calculated.
Distribution Corporation's filing included provisions for a billing service to
be provided by Distribution Corporation, together with additional rules and
regulations governing marketer-provided retail billing.
Several utilities filed requests for rehearing ofissued an order postponing the Billing Order.
The requests include, among other things, arguments challenging the NYPSC's
authority to impose a back-out credit based on long run avoided costs.
Distribution Corporation chose against joining the other utilities on rehearing
and may, if necessary, pursue other avenues of relief.*effective date through May 31, 2001. At this time, Distribution Corporation is unable to ascertain the outcome of matters relating
to the Billing Order.
In conversations with NYPSC Staff prior to the release of the Billing
Order, Distribution Corporation requested approval for a temporary, interim
billing service to be provided in response to marketer inquiries. As a result of
Distribution Corporation's efforts, the Billing Order included a provision for a
billing service as requested. Accordingly, beginning on May 1, 2000,
Distribution Corporation commenced a retail billing service for two marketers
serving approximately 2000 retail customers. The billing service is being
offered to the marketer community for a per-bill fee of $0.50, subject to
modification pursuant to the Billing Order. The temporary billing service will
remain available for interested marketers until it is replaced by a permanent
billing service under the Billing Order.
this proceeding.*
On March 30, 2000, a collaborative was convened to address the NYPSC'sNYPSC’s Order Instituting Proceeding in the so-called "Provider“Provider of Last Resort"Resort” (POLR) case. The collaborative was charged with the task of helping the NYPSC to "refine“refine our concept of the mature competitive retail energy markets (especially the future role of the regulated utilities) and to identify and remove obstacles to its achievement." This” The parties in this case is expected to address,are addressing, among other things, issues arising from utilities exiting the merchant function. The proceeding is also focusing on utilities'utilities’ responsibility to provide low-income assistance programs. Currently the parties are meeting on a periodic basis and attempting to establish a
proceduredevelop consensus on various end-state models for identifyingconsideration by the issues and managing the proceeding.NYPSC. At this time, Distribution Corporation is unable to ascertain the outcome of the POLR proceeding.*
On April 12, 2000, the NYPSC issued an order setting forth procedures for implementation of electronic data interchange (EDI) for electronic exchange of retail access data in New York (EDI Order). As described by the NYPSC, EDI is the computer-to-computer exchange of routine business information in a standard form. The NYPSC believes that EDI is necessary to develop uniform data exchange protocol for the state'sstate’s customer choice initiatives. The EDI Order adopts provisions of a report prepared after an EDI collaborative involving utilities, marketers and other interests. Distribution Corporation submitted its EDI implementation plans on May 31, 2000. Initial (test-only) implementation of EDI, expected to begin during the fourth quarter of calendar 2000, has been slightly delayed. At this time, Distribution Corporation is unable to ascertain the outcome of the EDI proceeding.*
The NYPSC continues to address, through various proceedings and "collaboratives,"“collaboratives,” upstream pipeline capacity issues arising from the restructuring. At this point,Currently Distribution Corporation remains authorized to release upstream intermediate capacity to marketers serving former sales customers. Costs relating to retained upstream transmission capacity are recovered through a transition cost surcharge. At this time, Distribution Corporation does not foresee any material changes to upstream capacity requirements in the near term.*
On May 15, 2000, the New York State tax law was amended to phase out the long-running tax on utility gross revenues beginning January 1, 2001. Offsetting the scheduled reductions, however, is the imposition of a net income based tax on the same utilities. In a report issued on October 13, 2000, the New York Department of Public Service (Department) recommended, among other things, that utilities be kept whole for any tax increases resulting from implementation of the changes. Toward that end, the report proposed that the mechanism in rates currently used for recovery of the gross revenue tax would be utilized to collect the new income tax. To the extent a utility’s income tax liability exceeded the amount collectible through the existing gross revenue tax recovery mechanism, deferral accounting would be authorized. On December 18, 2000, Distribution Corporation and other parties submitted comments addressing Staff’s recommendations. Distribution Corporation’s comments expressed concern that the Department’s methodology for calculating amounts subject to deferral was flawed. On December 21, 2000, the NYPSC issued an abbreviated order adopting the Department’s recommendation. Distribution Corporation filed tariff amendments revising its tax recovery mechanism consistent with the order. A comprehensive order, describing the basis for the NYPSC’s decision, is forthcoming. The abbreviated order specified that the time for filing rehearing petitions “will be deemed to run from the date of issuance of the subsequent order.” At this time, Distribution Corporation is evaluating the effect of the abbreviated order and is unable to ascertain the outcome of this proceeding.*
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.
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 mirrored the company'sDistribution Corporation’s System Wide Energy Select program previously in effect, which substantially complied with the Act'sAct’s requirements. After negotiations with PaPUC Staff and intervenors, a settlement was reached with all parties except for the Pennsylvania Office of Consumer Advocate (OCA). The settlement parties generally agreed that Distribution Corporation'sCorporation’s proposal needed only modest changes to meet the requirements of the Act. Hearings were held and briefs filed on OCA'sOCA’s open issues. In a Recommended Decision issued on March 31, 2000, the Administrative Law Judge rejected the OCA'sOCA’s arguments and recommended approval of the settlement agreement. On June 29, 2000, the PaPUC entered an Opinion and Order adopting the settlement, with immaterial changes. Distribution Corporation'sCorporation’s restructured rates and services became effective on July 1, 2000.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (Cont.)
---------------------
Supply Corporation currently does not have a rate case on file with the FERC. Management will continue to monitor Supply Corporation'sCorporation’s financial position to determine the necessity of filing a rate case in the future.
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 $8.1 million to
$9.1 million.* The minimum liability of $8.1 million has been recorded on the
Consolidated Balance Sheet at June 30, 2000. 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.*Matters. The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment. The Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and comply with regulatory policies and procedures. 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. At December 31, 2000, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites and third party waste disposal sites will be in the range of $5.7 million to $6.9 million.* The minimum liability of $5.7 million has been recorded on the Consolidated Balance Sheet at December 31, 2000. Other than discussed in Note H of the 2000 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.*
For further discussion refer to Note H - Commitments and Contingencies under the heading "Environmental Matters"“Environmental Matters” in Item 8 of the Company's 1999Company’s 2000 Form 10-K.
Safe Harbor for Forward-Looking Statements. The Company is including the following cautionary statement in this Form 10-Q to make applicable and take advantage of the safe harbor provisions of Section 21E of the Private Securities ExchangeLitigation Reform Act of 19341995 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'sCompany’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'smanagement’s examination of historical operating trends, data contained in the Company'sCompany’s records and other data available from third parties, but there can be no assurance that management'smanagement’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.
The Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
Refer to the "Market“Market Risk Sensitive Instruments"Instruments” section in Item 2 -
Management's– Management’s Discussion and Analysis of Financial Condition and Results of Operations.
For a discussion of various environmental matters, refer to Part I, Item 1 at Note 64 and to Part I, Item 2 -– MD&A of this report under the heading "Other“Other Matters."
”
On April 3,October 2, 2000, the Company issued 600840 unregistered shares of Company common stock to the seven non-employee directors of the Company. TheThese shares were issued as partial consideration for the directors' servicedirectors’ services during the quarter ended June
30,December 31, 2000, pursuant to the Company'sCompany’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.
Item 5. Other Information
-----------------
In June, John F. Riordan was elected to the Board of Directors for a term that
will expire in February 2001. Mr. Riordan's election filled a vacancy created in
February when George H. Schofield retired from the Board.
Also in June, Highland Land & Minerals, Inc. changed its name to Highland Forest
Resources, Inc.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibit
------------- ----------------------
3 (ii)3(ii) By-Laws:
3.1 National Fuel Gas Company By-Laws as amended on February 17, 2000.
(10) Material Contracts
10.1 Amended and Restated Split Dollar Insurance
Agreement, effective June 15, 2000 among
National Fuel Gas Company, Bernard J.
Kennedy, and Joseph B. Kennedy, as Trustee
of the Trust under the Agreement dated
January 9, 1998.
10.2 Contingent Benefit Agreement effective June
15, 2000 between National Fuel Gas Company
and Bernard J. Kennedy.
Item 6. Exhibits and Reports on Form 8-K (Concl.)
-----------------------------------------
(a) Exhibits
Exhibit
Number Description of Exhibit
------ ----------------------2000.
(12) Statements regarding Computation of Ratios:
Ratio of Earnings to Fixed Charges for the
Twelve Months Ended June 30,December 31, 2000 and
the Fiscal Years Ended September 30, 19951996
through 1999.
(27) Financial Data Schedules
27.1 Financial Data Schedule for the Nine Months
Ended June 30, 2000.
27.2 Restated Financial Data Schedule for the
Nine Months Ended June 30, 1999.
(99) National Fuel Gas Company Consolidated Statement of Income for the Twelve
Months Ended June 30,December 31, 2000 and 1999.
(b) Reports on Form 8-K
On April 24,October 17, 2000, the Company filed a Form 8-K under Item 5 regarding an agreement whereby Seneca
Resources Corporation agreed to offer to
acquire allthe
results of the outstanding common sharesa review of Tri Link Resources, Ltd., a Calgary,
Alberta based exploration and production
company.its derivative positions. This report
did not include any financial statements.
On November 2, 2000, the Company filed a Form 8-K under Item 5 regarding
press releases issued by the Company and its subsidiary, Seneca
Resources Corporation concerning earnings for the fourth
quarter and fiscal year ended September 30, 2000. This report
included partial financial statements and other financial
information.
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 COMPANYDate:-------------------------
(Registrant)/s/
/s/Joseph P. Pawlowski-----------------------------------
Joseph P. Pawlowski
Treasurer and
Principal Accounting Officer