National Fuel Gas Company 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-3880
NATIONAL FUEL GAS COMPANY
(Exact name of registrant as specified in its charter)
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New Jersey
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13-1086010 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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6363 Main Street |
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Williamsville, New York
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14221 |
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(Address of principal executive offices)
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(Zip Code) |
(716) 857-7000
(Registrants 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 þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer: þ
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Accelerated filer: o
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Non-accelerated filer: o
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Smaller reporting company: o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES o NO þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
Common stock, $1 par value, outstanding at April 30, 2008: 81,243,700 shares.
GLOSSARY OF TERMS
Frequently used abbreviations, acronyms, or terms used in this report:
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National Fuel Gas Companies |
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Company
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The Registrant, the Registrant and its subsidiaries or the Registrants
subsidiaries as appropriate in the context of the disclosure |
Data-Track
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Data-Track Account Services, Inc. |
Distribution Corporation
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National Fuel Gas Distribution Corporation |
Empire
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Empire State Pipeline |
ESNE
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Energy Systems North East, LLC |
Highland
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Highland Forest Resources, Inc. |
Horizon
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Horizon Energy Development, Inc. |
Horizon LFG
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Horizon LFG, Inc. |
Horizon Power
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Horizon Power, Inc. |
Leidy Hub
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Leidy Hub, Inc. |
Model City
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Model City Energy, LLC |
National Fuel
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National Fuel Gas Company |
NFR
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National Fuel Resources, Inc. |
Registrant
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National Fuel Gas Company |
SECI
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Seneca Energy Canada Inc. |
Seneca
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Seneca Resources Corporation |
Seneca Energy
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Seneca Energy II, LLC |
Supply Corporation
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National Fuel Gas Supply Corporation |
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Regulatory Agencies |
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FASB
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Financial Accounting Standards Board |
FERC
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Federal Energy Regulatory Commission |
NTSB
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National Transportation Safety Board |
NYDEC
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New York State Department of Environmental Conservation |
NYPSC
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State of New York Public Service Commission |
PaPUC
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Pennsylvania Public Utility Commission |
SEC
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Securities and Exchange Commission |
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Other |
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2007 Form 10-K
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The Companys Annual Report on Form 10-K for the year ended
September 30, 2007 |
ARB 51
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Accounting Research Bulletin
No. 51, Consolidated Financial Statements |
Bbl
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Barrel (of oil) |
Bcf
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Billion cubic feet (of natural gas) |
Board foot
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A measure of lumber and/or timber equal to 12 inches in length by 12
inches in width by one inch in thickness. |
Btu
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British thermal unit; the amount of heat needed to raise the temperature
of one pound of water one degree Fahrenheit. |
Capital expenditure
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|
Represents additions to property, plant, and equipment, or the amount of
money a company spends to buy capital assets or upgrade its existing
capital assets. |
Cashout revenues
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A cash resolution of a gas imbalance whereby a customer pays Supply
Corporation for gas the customer receives in excess of amounts
delivered into Supply Corporations system by the customers
shipper. |
Degree day
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A measure of the coldness of the weather experienced, based on the
extent to which the daily average temperature falls below a reference
temperature, usually 65 degrees Fahrenheit. |
Derivative
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|
A financial instrument or other contract, the terms of which include an
underlying variable (a price, interest rate, index rate, exchange rate, or
other variable) and a notional amount (number of units, barrels, cubic
feet, etc.). The terms also permit for the instrument or contract to be
settled net and no initial net investment is required to enter into the
financial instrument or contract. Examples include futures contracts,
options, no cost collars and swaps. |
-2-
GLOSSARY OF TERMS (Cont.)
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Dth
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Decatherm; one Dth of natural gas has a heating value of 1,000,000
British thermal units, approximately equal to the heating value of 1 Mcf
of natural gas. |
Exchange Act
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Securities Exchange Act of 1934, as amended |
Expenditures for
long-lived assets
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Includes capital expenditures, stock acquisitions and/or investments in
partnerships. |
FIN
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FASB Interpretation Number |
FIN 48
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FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of SFAS 109 |
Firm transportation
and/or storage
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The transportation and/or storage service that a supplier of such service
is obligated by contract to provide and for which the customer is
obligated to pay whether or not the service is utilized. |
GAAP
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Accounting principles generally accepted in the United States of America |
Goodwill
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An intangible asset representing the difference between the fair value of
a company and the price at which a company is purchased. |
Hedging
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A method of minimizing the impact of price, interest rate, and/or foreign
currency exchange rate changes, often times through the use of
derivative financial instruments. |
Hub
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Location where pipelines intersect enabling the trading, transportation,
storage, exchange, lending and borrowing of natural gas. |
Interruptible transportation
and/or storage
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The transportation and/or storage service that, in accordance with
contractual arrangements, can be interrupted by the supplier of such
service, and for which the customer does not pay unless utilized. |
LIFO
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Last-in, first-out |
Mbbl
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Thousand barrels (of oil) |
Mcf
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Thousand cubic feet (of natural gas) |
MD&A
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Managements Discussion and Analysis of Financial Condition and
Results of Operations |
MDth
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Thousand decatherms (of natural gas) |
MMcf
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Million cubic feet (of natural gas) |
Open Season
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A bidding procedure used by pipelines to allocate firm transportation or
storage capacity among prospective shippers, in which all bids
submitted during a defined time period are evaluated as if they had
been submitted simultaneously. |
Proved developed reserves
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Reserves that can be expected to be recovered through existing wells
with existing equipment and operating methods. |
Proved undeveloped reserves
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Reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major
expenditure is
required to make these reserves productive. |
PRP
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Potentially responsible party |
Reserves
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The unproduced but recoverable oil and/or gas in place in a formation
which has been proven by production. |
Restructuring
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Generally referring to partial deregulation of the utility industry by a
statutory or regulatory process. Restructuring of federally regulated
natural gas pipelines has resulted in the separation (or unbundling)
of
gas commodity service from transportation service for wholesale
and
large-volume retail markets. State restructuring programs
attempt to
extend the same process to retail mass markets. |
SAR
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Stock-settled stock appreciation right |
SFAS
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Statement of Financial Accounting Standards |
SFAS 87
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Statement of Financial Accounting Standards No. 87, Employers
Accounting for Pensions |
SFAS 88
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Statement of Financial Accounting Standards No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits |
-3-
GLOSSARY OF TERMS (Concl.)
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SFAS 106
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Statement of Financial Accounting Standards No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions |
SFAS 109
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Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes |
SFAS 115
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Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities |
SFAS 123R
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Statement of Financial Accounting Standards No. 123R, Share-Based
Payment |
SFAS 132R
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Statement of Financial Accounting Standards No. 132R, Employers
Disclosures about Pensions and Other Postretirement Benefits |
SFAS 133
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Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities |
SFAS 141R
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Statement of Financial Accounting Standards No. 141R, Business
Combinations |
SFAS 157
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Statement of Financial Accounting Standards No. 157, Fair Value
Measurements |
SFAS 158
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Statement of Financial Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, an Amendment of SFAS 87, 88, 106, and 132R |
SFAS 159
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Statement of Financial Accounting Standards No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including an
Amendment of SFAS 115 |
SFAS 160
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Statement of Financial Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of
ARB 51 |
SFAS 161
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Statement of Financial Accounting Standards No. 161, Disclosures about
Derivative Instruments and Hedging Activities, an Amendment of
SFAS 133 |
Stock acquisitions
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Investments in corporations.
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Unbundled service
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A service that has been separated from other services, with rates
charged that reflect only the cost of the separated service. |
WNC
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Weather normalization clause; a clause in utility rates which adjusts
customer rates to allow a utility to recover its normal operating costs
calculated at normal temperatures. If temperatures during the
measured period are warmer than normal, customer rates are adjusted
upward in order to recover projected operating costs. If
temperatures
during the measured period are colder than normal, customer
rates
are adjusted downward so that only the projected operating costs
will
be recovered. |
-4-
INDEX
The Company has nothing to report under this item.
Reference to the Company in this report means the Registrant or the Registrant and its
subsidiaries collectively, as appropriate in the context of the disclosure. All references to a
certain year in this report are to the Companys fiscal year ended September 30 of that year,
unless otherwise noted.
This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary
statements and important factors included in this Form 10-Q at Item 2 MD&A, under the heading
Safe Harbor for Forward-Looking Statements. Forward-looking statements are all statements other
than statements of historical fact, including, without limitation, statements regarding future
prospects, plans, performance and capital structure, anticipated capital expenditures, completion
of construction projects, projections for pension and other post-retirement benefit obligations,
impacts of the adoption of new accounting rules, and possible outcomes of litigation or regulatory
proceedings, as well as statements
that are identified by the use of the words anticipates, estimates, expects, forecasts,
intends, plans, predicts, projects, believes, seeks, will, may, and similar
expressions.
-5-
Part I. Financial Information
Item 1. Financial Statements
National Fuel Gas Company
Consolidated Statements of Income and Earnings
Reinvested in the Business
(Unaudited)
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Three Months Ended |
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March 31, |
(Thousands of Dollars, Except Per Common Share Amounts) |
|
2008 |
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2007 |
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|
INCOME |
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Operating Revenues |
|
$ |
885,853 |
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$ |
798,100 |
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Operating Expenses |
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Purchased Gas |
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531,438 |
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|
476,904 |
|
Operation and Maintenance |
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|
120,584 |
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|
120,408 |
|
Property, Franchise and Other Taxes |
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|
21,398 |
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|
19,989 |
|
Depreciation, Depletion and Amortization |
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|
42,412 |
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|
38,395 |
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|
715,832 |
|
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|
655,696 |
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|
Operating Income |
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|
170,021 |
|
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|
142,404 |
|
Other Income (Expense): |
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|
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|
Income from Unconsolidated Subsidiaries |
|
|
1,030 |
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|
942 |
|
Interest Income |
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|
2,177 |
|
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|
636 |
|
Other Income |
|
|
2,080 |
|
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|
2,526 |
|
Interest Expense on Long-Term Debt |
|
|
(16,289 |
) |
|
|
(17,888 |
) |
Other Interest Expense |
|
|
(2,285 |
) |
|
|
(1,516 |
) |
|
Income from Continuing Operations Before Income Taxes |
|
|
156,734 |
|
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|
127,104 |
|
Income Tax Expense |
|
|
61,730 |
|
|
|
51,624 |
|
|
|
|
|
|
|
|
|
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|
Income from Continuing Operations |
|
|
95,004 |
|
|
|
75,480 |
|
|
|
|
|
|
|
|
|
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|
Income from Discontinued Operations, Net of Tax |
|
|
|
|
|
|
2,967 |
|
|
|
|
|
|
|
|
|
|
|
Net Income Available for Common Stock |
|
|
95,004 |
|
|
|
78,447 |
|
|
|
|
|
|
|
|
|
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|
EARNINGS REINVESTED IN THE BUSINESS |
|
|
|
|
|
|
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|
Balance at December 31 |
|
|
1,027,951 |
|
|
|
781,728 |
|
|
|
|
|
1,122,955 |
|
|
|
860,175 |
|
Share Repurchases |
|
|
(89,564 |
) |
|
|
(333 |
) |
Dividends on Common Stock
(2008 - $0.31 per share; 2007 - $0.30 per share) |
|
|
(25,307 |
) |
|
|
(24,940 |
) |
|
Balance at March 31 |
|
$ |
1,008,084 |
|
|
$ |
834,902 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share: |
|
|
|
|
|
|
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|
Basic: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
1.14 |
|
|
$ |
0.91 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.04 |
|
|
Net Income Available for Common Stock |
|
$ |
1.14 |
|
|
$ |
0.95 |
|
|
Diluted: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
1.11 |
|
|
$ |
0.89 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.03 |
|
|
Net Income Available for Common Stock |
|
$ |
1.11 |
|
|
$ |
0.92 |
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
Used in Basic Calculation |
|
|
83,406,242 |
|
|
|
82,895,087 |
|
|
Used in Diluted Calculation |
|
|
85,385,944 |
|
|
|
85,033,127 |
|
|
See Notes to Condensed Consolidated Financial Statements
-6-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Statements of Income and Earnings
Reinvested in the Business
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
March 31, |
(Thousands of Dollars, Except Per Common Share Amounts) |
|
2008 |
|
2007 |
|
|
|
INCOME |
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
1,454,121 |
|
|
$ |
1,288,758 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
Purchased Gas |
|
|
809,448 |
|
|
|
719,843 |
|
Operation and Maintenance |
|
|
223,040 |
|
|
|
215,112 |
|
Property, Franchise and Other Taxes |
|
|
39,070 |
|
|
|
36,940 |
|
Depreciation, Depletion and Amortization |
|
|
86,533 |
|
|
|
77,802 |
|
|
|
|
|
1,158,091 |
|
|
|
1,049,697 |
|
|
Operating Income |
|
|
296,030 |
|
|
|
239,061 |
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
Income from Unconsolidated Subsidiaries |
|
|
3,305 |
|
|
|
2,173 |
|
Interest Income |
|
|
5,270 |
|
|
|
1,721 |
|
Other Income |
|
|
3,334 |
|
|
|
3,241 |
|
Interest Expense on Long-Term Debt |
|
|
(32,577 |
) |
|
|
(33,931 |
) |
Other Interest Expense |
|
|
(3,010 |
) |
|
|
(3,366 |
) |
|
Income from Continuing Operations Before Income Taxes |
|
|
272,352 |
|
|
|
208,899 |
|
Income Tax Expense |
|
|
106,744 |
|
|
|
82,731 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
165,608 |
|
|
|
126,168 |
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations, Net of Tax |
|
|
|
|
|
|
6,799 |
|
|
|
|
|
|
|
|
|
|
|
Net Income Available for Common Stock |
|
|
165,608 |
|
|
|
132,967 |
|
|
|
EARNINGS REINVESTED IN THE BUSINESS |
|
|
|
|
|
|
|
|
Balance at October 1 |
|
|
983,776 |
|
|
|
786,013 |
|
|
|
|
|
1,149,384 |
|
|
|
918,980 |
|
Share Repurchases |
|
|
(89,564 |
) |
|
|
(34,351 |
) |
Cumulative Effect of the Adoption of FIN 48 |
|
|
(406 |
) |
|
|
|
|
Dividends on Common Stock
(2008 - $0.62 per share; 2007 - $0.60 per share) |
|
|
(51,330 |
) |
|
|
(49,727 |
) |
|
Balance at March 31 |
|
$ |
1,008,084 |
|
|
$ |
834,902 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share: |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
1.98 |
|
|
$ |
1.53 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.08 |
|
|
Net Income Available for Common Stock |
|
$ |
1.98 |
|
|
$ |
1.61 |
|
|
Diluted: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
1.93 |
|
|
$ |
1.49 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.08 |
|
|
Net Income Available for Common Stock |
|
$ |
1.93 |
|
|
$ |
1.57 |
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
Used in Basic Calculation |
|
|
83,509,268 |
|
|
|
82,786,027 |
|
|
Used in Diluted Calculation |
|
|
85,603,033 |
|
|
|
84,891,742 |
|
|
See Notes to Condensed Consolidated Financial Statements
-7-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
$ |
4,593,980 |
|
|
$ |
4,461,586 |
|
Less Accumulated Depreciation, Depletion
and Amortization |
|
|
1,650,715 |
|
|
|
1,583,181 |
|
|
|
|
|
2,943,265 |
|
|
|
2,878,405 |
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and Temporary Cash Investments |
|
|
216,412 |
|
|
|
124,806 |
|
Cash Held in Escrow |
|
|
|
|
|
|
61,964 |
|
Hedging Collateral Deposits |
|
|
2,354 |
|
|
|
4,066 |
|
Receivables Net of Allowance for Uncollectible
Accounts of
$42,687 and $28,654, Respectively |
|
|
363,872 |
|
|
|
172,380 |
|
Unbilled Utility Revenue |
|
|
75,084 |
|
|
|
20,682 |
|
Gas Stored Underground |
|
|
19,512 |
|
|
|
66,195 |
|
Materials and Supplies at average cost |
|
|
37,618 |
|
|
|
35,669 |
|
Unrecovered Purchased Gas Costs |
|
|
1,421 |
|
|
|
14,769 |
|
Other Current Assets |
|
|
30,854 |
|
|
|
45,057 |
|
Deferred Income Taxes |
|
|
41,253 |
|
|
|
8,550 |
|
|
|
|
|
788,380 |
|
|
|
554,138 |
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
Recoverable Future Taxes |
|
|
83,620 |
|
|
|
83,954 |
|
Unamortized Debt Expense |
|
|
11,101 |
|
|
|
12,070 |
|
Other Regulatory Assets |
|
|
133,881 |
|
|
|
137,577 |
|
Deferred Charges |
|
|
5,314 |
|
|
|
5,545 |
|
Other Investments |
|
|
83,754 |
|
|
|
85,902 |
|
Investments in Unconsolidated Subsidiaries |
|
|
16,605 |
|
|
|
18,256 |
|
Goodwill |
|
|
5,476 |
|
|
|
5,476 |
|
Intangible Assets |
|
|
27,505 |
|
|
|
28,836 |
|
Prepaid Pension and Post-Retirement Benefit Costs |
|
|
59,331 |
|
|
|
61,006 |
|
Fair Value of Derivative Financial Instruments |
|
|
|
|
|
|
9,188 |
|
Other |
|
|
4,843 |
|
|
|
8,059 |
|
|
|
|
|
431,430 |
|
|
|
455,869 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
4,163,075 |
|
|
$ |
3,888,412 |
|
|
See Notes to Condensed Consolidated Financial Statements
-8-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
September 30, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
CAPITALIZATION AND LIABILITIES |
|
|
|
|
|
|
|
|
Capitalization: |
|
|
|
|
|
|
|
|
Comprehensive Shareholders Equity |
|
|
|
|
|
|
|
|
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued
And Outstanding 81,636,429 Shares and
83,461,308 Shares, Respectively |
|
$ |
81,636 |
|
|
$ |
83,461 |
|
Paid in Capital |
|
|
580,811 |
|
|
|
569,085 |
|
Earnings Reinvested in the Business |
|
|
1,008,084 |
|
|
|
983,776 |
|
|
Total Common Shareholder Equity Before
Items of Other Comprehensive Loss |
|
|
1,670,531 |
|
|
|
1,636,322 |
|
Accumulated Other Comprehensive Loss |
|
|
(41,867 |
) |
|
|
(6,203 |
) |
|
Total Comprehensive Shareholders Equity |
|
|
1,628,664 |
|
|
|
1,630,119 |
|
Long-Term Debt, Net of Current Portion |
|
|
899,000 |
|
|
|
799,000 |
|
|
Total Capitalization |
|
|
2,527,664 |
|
|
|
2,429,119 |
|
|
|
|
|
|
|
|
|
|
|
Current and Accrued Liabilities |
|
|
|
|
|
|
|
|
Notes Payable to Banks and Commercial Paper |
|
|
|
|
|
|
|
|
Current Portion of Long-Term Debt |
|
|
100,000 |
|
|
|
200,024 |
|
Accounts Payable |
|
|
149,595 |
|
|
|
109,757 |
|
Amounts Payable to Customers |
|
|
4,985 |
|
|
|
10,409 |
|
Dividends Payable |
|
|
25,307 |
|
|
|
25,873 |
|
Interest Payable on Long-Term Debt |
|
|
18,158 |
|
|
|
18,158 |
|
Customer Advances |
|
|
|
|
|
|
22,863 |
|
Other Accruals and Current Liabilities |
|
|
213,087 |
|
|
|
36,062 |
|
Fair Value of Derivative Financial Instruments |
|
|
64,595 |
|
|
|
16,200 |
|
|
|
|
|
575,727 |
|
|
|
439,346 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits |
|
|
|
|
|
|
|
|
Deferred Income Taxes |
|
|
593,375 |
|
|
|
575,356 |
|
Taxes Refundable to Customers |
|
|
14,033 |
|
|
|
14,026 |
|
Unamortized Investment Tax Credit |
|
|
5,042 |
|
|
|
5,392 |
|
Cost of Removal Regulatory Liability |
|
|
99,924 |
|
|
|
91,226 |
|
Other Regulatory Liabilities |
|
|
92,343 |
|
|
|
76,659 |
|
Post-Retirement Liabilities |
|
|
62,372 |
|
|
|
70,555 |
|
Asset Retirement Obligations |
|
|
76,357 |
|
|
|
75,939 |
|
Other Deferred Credits |
|
|
116,238 |
|
|
|
110,794 |
|
|
|
|
|
1,059,684 |
|
|
|
1,019,947 |
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities |
|
$ |
4,163,075 |
|
|
$ |
3,888,412 |
|
|
See Notes to Condensed Consolidated Financial Statements
-9-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
March 31, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net Income Available for Common Stock |
|
$ |
165,608 |
|
|
$ |
132,967 |
|
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities: |
|
|
|
|
|
|
|
|
Depreciation, Depletion and Amortization |
|
|
86,533 |
|
|
|
84,886 |
|
Deferred Income Taxes |
|
|
12,817 |
|
|
|
21,803 |
|
Income from Unconsolidated Subsidiaries, Net of
Cash Distributions |
|
|
1,651 |
|
|
|
(960 |
) |
Excess Tax Benefits Associated with Stock-Based
Compensation Awards |
|
|
(16,275 |
) |
|
|
(13,689 |
) |
Other |
|
|
(194 |
) |
|
|
3,818 |
|
Change in: |
|
|
|
|
|
|
|
|
Hedging Collateral Deposits |
|
|
1,712 |
|
|
|
17,642 |
|
Receivables and Unbilled Utility Revenue |
|
|
(245,912 |
) |
|
|
(196,094 |
) |
Gas Stored Underground and Materials and Supplies |
|
|
44,734 |
|
|
|
47,243 |
|
Unrecovered Purchased Gas Costs |
|
|
13,347 |
|
|
|
(992 |
) |
Prepayments and Other Current Assets |
|
|
15,878 |
|
|
|
28,659 |
|
Accounts Payable |
|
|
39,838 |
|
|
|
34,417 |
|
Amounts Payable to Customers |
|
|
(5,424 |
) |
|
|
(13,339 |
) |
Customer Advances |
|
|
(22,863 |
) |
|
|
(29,417 |
) |
Other Accruals and Current Liabilities |
|
|
192,787 |
|
|
|
163,928 |
|
Other Assets |
|
|
18,127 |
|
|
|
(3,765 |
) |
Other Liabilities |
|
|
4,504 |
|
|
|
(2,434 |
) |
|
Net Cash Provided by Operating Activities |
|
|
306,868 |
|
|
|
274,673 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
(144,707 |
) |
|
|
(132,313 |
) |
Investment in Partnership |
|
|
|
|
|
|
(3,300 |
) |
Cash Held in Escrow |
|
|
58,397 |
|
|
|
|
|
Net Proceeds from Sale of Oil and Gas Producing Properties |
|
|
2,313 |
|
|
|
2,330 |
|
Other |
|
|
1,557 |
|
|
|
(339 |
) |
|
Net Cash Used in Investing Activities |
|
|
(82,440 |
) |
|
|
(133,622 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Excess Tax Benefits Associated with Stock-Based
Compensation Awards |
|
|
16,275 |
|
|
|
13,689 |
|
Shares Repurchased under Repurchase Plan |
|
|
(108,941 |
) |
|
|
(43,344 |
) |
Reduction of Long-Term Debt |
|
|
(24 |
) |
|
|
(23,207 |
) |
Dividends Paid on Common Stock |
|
|
(51,896 |
) |
|
|
(49,808 |
) |
Net Proceeds from Issuance of Common Stock |
|
|
11,764 |
|
|
|
14,604 |
|
|
Net Cash Used in Financing Activities |
|
|
(132,822 |
) |
|
|
(88,066 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rates on Cash |
|
|
|
|
|
|
(787 |
) |
|
|
|
|
|
|
|
|
|
|
Net Increase in Cash and Temporary Cash Investments |
|
|
91,606 |
|
|
|
52,198 |
|
|
|
|
|
|
|
|
|
|
Cash and Temporary Cash Investments at October 1 |
|
|
124,806 |
|
|
|
69,611 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Temporary Cash Investments at March 31 |
|
$ |
216,412 |
|
|
$ |
121,809 |
|
|
See Notes to Condensed Consolidated Financial Statements
-10-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Statements of Comprehensive Income
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
Net Income Available for Common Stock |
|
$ |
95,004 |
|
|
$ |
78,447 |
|
|
Other Comprehensive Income (Loss), Before Tax: |
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
|
(56 |
) |
|
|
1,223 |
|
Minimum Pension Liability Adjustment |
|
|
|
|
|
|
(320 |
) |
Unrealized Gain (Loss) on Securities Available for Sale Arising
During the Period |
|
|
(2,014 |
) |
|
|
483 |
|
Unrealized Loss on Derivative Financial Instruments
Arising During the Period |
|
|
(47,713 |
) |
|
|
(20,456 |
) |
Reclassification Adjustment for Realized (Gains) Losses on
Derivative Financial Instruments in Net Income |
|
|
6,741 |
|
|
|
(958 |
) |
|
Other Comprehensive Loss, Before Tax |
|
|
(43,042 |
) |
|
|
(20,028 |
) |
|
Income Tax Benefit Related to Minimum Pension
Liability Adjustment |
|
|
|
|
|
|
(121 |
) |
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss)
on Securities Available for Sale Arising During the Period |
|
|
(761 |
) |
|
|
209 |
|
Income Tax Benefit Related to Unrealized Loss
on Derivative Financial Instruments Arising During the Period |
|
|
(19,516 |
) |
|
|
(8,494 |
) |
Reclassification Adjustment for Income Tax (Expense) Benefit on
Realized Losses from Derivative Financial Instruments
In Net Income |
|
|
2,816 |
|
|
|
(364 |
) |
|
Income Taxes Net |
|
|
(17,461 |
) |
|
|
(8,770 |
) |
|
Other Comprehensive Loss |
|
|
(25,581 |
) |
|
|
(11,258 |
) |
|
Comprehensive Income |
|
$ |
69,423 |
|
|
$ |
67,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
March 31, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
Net Income Available for Common Stock |
|
$ |
165,608 |
|
|
$ |
132,967 |
|
|
Other Comprehensive Income (Loss), Before Tax: |
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
|
(74 |
) |
|
|
(3,645 |
) |
Minimum Pension Liability Adjustment |
|
|
|
|
|
|
(320 |
) |
Unrealized Gain (Loss) on Securities Available for Sale Arising
During the Period |
|
|
(3,215 |
) |
|
|
1,274 |
|
Unrealized Loss on Derivative Financial Instruments
Arising During the Period |
|
|
(68,572 |
) |
|
|
(10,955 |
) |
Reclassification Adjustment for Realized Losses on
Derivative Financial Instruments in Net Income |
|
|
12,161 |
|
|
|
2,218 |
|
|
Other Comprehensive Loss, Before Tax |
|
|
(59,700 |
) |
|
|
(11,428 |
) |
|
Income Tax Benefit Related to Minimum Pension
Liability Adjustment |
|
|
|
|
|
|
(121 |
) |
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss)
on Securities Available for Sale Arising During the Period |
|
|
(821 |
) |
|
|
484 |
|
Income Tax Benefit Related to Unrealized Loss
on Derivative Financial Instruments Arising During the Period |
|
|
(28,164 |
) |
|
|
(4,764 |
) |
Reclassification Adjustment for Income Tax Benefit on
Realized Losses from Derivative Financial Instruments
In Net Income |
|
|
4,949 |
|
|
|
1,656 |
|
|
Income Taxes Net |
|
|
(24,036 |
) |
|
|
(2,745 |
) |
|
Other Comprehensive Loss |
|
|
(35,664 |
) |
|
|
(8,683 |
) |
|
Comprehensive Income |
|
$ |
129,944 |
|
|
$ |
124,284 |
|
|
See Notes to Condensed Consolidated Financial Statements
-11-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 Summary of Significant Accounting Policies
Principles of Consolidation. The Company consolidates its majority owned entities. The equity
method is used to account for minority owned entities. All significant intercompany balances and
transactions are eliminated.
The preparation of the consolidated financial statements in conformity with GAAP 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.
Reclassification. Certain prior year amounts have been reclassified to conform with current year
presentation.
Earnings for Interim Periods. 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, 2007, 2006 and 2005 that
are included in the Companys 2007 Form 10-K. The consolidated financial statements for the year
ended September 30, 2008 will be audited by the Companys independent registered public accounting
firm after the end of the fiscal year.
The earnings for the six months ended March 31, 2008 should not be taken as a prediction of
earnings for the entire fiscal year ending September 30, 2008. Most of the business of the Utility
and Energy Marketing segments is seasonal in nature and is influenced by weather conditions. Due
to the seasonal nature of the heating business in the Utility and Energy Marketing segments,
earnings during the winter months normally represent a substantial part of the earnings that those
segments are expected to achieve for the entire fiscal year. The Companys business segments are
discussed more fully in Note 6 Business Segment Information.
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.
Hedging Collateral Deposits. Cash held in margin accounts serves as collateral for open positions
on exchange-traded futures contracts, exchange-traded options and over-the-counter swaps and
collars.
Cash Held in Escrow. On August 31, 2007, the Company received approximately $232.1 million of
proceeds from the sale of SECI, of which $58.0 million was placed in escrow pending receipt of a
tax clearance certificate from the Canadian government. The escrow account was a Canadian dollar
denominated account. On a U.S. dollar basis, the value of this account was $62.0 million at
September 30, 2007. In December 2007, the Canadian government issued the tax clearance
certificate, thereby releasing the proceeds from restriction as of December 31, 2007. To hedge
against foreign currency exchange risk related to the cash being held in escrow, the Company held a
forward contract to sell Canadian dollars. For presentation purposes on the Consolidated Statement
of Cash Flows, for the six months ended March 31, 2008, the Cash Held in Escrow line item within
Investing Activities reflects the
net proceeds to the Company (received on January 8, 2008) after adjusting for the impact of the
foreign currency hedge.
-12-
Item 1. Financial Statements (Cont.)
Gas Stored Underground Current. In the Utility segment, gas stored underground current is
carried at lower of cost or market, on a LIFO method. Gas stored underground current normally
declines during the first and second quarters of the year and is replenished during the third and
fourth quarters. In the Utility segment, 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 under the caption Other Accruals and Current Liabilities.
Such reserve, which amounted to $164.9 million at March 31, 2008, is reduced to zero by September
30 of each year as the inventory is replenished.
Accumulated Other Comprehensive Income (Loss). The components of Accumulated Other Comprehensive
Income (Loss), net of related tax effect, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008 |
|
|
At September 30, 2007 |
|
Funded Position of the Pension and
Other Post-Retirement Benefit Plans
Adjustment |
|
$ |
(12,482 |
) |
|
$ |
(12,482 |
) |
Cumulative Foreign Currency
Translation Adjustment |
|
|
(157 |
) |
|
|
(83 |
) |
Net Unrealized Loss on Derivative
Financial Instruments |
|
|
(37,082 |
) |
|
|
(3,886 |
) |
Net Unrealized Gain on Securities
Available for Sale |
|
|
7,854 |
|
|
|
10,248 |
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive
Loss |
|
$ |
(41,867 |
) |
|
$ |
(6,203 |
) |
|
|
|
|
|
|
|
Earnings Per Common Share. Basic earnings per common share is computed by dividing income
available for common stock by the weighted average number of common shares outstanding for the
period. Diluted earnings per common share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted into common stock.
For purposes of determining earnings per common share, the only potentially dilutive securities the
Company has outstanding are stock options and stock-settled SARs. The diluted weighted average
shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution
as a result of these stock options and stock-settled SARs as determined using the Treasury Stock
Method. Stock options and stock-settled SARs that are antidilutive are excluded from the
calculation of diluted earnings per common share. For the quarter and six months ended March 31,
2008, there were 131,110 and 65,197 stock-settled SARs, respectively, excluded as being
antidilutive. There were no stock options excluded as being antidilutive for the quarter and six
months ended March 31, 2008. For the quarter and six months ended March 31, 2007, 11,879 and
283,288 stock options, respectively, were excluded as being antidilutive. In addition, there were
11,111 and 5,494 stock-settled SARs excluded as being antidilutive for the quarter and six months
ended March 31, 2007, respectively.
Share Repurchases. The Company considers all shares repurchased as cancelled shares restored to
the status of authorized but unissued shares, in accordance with New Jersey law. The repurchases
are accounted for on the date the share repurchase is settled as an adjustment to common stock (at
par value) with the excess repurchase price allocated between paid in capital and retained
earnings. Refer to Note 3 Capitalization for further discussion of the share repurchase program.
Stock-Based Compensation. For the quarter and six months ended March 31, 2008, the Company granted
291,000 stock-settled SARs having a weighted average exercise price of $47.37 per share. The
weighted average grant date fair value of these stock-settled SARs was $8.74 per share for the
quarter
and six months ended March 31, 2008. The accounting treatment for such stock-settled SARs is the
same under SFAS 123R as the accounting for stock options under SFAS 123R. The stock-settled SARs
granted for the quarter and six months ended March 31, 2008 vest and become exercisable
annually in
-13-
Item 1. Financial Statements (Cont.)
one-third increments, provided that a performance condition for diluted earnings per share is met
for the prior fiscal year. The weighted average grant date fair value of these performance-based
stock-settled SARs granted during the quarter was estimated on the date of grant using the same
accounting treatment that is applied for stock options under SFAS 123R, and assumes that the
performance conditions specified will be achieved. If such conditions are not met, no compensation
expense is recognized and any recognized compensation expense is reversed.
There were no stock options granted during the quarter and six months ended March 31, 2008.
The Company granted 25,000 restricted share awards (non-vested stock as defined in SFAS 123R)
during the six months ended March 31, 2008. The weighted average fair value of such restricted
shares was $48.41 per share. There were no restricted share awards granted during the quarter
ended March 31, 2008.
New Accounting Pronouncements. In September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 provides guidance for using fair value to measure assets and liabilities.
The pronouncement serves to clarify the extent to which companies measure assets and liabilities at
fair value, the information used to measure fair value, and the effect that fair-value measurements
have on earnings. SFAS 157 is to be applied whenever another standard requires or allows assets or
liabilities to be measured at fair value. In accordance with FASB Staff Position FAS No. 157-2,
SFAS 157 is effective for financial assets and financial liabilities that are recognized or
disclosed at fair value on a recurring basis as of the Companys first quarter of fiscal 2009.
The same FASB Staff Position delays the effective date for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value on a recurring basis,
until the Companys first quarter of fiscal 2010. The Company is currently evaluating the impact
that the adoption of SFAS 157 will have on its consolidated financial statements.
In September 2006, the FASB also issued SFAS 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (an amendment of SFAS 87, SFAS 88, SFAS 106, and SFAS
132R). SFAS 158 requires that companies recognize a net liability or asset to report the
underfunded or overfunded status of their defined benefit pension and other post-retirement benefit
plans on their balance sheets, as well as recognize changes in the funded status of a defined
benefit post-retirement plan in the year in which the changes occur through comprehensive income.
The pronouncement also specifies that a plans assets and obligations that determine its funded
status be measured as of the end of the Companys fiscal year, with limited exceptions. In
accordance with SFAS 158, the Company has recognized the funded status of its benefit plans and
implemented the disclosure requirements of SFAS 158 at September 30, 2007. The requirement to
measure the plan assets and benefit obligations as of the Companys fiscal year-end date will be
adopted by the Company by the end of fiscal 2009. Currently, the Company measures its plan assets
and benefit obligations using a June 30th measurement date.
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS 115. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that are not otherwise
required to be measured at fair value under GAAP. A company that elects the fair value option for
an eligible item will be required to recognize in current earnings any changes in that items fair
value in reporting periods subsequent to the date of adoption. SFAS 159 is effective as of the
Companys first quarter of fiscal 2009. The Company is currently evaluating the impact, if any,
that the adoption of SFAS 159 will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS 141R, Business Combinations. SFAS 141R will
significantly change the accounting for business combinations in a number of areas including the
treatment of contingent consideration, contingencies, acquisition costs, in process research and
development and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset
valuation allowances and acquired income tax uncertainties in a business combination after the
measurement period will impact income tax expense. SFAS 141R is effective as of the Companys
first quarter of fiscal 2010.
-14-
Item 1. Financial Statements (Cont.)
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of ARB 51. SFAS 160 will change the accounting and reporting
for minority interests, which will be recharacterized as noncontrolling interests (NCI) and
classified as a component of equity. This new consolidation method will significantly change the
accounting for transactions with minority interest holders. SFAS 160 is effective as of the
Companys first quarter of fiscal 2010. The Company currently does not have any NCI.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities, an Amendment of SFAS 133. SFAS 161 requires entities to provide enhanced disclosures
related to an entitys derivative instruments and hedging activities in order to enable investors
to better understand how derivative instruments and hedging activities impact an entitys financial
reporting. The additional disclosures include how and why an entity uses derivative instruments,
how derivative instruments and related hedged items are accounted for under SFAS 133 and its
related interpretations, and how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows. SFAS 161 is effective as of the
Companys second quarter of fiscal 2009. The Company is currently evaluating the impact that the
adoption of SFAS 161 will have on its consolidated financial statements.
Note 2 Income Taxes
The components of federal, state and foreign income taxes included in the Consolidated
Statements of Income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Current Income Taxes |
|
|
|
|
|
|
|
|
Federal |
|
$ |
76,567 |
|
|
$ |
49,937 |
|
State |
|
|
17,270 |
|
|
|
14,823 |
|
Foreign |
|
|
90 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes |
|
|
|
|
|
|
|
|
Federal |
|
|
6,223 |
|
|
|
14,181 |
|
State |
|
|
6,594 |
|
|
|
3,546 |
|
Foreign |
|
|
|
|
|
|
4,076 |
|
|
|
|
|
|
|
106,744 |
|
|
|
86,807 |
|
Deferred Investment Tax Credit |
|
|
(348 |
) |
|
|
(348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
106,396 |
|
|
$ |
86,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented as Follows: |
|
|
|
|
|
|
|
|
Other Income |
|
$ |
(348 |
) |
|
$ |
(348 |
) |
Income Tax Expense Continuing Operations |
|
|
106,744 |
|
|
|
82,731 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
4,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
106,396 |
|
|
$ |
86,459 |
|
|
|
|
The U.S. and foreign components of income before income taxes are as follows (in thousands):
-15-
Item 1. Financial Statements (Cont.)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
U.S. |
|
$ |
271,801 |
|
|
$ |
208,512 |
|
Foreign |
|
|
203 |
|
|
|
10,914 |
|
|
|
|
|
|
$ |
272,004 |
|
|
$ |
219,426 |
|
|
|
|
Total income taxes as reported differ from the amounts that were computed by applying the
federal income tax rate to income before income taxes. The following is a reconciliation of this
difference (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
March 31, |
|
|
2008 |
|
2007 |
|
|
|
Income Tax Expense, Computed at
Statutory Rate of 35% |
|
$ |
95,201 |
|
|
$ |
76,799 |
|
|
|
|
|
|
|
|
|
|
Increase (Reduction) in Taxes Resulting From: |
|
|
|
|
|
|
|
|
State Income Taxes |
|
|
15,512 |
|
|
|
11,940 |
|
Miscellaneous |
|
|
(4,317 |
) |
|
|
(2,280 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
106,396 |
|
|
$ |
86,459 |
|
|
|
|
Significant components of the Companys deferred tax liabilities and assets were as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2008 |
|
At September 30, 2007 |
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
$ |
645,811 |
|
|
$ |
612,648 |
|
Other |
|
|
43,214 |
|
|
|
61,616 |
|
|
|
|
Total Deferred Tax Liabilities |
|
|
689,025 |
|
|
|
674,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Other |
|
|
(136,903 |
) |
|
|
(107,458 |
) |
|
|
|
Total Deferred Tax Assets |
|
|
(136,903 |
) |
|
|
(107,458 |
) |
|
|
|
Total Net Deferred Income Taxes |
|
$ |
552,122 |
|
|
$ |
566,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented as Follows: |
|
|
|
|
|
|
|
|
Net Deferred Tax Asset Current |
|
$ |
(41,253 |
) |
|
$ |
(8,550 |
) |
Net Deferred Tax Liability Non-Current |
|
|
593,375 |
|
|
|
575,356 |
|
|
|
|
Total Net Deferred Income Taxes |
|
$ |
552,122 |
|
|
$ |
566,806 |
|
|
|
|
Regulatory liabilities representing the reduction of previously recorded deferred income taxes
with rate-regulated activities that are expected to be refundable to customers amounted to $14.0
million at both March 31, 2008 and September 30, 2007. Also, regulatory assets representing future
amounts collectible from customers, corresponding to additional deferred income taxes not
previously recorded because of prior ratemaking practices, amounted to $83.6 million and $84.0
million at March 31, 2008 and September 30, 2007, respectively.
-16-
Item 1. Financial Statements (Cont.)
The Company adopted FIN 48 on October 1, 2007. As of the date of adoption, a cumulative
effect adjustment was recorded that resulted in a decrease to retained earnings of $0.4 million.
Upon adoption, the unrecognized tax benefits were $1.7 million, all of which would impact the
effective tax rate (net of federal benefit) if recognized. There was no change in the balance of
unrecognized tax benefits during the six months ended March 31, 2008 and the Company does not
expect a material change within the next twelve months.
Consistent with existing policies, the Company recognizes estimated interest payable relating
to income taxes in Other Interest Expense and estimated penalties relating to income taxes in Other
Income. The Company has accrued interest of $0.5 million and has not accrued any penalties.
The Company files U.S. federal and various state income tax returns. The Internal Revenue
Service (IRS) is currently conducting an examination of the Companys calculation of taxes payable
for fiscal 2007 in accordance with the Compliance Assurance Process (CAP). The CAP audit employs
a real time review of the Companys books and tax records by the IRS that is intended to permit
issue resolution prior to the filing of the tax return. While the federal statute of limitations
remains open for fiscal 2004 and later years, IRS examinations for years prior to fiscal 2007 have
been completed and the Company believes such years are effectively settled.
For the major states in which the various subsidiary companies operate, the earliest tax year
open for examination is as follows:
|
|
|
|
|
New York |
|
Fiscal 2002 |
Pennsylvania |
|
Fiscal 2003 |
California |
|
Fiscal 2003 |
Texas |
|
Fiscal 2003 |
Note 3 Capitalization
Common Stock. During the six months ended March 31, 2008, the Company issued 580,597 original
issue shares of common stock as a result of stock option exercises and 25,000 original issue shares
for restricted stock awards (non-vested stock as defined in SFAS 123R). The Company also issued
4,800 original issue shares of common stock to the eight non-employee directors of the Company then
serving on the Board of Directors as partial consideration for the directors services during the
six months ended March 31, 2008. Holders of stock options or restricted stock will often tender
shares of common stock to the Company for payment of option exercise prices and/or applicable
withholding taxes. During the six months ended March 31, 2008, 42,601 shares of common stock were
tendered to the Company for such purposes. The Company considers all shares tendered as cancelled
shares restored to the status of authorized but unissued shares, in accordance with New Jersey law.
On December 8, 2005, the Companys Board of Directors authorized the Company to implement a
share repurchase program, whereby the Company may repurchase outstanding shares of common stock, up
to an aggregate amount of 8 million shares in the open market or through privately negotiated
transactions. During the six months ended March 31, 2008, the Company repurchased 2,392,675
shares for $108.9 million under this program, funded with cash provided by operating activities.
Since
the share repurchase program was implemented, the Company has repurchased 6,227,553 shares for
$242.2 million. At March 31, 2008, the Company had made commitments to repurchase an additional
436,522 shares of common stock for $20.5 million. These commitments were settled and recorded as a
reduction of the Companys outstanding shares of common stock in April 2008.
-17-
Item 1. Financial Statements (Cont.)
Shareholder Rights Plan. On February 21, 2008, the Board of Directors of the Company approved
amendments to the Companys Amended and Restated Rights Agreement (the Rights Agreement). The
amendments modify the rights of holders of the Companys Common Stock Purchase Rights (the
Rights). The principal amendments are an extension of the expiration date of the Rights Agreement
from July 31, 2008 to July 31, 2018 and an increase in the exercise price of the Rights from $65 to
$150. The Board also approved amendments to the Rights Agreement (i) to provide that the phrase
then outstanding, when used with reference to a persons beneficial ownership of securities of
the Company, means the number of securities then issued and outstanding together with the number of
such securities not then actually issued and outstanding which such person would be deemed to own
beneficially under the Rights Agreement, (ii) to eliminate certain restrictive covenants that would
have applied to the Company after the distribution date of the Rights, and (iii) to clarify and
update the Rights Agreement in various respects. The Company expects to execute an amended Rights
Agreement, reflecting the changes described in this paragraph, with the Bank of New York, as
Rights Agent, prior to June 30, 2008.
Note 4 Commitments and Contingencies
Environmental Matters. The Company is subject to various federal, state and local laws and
regulations relating to the protection of the environment. The Company has established procedures
for the ongoing evaluation of its operations to identify potential environmental exposures and
comply with regulatory policies and procedures. It is the Companys 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.
As disclosed in Note H of the Companys 2007 Form 10-K, the Company received, in 1998 and
again in October 1999, notice that the NYDEC believes the Company is responsible for contamination
discovered at a former manufactured gas plant site located in New York for which the Company had
not been named as a PRP. In February 2007, the NYDEC identified the Company as a PRP for the site
and issued a proposed remedial action plan. The NYDEC estimated clean-up costs under its proposed
remedy to be $8.9 million if implemented. Although the Company commented to the NYDEC that the
proposed remedial action plan contained a number of material errors, omissions and procedural
defects, the NYDEC, in a March 2007 Record of Decision, selected the remedy it had previously
proposed. In July 2007, the Company appealed the NYDECs Record of Decision to the New York State
Supreme Court, Albany County. The Court dismissed the appeal in January 2008. The Company filed a
notice of appeal in February 2008. The Company believes that a negotiated resolution with the
NYDEC regarding the site remains possible.
At March 31, 2008, the Company has estimated its remaining clean-up costs related to former
manufactured gas plant sites and third party waste disposal sites (including the former
manufactured gas plant site discussed above) will be in the range of $13.6 million to $17.3
million. The minimum estimated liability of $13.6 million has been recorded on the Consolidated
Balance Sheet at March 31, 2008. The Company expects to recover its environmental clean-up costs
from a combination of rate recovery and deferred insurance proceeds that are currently recorded as
a regulatory liability on the Consolidated Balance Sheet.
The Company is currently not aware of any material additional exposure to environmental
liabilities. However, changes in environmental regulations or other factors could adversely impact
the Company.
Other. The Company is involved in other litigation and regulatory matters arising in the normal
course of business. These other matters may include, for example, negligence claims and tax,
regulatory or other governmental audits, inspections, investigations and other proceedings. These
matters may involve state and federal taxes, safety, compliance with regulations, rate base, cost
of service and purchased gas cost
-18-
Item 1. Financial Statements (Cont.)
issues, among other things. While these normal-course matters could have a material effect on
earnings and cash flows in the quarterly and annual period in which they are resolved, they are not
expected to change materially the Companys present liquidity position, nor to have a material
adverse effect on the financial condition of the Company.
Note 5 Discontinued Operations
On August 31, 2007, the Company, in its Exploration and Production segment, completed the sale
of SECI, Senecas wholly owned subsidiary that operated in Canada. The Company received
approximately $232.1 million of proceeds from the sale, of which $58.0 million was placed in escrow
pending receipt of a tax clearance certificate from the Canadian government. In December 2007, the
Canadian government issued the tax clearance certificate, thereby releasing the proceeds from
restriction as of December 31, 2007. The sale resulted in the recognition of a gain of
approximately $120.3 million, net of tax, during the fourth quarter of 2007. SECI is engaged in
the exploration for, and the development and purchase of, natural gas and oil reserves in the
provinces of Alberta, Saskatchewan and British Columbia in Canada. The decision to sell was based
on lower than expected returns from the Canadian oil and gas properties combined with difficulty in
finding significant new reserves. Seneca will continue its exploration and development activities
in Appalachia, the Gulf of Mexico, and California. As a result of the decision to sell SECI, the
Company began presenting all SECI operations as discontinued operations during the fourth quarter
of 2007.
The following is selected financial information of the discontinued operations for SECI:
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
|
March 31, |
|
March 31, |
(Thousands) |
|
2007 |
|
2007 |
|
|
|
Operating Revenues |
|
$ |
14,056 |
|
|
$ |
27,638 |
|
Operating Expenses |
|
|
9,041 |
|
|
|
17,290 |
|
|
|
|
Operating Income |
|
|
5,015 |
|
|
|
10,348 |
|
Interest Income |
|
|
249 |
|
|
|
527 |
|
|
|
|
Income before Income Taxes |
|
|
5,264 |
|
|
|
10,875 |
|
Income Tax Expense |
|
|
2,297 |
|
|
|
4,076 |
|
|
|
|
Income from Discontinued Operations |
|
$ |
2,967 |
|
|
$ |
6,799 |
|
|
|
|
Note 6 Business Segment Information
The Company has five reportable segments: Utility, Pipeline and Storage, Exploration and
Production, Energy Marketing, and Timber. The division of the Companys operations into the
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. As stated in the 2007 Form 10-K, the Company evaluates segment performance
based on income before discontinued operations, extraordinary items and cumulative effects of
changes in accounting (where applicable). When these items are not applicable, the Company
evaluates performance based on net income. 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 Companys 2007 Form
10-K. There have been no material changes in the amount of assets for any operating segment from
the amounts disclosed in the 2007 Form 10-K.
-19-
Item 1. Financial Statements (Cont.)
Quarter Ended March 31, 2008 (Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
Pipeline |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
|
|
|
Utility |
|
and Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Total Consolidated |
|
Revenue from
External Customers |
|
$ |
522,730 |
|
|
$ |
37,934 |
|
|
$ |
114,720 |
|
|
$ |
191,263 |
|
|
$ |
17,424 |
|
|
$ |
884,071 |
|
|
$ |
1,619 |
|
|
$ |
163 |
|
|
$ |
885,863 |
|
|
Intersegment Revenues |
|
$ |
6,114 |
|
|
$ |
20,861 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,975 |
|
|
$ |
3,099 |
|
|
$ |
(30,074 |
) |
|
$ |
|
|
|
Segment Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
34,164 |
|
|
$ |
15,618 |
|
|
$ |
34,572 |
|
|
$ |
5,647 |
|
|
$ |
3,883 |
|
|
$ |
93,884 |
|
|
$ |
1,692 |
|
|
$ |
(572 |
) |
|
$ |
95,004 |
|
Six Months Ended March 31, 2008 (Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
Pipeline |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
|
|
|
Utility |
|
and Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Total Consolidated |
|
Revenue from
External Customers |
|
$ |
849,855 |
|
|
$ |
69,817 |
|
|
$ |
222,675 |
|
|
$ |
277,982 |
|
|
$ |
30,324 |
|
|
$ |
1,450,653 |
|
|
$ |
3,169 |
|
|
$ |
299 |
|
|
$ |
1,454,121 |
|
|
Intersegment Revenues |
|
$ |
10,413 |
|
|
$ |
41,209 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
51,622 |
|
|
$ |
5,812 |
|
|
$ |
(57,434 |
) |
|
$ |
|
|
|
Segment Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
54,380 |
|
|
$ |
28,397 |
|
|
$ |
68,594 |
|
|
$ |
6,602 |
|
|
$ |
4,280 |
|
|
$ |
162,253 |
|
|
$ |
4,030 |
|
|
$ |
(675 |
) |
|
$ |
165,608 |
|
Quarter Ended March 31, 2007 (Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
Pipeline |
|
and |
|
|
|
|
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
|
|
|
Utility |
|
and Storage |
|
Production |
|
Energy Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Total Consolidated |
|
Revenue from
External Customers |
|
$ |
501,473 |
|
|
$ |
34,952 |
|
|
$ |
78,554 |
|
|
$ |
163,338 |
|
|
$ |
18,184 |
|
|
$ |
796,501 |
|
|
$ |
1,403 |
|
|
$ |
196 |
|
|
$ |
798,100 |
|
|
Intersegment Revenues |
|
$ |
5,941 |
|
|
$ |
20,884 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,825 |
|
|
$ |
2,090 |
|
|
$ |
(28,915 |
) |
|
$ |
|
|
|
Segment Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
Continuing Operations |
|
$ |
33,444 |
|
|
$ |
13,936 |
|
|
$ |
16,834 |
|
|
$ |
6,706 |
|
|
$ |
3,200 |
|
|
$ |
74,120 |
|
|
$ |
467 |
|
|
$ |
893 |
|
|
$ |
75,480 |
|
Six Months Ended March 31, 2007 (Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
Pipeline |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
|
|
|
Utility |
|
and Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Total Consolidated |
|
Revenue from
External Customers |
|
$ |
790,256 |
|
|
$ |
64,761 |
|
|
$ |
153,680 |
|
|
$ |
246,656 |
|
|
$ |
29,947 |
|
|
$ |
1,285,300 |
|
|
$ |
3,079 |
|
|
$ |
379 |
|
|
$ |
1,288,758 |
|
|
Intersegment Revenues |
|
$ |
9,970 |
|
|
$ |
41,252 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
51,222 |
|
|
$ |
4,287 |
|
|
$ |
(55,509 |
) |
|
$ |
|
|
|
Segment Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
Continuing Operations |
|
$ |
50,618 |
|
|
$ |
27,624 |
|
|
$ |
33,724 |
|
|
$ |
7,198 |
|
|
$ |
3,417 |
|
|
$ |
122,581 |
|
|
$ |
1,453 |
|
|
$ |
2,134 |
|
|
$ |
126,168 |
|
-20-
Item 1. Financial Statements (Cont.)
Note 7 Intangible Assets
The components of the Companys intangible assets were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
At March 31, 2008 |
|
2007 |
|
|
Gross |
|
|
|
|
|
Net |
|
Net |
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
|
|
|
|
Intangible Assets Subject to Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Transportation Contracts |
|
$ |
8,580 |
|
|
$ |
(5,523 |
) |
|
$ |
3,057 |
|
|
$ |
3,591 |
|
Long-Term Gas Purchase Contracts |
|
|
31,864 |
|
|
|
(7,416 |
) |
|
|
24,448 |
|
|
|
25,245 |
|
|
|
|
|
|
|
|
$ |
40,444 |
|
|
$ |
(12,939 |
) |
|
$ |
27,505 |
|
|
$ |
28,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amortization Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 |
|
$ |
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007 |
|
$ |
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2008 |
|
$ |
1,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2007 |
|
$ |
1,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount of intangible assets subject to amortization at March 31, 2008
remained unchanged from September 30, 2007. The only activity with regard to intangible assets
subject to amortization was amortization expense as shown in the table above. Amortization expense
for the long-term transportation contracts is estimated to be $0.5 million for both the remainder
of 2008 and for fiscal 2009. Amortization expense for transportation contracts is estimated to be
$0.4 million annually for 2010, 2011 and 2012. Amortization expense for the long-term gas purchase
contracts is estimated to be $0.8 million for the remainder of 2008 and $1.6 million annually for
2009, 2010, 2011 and 2012.
Note 8 Retirement Plan and Other Post-Retirement Benefits
Components of Net Periodic Benefit Cost (in thousands):
Three months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plan |
|
Other Post-Retirement Benefits |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Service Cost |
|
$ |
3,149 |
|
|
$ |
3,225 |
|
|
$ |
1,276 |
|
|
$ |
1,403 |
|
Interest Cost |
|
|
11,238 |
|
|
|
11,088 |
|
|
|
6,770 |
|
|
|
6,800 |
|
Expected Return on Plan Assets |
|
|
(13,750 |
) |
|
|
(12,809 |
) |
|
|
(8,429 |
) |
|
|
(6,740 |
) |
Amortization of Prior Service Cost |
|
|
202 |
|
|
|
220 |
|
|
|
1 |
|
|
|
1 |
|
Amortization of Transition Amount |
|
|
|
|
|
|
|
|
|
|
1,782 |
|
|
|
1,782 |
|
Amortization of Losses |
|
|
2,766 |
|
|
|
3,382 |
|
|
|
732 |
|
|
|
2,053 |
|
Net Amortization and Deferral for
Regulatory Purposes (Including
Volumetric Adjustments) (1) |
|
|
5,714 |
|
|
|
4,074 |
|
|
|
8,462 |
|
|
|
10,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
9,319 |
|
|
$ |
9,180 |
|
|
$ |
10,594 |
|
|
$ |
16,031 |
|
|
|
|
|
|
-21-
Item 1. Financial Statements (Concl.)
Six months ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plan |
|
Other Post-Retirement Benefits |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
Service Cost |
|
$ |
6,299 |
|
|
$ |
6,450 |
|
|
$ |
2,552 |
|
|
$ |
2,807 |
|
Interest Cost |
|
|
22,475 |
|
|
|
22,175 |
|
|
|
13,541 |
|
|
|
13,599 |
|
Expected Return on Plan Assets |
|
|
(27,500 |
) |
|
|
(25,618 |
) |
|
|
(16,857 |
) |
|
|
(13,480 |
) |
Amortization of Prior Service Cost |
|
|
404 |
|
|
|
441 |
|
|
|
2 |
|
|
|
2 |
|
Amortization of Transition Amount |
|
|
|
|
|
|
|
|
|
|
3,563 |
|
|
|
3,563 |
|
Amortization of Losses |
|
|
5,532 |
|
|
|
6,764 |
|
|
|
1,463 |
|
|
|
4,107 |
|
Net Amortization and Deferral for
Regulatory Purposes (Including
Volumetric Adjustments) (1) |
|
|
6,814 |
|
|
|
4,229 |
|
|
|
15,674 |
|
|
|
13,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
14,024 |
|
|
$ |
14,441 |
|
|
$ |
19,938 |
|
|
$ |
23,669 |
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys policy is to record retirement plan and other post-retirement benefit
costs in the Utility segment on a volumetric
basis to reflect the fact that the Utility segment experiences higher throughput of natural
gas in the winter months and lower
throughput of natural gas in the summer months. |
Employer Contributions. During the six months ended March 31, 2008, the Company contributed $3.8
million to its retirement plan and $20.1 million to its other post-retirement benefit plan. In the
remainder of 2008, the Company expects to contribute in the range of $11.0 million to $16.0 million
to its retirement plan and to contribute in the range of $8.0 million to $12.0 million to its other
post-retirement benefit plan.
Note 9 Subsequent Event
In April 2008, the Company issued $300.0 million of 6.50% senior, unsecured notes in a private
placement exempt from registration under the Securities Act of 1933. The notes have a term of 10
years, with a maturity date in April 2018. The holders of the notes may require the Company to
repurchase their notes in the event of a change in control at a price equal to 101% of the
principal amount. In addition, the Company is required to either offer to exchange the notes for
substantially similar notes as are registered under the Securities Act of 1933 or, in certain
circumstances, register the resale of the notes. The Company intends to use $200.0 million of the
proceeds to refund $200.0 million of 6.303% medium-term notes that mature on May 27, 2008. The
$200.0 million of 6.303% medium-term notes were classified as Current Portion of Long-Term Debt at
September 30, 2007 and December 31, 2007. Since the Company has shown the intent and ability to
refinance the medium-term notes maturing in May 2008, the $200.0 million previously reported as
Current Portion of Long-Term Debt is now reported as Long-Term Debt, Net of Current Portion on the
Consolidated Balance Sheet at March 31, 2008.
-22-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations |
OVERVIEW
The Company is a diversified energy company consisting of five reportable business segments.
For the quarter ended March 31, 2008 compared to the quarter ended March 31, 2007, the Company has
experienced an increase in earnings of $16.6 million primarily due to higher earnings in the
Exploration and Production segment. The Utility, Pipeline and Storage, and Timber segments, as
well as the All Other category also contributed to the increase in earnings. Lower earnings in the
Energy Marketing segment and the Corporate category slightly offset these increases. For the six
months ended March 31, 2008 compared to the six months ended March 31, 2007, the Company
experienced an increase in earnings of $32.6 million due primarily to higher earnings in the
Exploration and Production segment. The Utility, Pipeline and Storage, and Timber segments, as
well as the All Other category also contributed to the increase in earnings. Lower earnings in the
Energy Marketing segment and the Corporate category slightly offset these increases. The Companys
earnings are discussed further in the Results of Operations section that follows.
From a capital resources and liquidity perspective, the Company spent $144.7 million on
capital expenditures during the six months ended March 31, 2008, with approximately 45% being spent
in the Exploration and Production segment, 39% in the Pipeline and Storage segment and 17% in the
Utility segment. In the Pipeline and Storage segment, the majority of the expenditures were for
construction costs of the Empire Connector project. The Company expects to complete the project by
November 1, 2008. This project and other capital expenditures are discussed further in the Capital
Resources and Liquidity section that follows.
The Company also continues to repurchase outstanding shares of common stock under a share
repurchase program authorized by the Companys Board of Directors. The program authorizes the
Company to repurchase up to an aggregate amount of 8 million shares. Through March 31, 2008, the
Company had repurchased 6,227,553 shares for $242.2 million under this program, including 2,392,675
shares for $108.9 million during the six months ended March 31, 2008. These matters are discussed
further in the Capital Resources and Liquidity section that follows.
The Company has begun to explore the sale of Horizon LFG, a New York corporation that owns and
operates short-distance landfill gas pipeline companies that are engaged in the purchase, sale and
transportation of landfill gas in Ohio, Michigan, Kentucky, Missouri, Maryland and Indiana.
Horizon LFG is included in the Companys All Other category.
CRITICAL ACCOUNTING ESTIMATES
For a complete discussion of critical accounting estimates, refer to Critical Accounting
Estimates in Item 7 of the Companys 2007 Form 10-K. There have been no subsequent changes to
that disclosure.
RESULTS OF OPERATIONS
Earnings
The Companys earnings were $95.0 million for the quarter ended March 31, 2008 compared to
earnings of $78.4 million for the quarter ended March 31, 2007. As previously discussed, the
Company has presented its Canadian operations in the Exploration and Production segment (in
conjunction with the sale of SECI) as discontinued operations. The Companys earnings from
continuing operations were $95.0 million for the quarter ended March 31, 2008 compared to earnings
from continuing operations of $75.5 million for the quarter ended March 31, 2007. The increase in
earnings from continuing operations of $19.5 million is primarily the result of higher earnings in
the Exploration and Production segment. The Pipeline and Storage, Utility, and Timber segments, as
well as the All Other category also contributed to
the increase in earnings. Lower earnings in the Energy Marketing segment and the Corporate
category slightly offset these increases.
The Companys earnings were $165.6 million for the six months ended March 31, 2008
compared to earnings of $133.0 million for the six months ended March 31, 2007. The Companys
earnings from continuing operations were $165.6 million for the six months ended March 31, 2008
compared to earnings from continuing operations of $126.2 million for the six months ended
March 31, 2007. The increase in
-23-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
earnings from continuing operations of $39.4 million is primarily the result of higher earnings in
the Exploration and Production segment. The Utility, Pipeline and Storage, and Timber segments, as
well as the All Other category also contributed to the increase in earnings. Lower earnings in the
Energy Marketing segment and the Corporate category slightly offset these increases.
Additional discussion of earnings in each of the business segments can be found in
the business segment information that follows. Note that all amounts used in the earnings
discussions are after-tax amounts, unless otherwise noted.
Earnings (Loss) by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Utility |
|
$ |
34,164 |
|
|
$ |
33,444 |
|
|
$ |
720 |
|
|
$ |
54,380 |
|
|
$ |
50,618 |
|
|
$ |
3,762 |
|
Pipeline and Storage |
|
|
15,618 |
|
|
|
13,936 |
|
|
|
1,682 |
|
|
|
28,397 |
|
|
|
27,624 |
|
|
|
773 |
|
Exploration and Production |
|
|
34,572 |
|
|
|
16,834 |
|
|
|
17,738 |
|
|
|
68,594 |
|
|
|
33,724 |
|
|
|
34,870 |
|
Energy Marketing |
|
|
5,647 |
|
|
|
6,706 |
|
|
|
(1,059 |
) |
|
|
6,602 |
|
|
|
7,198 |
|
|
|
(596 |
) |
Timber |
|
|
3,883 |
|
|
|
3,200 |
|
|
|
683 |
|
|
|
4,280 |
|
|
|
3,417 |
|
|
|
863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments |
|
|
93,884 |
|
|
|
74,120 |
|
|
|
19,764 |
|
|
|
162,253 |
|
|
|
122,581 |
|
|
|
39,672 |
|
All Other |
|
|
1,692 |
|
|
|
467 |
|
|
|
1,225 |
|
|
|
4,030 |
|
|
|
1,453 |
|
|
|
2,577 |
|
Corporate |
|
|
(572 |
) |
|
|
893 |
|
|
|
(1,465 |
) |
|
|
(675 |
) |
|
|
2,134 |
|
|
|
(2,809 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings from
Continuing Operations |
|
|
95,004 |
|
|
|
75,480 |
|
|
|
19,524 |
|
|
|
165,608 |
|
|
|
126,168 |
|
|
|
39,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Discontinued
Operations |
|
|
|
|
|
|
2,967 |
|
|
|
(2,967 |
) |
|
|
|
|
|
|
6,799 |
|
|
|
(6,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated |
|
$ |
95,004 |
|
|
$ |
78,447 |
|
|
$ |
16,557 |
|
|
$ |
165,608 |
|
|
$ |
132,967 |
|
|
$ |
32,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility
Utility Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
March 31, |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
|
Increase |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Retail Sales Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
393,269 |
|
|
$ |
394,218 |
|
|
$ |
(949 |
) |
|
$ |
640,066 |
|
|
$ |
619,650 |
|
|
$ |
20,416 |
|
Commercial |
|
|
66,090 |
|
|
|
67,469 |
|
|
|
(1,379 |
) |
|
|
104,123 |
|
|
|
103,105 |
|
|
|
1,018 |
|
Industrial |
|
|
3,924 |
|
|
|
3,748 |
|
|
|
176 |
|
|
|
5,575 |
|
|
|
5,649 |
|
|
|
(74 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
463,283 |
|
|
|
465,435 |
|
|
|
(2,152 |
) |
|
|
749,764 |
|
|
|
728,404 |
|
|
|
21,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
42,337 |
|
|
|
38,464 |
|
|
|
3,873 |
|
|
|
75,761 |
|
|
|
65,340 |
|
|
|
10,421 |
|
Off-System Sales |
|
|
19,855 |
|
|
|
|
|
|
|
19,855 |
|
|
|
28,067 |
|
|
|
|
|
|
|
28,067 |
|
Other |
|
|
3,369 |
|
|
|
3,515 |
|
|
|
(146 |
) |
|
|
6,676 |
|
|
|
6,482 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
528,844 |
|
|
$ |
507,414 |
|
|
$ |
21,430 |
|
|
$ |
860,268 |
|
|
$ |
800,226 |
|
|
$ |
60,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
Utility Throughput
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
Increase |
(MMcf) |
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
(Decrease) |
Retail Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
28,136 |
|
|
|
29,372 |
|
|
|
(1,236 |
) |
|
|
45,263 |
|
|
|
46,050 |
|
|
|
(787 |
) |
Commercial |
|
|
4,986 |
|
|
|
5,428 |
|
|
|
(442 |
) |
|
|
7,863 |
|
|
|
8,296 |
|
|
|
(433 |
) |
Industrial |
|
|
323 |
|
|
|
323 |
|
|
|
|
|
|
|
446 |
|
|
|
514 |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,445 |
|
|
|
35,123 |
|
|
|
(1,678 |
) |
|
|
53,572 |
|
|
|
54,860 |
|
|
|
(1,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
26,054 |
|
|
|
24,723 |
|
|
|
1,331 |
|
|
|
43,881 |
|
|
|
40,576 |
|
|
|
3,305 |
|
Off-System Sales |
|
|
2,048 |
|
|
|
|
|
|
|
2,048 |
|
|
|
3,080 |
|
|
|
|
|
|
|
3,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,547 |
|
|
|
59,846 |
|
|
|
1,701 |
|
|
|
100,533 |
|
|
|
95,436 |
|
|
|
5,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Degree Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colder (Warmer) Than |
|
|
Normal |
|
2008 |
|
2007 |
|
Normal |
|
Prior Year |
Three Months Ended March 31 |
Buffalo |
|
|
3,364 |
|
|
|
3,264 |
|
|
|
3,327 |
|
|
|
(3.0 |
) |
|
|
(1.9 |
) |
Erie |
|
|
3,176 |
|
|
|
3,104 |
|
|
|
3,152 |
|
|
|
(2.3 |
) |
|
|
(1.5 |
) |
Six Months Ended
March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo |
|
|
5,624 |
|
|
|
5,358 |
|
|
|
5,274 |
|
|
|
(4.7 |
) |
|
|
1.6 |
|
Erie |
|
|
5,257 |
|
|
|
4,975 |
|
|
|
5,030 |
|
|
|
(5.4 |
) |
|
|
(1.1 |
) |
2008 Compared with 2007
Operating revenues for the Utility segment increased $21.4 million for the quarter ended March
31, 2008 as compared with the quarter ended March 31, 2007. This increase largely resulted from a
$19.9 million increase in off-system sales revenues coupled with a $3.9 million increase in
transportation revenues, offset slightly by a $2.2 million decrease in retail revenues. The
increase in transportation revenues was primarily due to a 1.3 Bcf increase in transportation
throughput, largely due to the migration of retail sales customers to transportation service. In
December 2007, the NYPSC issued an order providing for an annual rate increase of $1.8 million
beginning December 28, 2007. As part of this rate order, a rate design change was adopted that
shifts a greater amount of cost recovery into the minimum bill amount, thus spreading the recovery
of such costs more evenly throughout the year. This rate design change resulted in lower retail
and transportation revenues in the quarter ended March 31, 2008 compared to the quarter ended March
31, 2007. This decrease in revenues was largely offset by the recovery of higher gas costs (gas
costs are recovered dollar for dollar in revenues). As a result of the rate design change, it is
expected that retail and transportation revenues will be higher in the third and fourth quarters of
this year compared to the prior year.
Operating revenues for the Utility segment increased $60.0 million for the six months ended
March 31, 2008 as compared with the six months ended March 31, 2007. This increase largely
resulted from a $28.1 million increase in off-system sales revenues and a $21.4 million increase in
retail revenues coupled with a $10.4 million increase in transportation revenues. The increase in
retail gas sales revenues for the Utility segment was largely a function of higher gas costs (gas
costs are recovered
dollar for dollar in revenues) partially offset by the revenue impact of the rate design
change discussed above. The increase in transportation revenues was primarily due to a 3.3 Bcf
increase in transportation throughput, largely due to the migration of retail sales customers to
transportation service.
As reported in 2006, on November 17, 2006, the U.S. Court of Appeals vacated and remanded the
FERCs Order No. 2004, its latest affiliate standards of conduct, with respect to natural gas
pipelines. The Courts decision became effective on January 5, 2007, and on January 9, 2007, the
FERC issued Order No. 690, its Interim Rule, designed to respond to the Courts decision. In Order
No. 690, as clarified by the FERC on March 21, 2007, the FERC readopted, on an interim basis,
certain provisions that existed
-25-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
prior to the issuance of Order No. 2004 that had made it possible for the Utility to engage in
certain off-system sales without triggering the adverse consequences that would otherwise arise
under the standards of conduct. As such, the Utility segment resumed engaging in off-system sales
on non-affiliated pipelines as of May 2007. Total off-system sales revenues for the quarter and
six months ended March 31, 2008 amounted to $19.9 million and $28.1 million, respectively. Due to
profit sharing with retail customers, the margins resulting from off-system sales are minimal and
there was not a material impact to margins for the quarter and six months ended March 31, 2008.
The Utility segments earnings for the quarter ended March 31, 2008 were $34.2 million, an
increase of $0.7 million when compared with earnings for the quarter ended March 31, 2007. In the
Pennsylvania jurisdiction, earnings increased $0.8 million due primarily to higher usage per
account ($1.1 million) and a decrease in operating costs of $0.3 million (mostly due to a decrease
in bad debt expense). These increases were partly offset by the negative earnings impact
associated with warmer weather ($0.5 million). In the New York jurisdiction, earnings decreased by
$0.1 million. As a result of the rate design change in the New York jurisdiction, earnings for the
second quarter of fiscal 2008 decreased by $4.3 million from the second quarter of fiscal 2007.
This decrease was mostly offset by a routine regulatory adjustment ($0.5 million) combined with
lower operating costs of $2.7 million (mostly due to lower post-retirement benefit costs and lower
bad debt expense). Earnings also benefited from higher usage per account ($0.3 million) and lower
depreciation expense ($0.3 million).
The impact of weather variations on earnings in the New York jurisdiction is mitigated by that
jurisdictions weather normalization clause (WNC). The WNC in New York, which covers the
eight-month period from October through May, has had a stabilizing effect on earnings for the New
York rate jurisdiction. For the quarter ended March 31, 2008, the WNC preserved earnings of
approximately $1.1 million, as weather was warmer than normal for the period. For the quarter
ended March 31, 2007, the WNC preserved earnings of approximately $0.8 million, as the weather was
also warmer than normal.
The Utility segments earnings for the six months ended March 31, 2008 were $54.4 million, an
increase of $3.8 million when compared with the earnings of $50.6 million for the six months ended
March 31, 2007. In the Pennsylvania jurisdiction, earnings increased $3.0 million due primarily to
a base rate increase that became effective in January 2007 ($2.0 million), higher usage per account
($2.1 million) and a decrease in operating costs of $0.5 million (mostly due to a decrease in bad
debt expense). These increases were partly offset by the negative earnings impact associated with
warmer weather ($1.2 million). In the New York jurisdiction, earnings increased $0.8 million. The
earnings increase consisted of higher customer usage per account ($1.2 million), a routine
regulatory adjustment ($0.7 million), and lower operating costs of $2.4 million (mostly due to
lower post-retirement benefit costs and lower bad debt expense). These increases were largely
offset by the $4.3 million decrease in earnings associated with the rate design change discussed
above.
For the six months ended March 31, 2008, the WNC preserved earnings of approximately $2.1
million, as the weather was warmer than normal. For the six months ended March 31, 2007, the WNC
preserved earnings of approximately $2.4 million, as the weather was also warmer than normal.
Pipeline and Storage
Pipeline and Storage Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
(Thousands) |
|
2008 |
|
2007 |
|
Increase |
|
2008 |
|
2007 |
|
Increase |
Firm Transportation |
|
$ |
33,002 |
|
|
$ |
31,774 |
|
|
$ |
1,228 |
|
|
$ |
64,408 |
|
|
$ |
61,262 |
|
|
$ |
3,146 |
|
Interruptible Transportation |
|
|
1,094 |
|
|
|
955 |
|
|
|
139 |
|
|
|
2,085 |
|
|
|
1,901 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,096 |
|
|
|
32,729 |
|
|
|
1,367 |
|
|
|
66,493 |
|
|
|
63,163 |
|
|
|
3,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm Storage Service |
|
|
16,935 |
|
|
|
16,790 |
|
|
|
145 |
|
|
|
33,556 |
|
|
|
33,192 |
|
|
|
364 |
|
Other |
|
|
7,764 |
|
|
|
6,317 |
|
|
|
1,447 |
|
|
|
10,977 |
|
|
|
9,658 |
|
|
|
1,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
58,795 |
|
|
$ |
55,836 |
|
|
$ |
2,959 |
|
|
$ |
111,026 |
|
|
$ |
106,013 |
|
|
$ |
5,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-26-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
Pipeline and Storage Throughput
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
(MMcf) |
|
2008 |
|
2007 |
|
Increase |
|
2008 |
|
2007 |
|
Increase |
Firm Transportation |
|
|
121,959 |
|
|
|
120,631 |
|
|
|
1,328 |
|
|
|
214,841 |
|
|
|
195,058 |
|
|
|
19,783 |
|
Interruptible Transportation |
|
|
1,221 |
|
|
|
932 |
|
|
|
289 |
|
|
|
2,304 |
|
|
|
1,927 |
|
|
|
377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,180 |
|
|
|
121,563 |
|
|
|
1,617 |
|
|
|
217,145 |
|
|
|
196,985 |
|
|
|
20,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared with 2007
Operating revenues for the Pipeline and Storage segment increased $3.0 million for the quarter
ended March 31, 2008 as compared with the quarter ended March 31, 2007. The increase was primarily
due to higher efficiency gas revenues ($1.6 million) reported as part of other revenues in the
table above. This increase was due to higher gas prices combined with higher volumes retained in
the quarter ended March 31, 2008 as compared with the quarter ended March 31, 2007. In addition,
there was a $1.5 million increase in transportation and storage revenue primarily due to the fact
that the Pipeline and Storage segment was able to renew expiring contracts at higher rates due to
favorable market conditions related to the demand for storage and the related transportation
service associated with storage. While transportation volumes increased by 1.6 Bcf, volume
fluctuations generally do not have a significant impact on revenues as a result of Supply
Corporations straight fixed-variable rate design.
Operating revenues for the Pipeline and Storage segment for the six months ended March 31,
2008 increased $5.0 million as compared with the six months ended March 31, 2007. The increase was
primarily due to a $3.7 million increase in transportation and storage revenue primarily due to the
fact that the Pipeline and Storage segment was able to renew existing contracts at higher rates due
to favorable market conditions related to the demand for storage and the related transportation
service associated with storage. In addition, there was a $1.3 million increase in efficiency gas
revenues reported as part of other revenues in the table above. This increase was due primarily to
higher gas prices in the six months ended March 31, 2008 as compared with the six months ended
March 31, 2007. While transportation volumes increased by 20.2 Bcf, volume fluctuations generally
do not have a significant impact on revenues as a result of Supply Corporations straight
fixed-variable rate design.
The Pipeline and Storage segments earnings for the quarter ended March 31, 2008 were $15.6
million, an increase of $1.7 million when compared with earnings of $13.9 million for the quarter
ended March 31, 2007. The increase primarily reflects the earnings impact associated with higher
efficiency gas revenues ($1.0 million), higher transportation and storage revenues ($1.0 million),
and an increase in the allowance for funds used during construction ($0.4 million). These earnings
increases were partially offset by an earnings decrease due to higher operation expenses ($0.4
million) and increased depreciation expense ($0.4 million).
The Pipeline and Storage segments earnings for the six months ended March 31, 2008 were $28.4
million, an increase of $0.8 million when compared with earnings of $27.6 million for the six
months ended March 31, 2007. The increase primarily reflects the earnings impact associated with
higher transportation and storage revenues ($2.4 million), higher efficiency gas revenues ($0.8
million), an increase in the allowance for funds used during construction ($0.8 million), and a
decrease in
depreciation expense ($0.4 million). These earnings increases were partially offset by
higher operating costs of $1.1 million and increased interest charges ($0.3 million). In addition,
there was a $1.9 million positive earnings impact during the six months ended March 31, 2007
associated with the discontinuance of hedge accounting for Empires interest rate collar, which did
not recur during the six months ended March 31, 2008. On December 8, 2006, Empire repaid $22.8
million of secured debt. The interest costs of this secured debt were hedged by the interest rate
collar. Since the hedged transaction was settled and there will be no future cash flows associated
with the secured debt, the unrealized gain in accumulated other comprehensive income associated
with the interest rate collar was reclassified to the income statement.
-27-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
Exploration and Production
Exploration and Production Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
Increase |
(Thousands) |
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
(Decrease) |
Gas (after Hedging) from
Continuing Operations |
|
$ |
53,645 |
|
|
$ |
37,254 |
|
|
$ |
16,391 |
|
|
$ |
99,202 |
|
|
$ |
73,264 |
|
|
$ |
25,938 |
|
Oil (after Hedging) from
Continuing Operations |
|
|
59,313 |
|
|
|
38,553 |
|
|
|
20,760 |
|
|
|
118,956 |
|
|
|
74,507 |
|
|
|
44,449 |
|
Gas Processing Plant from
Continuing Operations |
|
|
11,033 |
|
|
|
9,117 |
|
|
|
1,916 |
|
|
|
22,108 |
|
|
|
17,746 |
|
|
|
4,362 |
|
Other from Continuing
Operations |
|
|
(1,575 |
) |
|
|
73 |
|
|
|
(1,648 |
) |
|
|
(2,884 |
) |
|
|
456 |
|
|
|
(3,340 |
) |
Intrasegment Elimination from
Continuing Operations (1) |
|
|
(7,696 |
) |
|
|
(6,443 |
) |
|
|
(1,253 |
) |
|
|
(14,707 |
) |
|
|
(12,293 |
) |
|
|
(2,414 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues from
Continuing Operations |
|
$ |
114,720 |
|
|
$ |
78,554 |
|
|
$ |
36,166 |
|
|
$ |
222,675 |
|
|
$ |
153,680 |
|
|
$ |
68,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues from
Canada Discontinued
Operations |
|
$ |
|
|
|
$ |
14,056 |
|
|
$ |
(14,056 |
) |
|
$ |
|
|
|
$ |
27,638 |
|
|
$ |
(27,638 |
) |
|
|
|
(1) |
|
Represents the elimination of certain West Coast gas production included in Gas
(after Hedging) from Continuing Operations in the table above that was sold to the gas processing
plant shown in the table above. An elimination for the same dollar amount was made to reduce the
gas processing plants Purchased Gas expense. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
Increase |
Production Volumes |
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
(Decrease) |
Gas Production (MMcf) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
|
3,022 |
|
|
|
2,893 |
|
|
|
129 |
|
|
|
5,849 |
|
|
|
5,616 |
|
|
|
233 |
|
West Coast |
|
|
977 |
|
|
|
920 |
|
|
|
57 |
|
|
|
2,004 |
|
|
|
1,865 |
|
|
|
139 |
|
Appalachia |
|
|
1,828 |
|
|
|
1,339 |
|
|
|
489 |
|
|
|
3,744 |
|
|
|
2,732 |
|
|
|
1,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production from
Continuing Operations |
|
|
5,827 |
|
|
|
5,152 |
|
|
|
675 |
|
|
|
11,597 |
|
|
|
10,213 |
|
|
|
1,384 |
|
Canada Discontinued
Operations |
|
|
|
|
|
|
1,856 |
|
|
|
(1,856 |
) |
|
|
|
|
|
|
3,577 |
|
|
|
(3,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production |
|
|
5,827 |
|
|
|
7,008 |
|
|
|
(1,181 |
) |
|
|
11,597 |
|
|
|
13,790 |
|
|
|
(2,193 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Production (Mbbl) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
|
128 |
|
|
|
174 |
|
|
|
(46 |
) |
|
|
285 |
|
|
|
376 |
|
|
|
(91 |
) |
West Coast |
|
|
599 |
|
|
|
599 |
|
|
|
|
|
|
|
1,227 |
|
|
|
1,190 |
|
|
|
37 |
|
Appalachia |
|
|
28 |
|
|
|
31 |
|
|
|
(3 |
) |
|
|
65 |
|
|
|
58 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production from
Continuing Operations |
|
|
755 |
|
|
|
804 |
|
|
|
(49 |
) |
|
|
1,577 |
|
|
|
1,624 |
|
|
|
(47 |
) |
Canada Discontinued
Operations |
|
|
|
|
|
|
61 |
|
|
|
(61 |
) |
|
|
|
|
|
|
117 |
|
|
|
(117 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production |
|
|
755 |
|
|
|
865 |
|
|
|
(110 |
) |
|
|
1,577 |
|
|
|
1,741 |
|
|
|
(164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-28-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
Average Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
Increase |
|
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
(Decrease) |
Average Gas Price/Mcf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
$ |
9.50 |
|
|
$ |
6.42 |
|
|
$ |
3.08 |
|
|
$ |
8.36 |
|
|
$ |
6.48 |
|
|
$ |
1.88 |
|
West Coast |
|
$ |
7.93 |
|
|
$ |
6.95 |
|
|
$ |
0.98 |
|
|
$ |
7.34 |
|
|
$ |
6.51 |
|
|
$ |
0.83 |
|
Appalachia |
|
$ |
8.90 |
|
|
$ |
7.39 |
|
|
$ |
1.51 |
|
|
$ |
8.15 |
|
|
$ |
7.30 |
|
|
$ |
0.85 |
|
Weighted Average for
Continuing Operations |
|
$ |
9.05 |
|
|
$ |
6.77 |
|
|
$ |
2.28 |
|
|
$ |
8.12 |
|
|
$ |
6.71 |
|
|
$ |
1.41 |
|
Weighted Average After Hedging
for Continuing Operations |
|
$ |
9.21 |
|
|
$ |
7.23 |
|
|
$ |
1.98 |
|
|
$ |
8.55 |
|
|
$ |
7.17 |
|
|
$ |
1.38 |
|
Canada Discontinued
Operations |
|
|
N/M |
|
|
$ |
5.87 |
|
|
|
N/M |
|
|
|
N/M |
|
|
$ |
6.12 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Oil Price/bbl |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
$ |
99.75 |
|
|
$ |
57.21 |
|
|
$ |
42.54 |
|
|
$ |
94.31 |
|
|
$ |
56.84 |
|
|
$ |
37.47 |
|
West Coast |
|
$ |
88.45 |
|
|
$ |
49.99 |
|
|
$ |
38.46 |
|
|
$ |
85.04 |
|
|
$ |
50.55 |
|
|
$ |
34.49 |
|
Appalachia |
|
$ |
90.15 |
|
|
$ |
57.88 |
|
|
$ |
32.27 |
|
|
$ |
86.73 |
|
|
$ |
58.76 |
|
|
$ |
27.97 |
|
Weighted Average for
Continuing Operations |
|
$ |
90.43 |
|
|
$ |
51.86 |
|
|
$ |
38.57 |
|
|
$ |
86.78 |
|
|
$ |
52.30 |
|
|
$ |
34.48 |
|
Weighted Average After Hedging
for Continuing Operations |
|
$ |
78.54 |
|
|
$ |
47.95 |
|
|
$ |
30.59 |
|
|
$ |
75.44 |
|
|
$ |
45.86 |
|
|
$ |
29.58 |
|
Canada Discontinued
Operations |
|
|
N/M |
|
|
$ |
49.98 |
|
|
|
N/M |
|
|
|
N/M |
|
|
$ |
46.45 |
|
|
|
N/M |
|
2008 Compared with 2007
Operating revenues from continuing operations for the Exploration and Production segment
increased $36.2 million for the quarter ended March 31, 2008 as compared with the quarter ended
March 31, 2007. Oil production revenue after hedging from continuing operations increased $20.8
million due to a $30.59 per barrel increase in weighted average prices after hedging. Gas
production revenue after hedging from continuing operations increased $16.4 million due to an
increase in the weighted average price of gas after hedging for continuing operations ($1.98 per
Mcf) as well as an increase in gas production of 675 MMcf. The Appalachian region of this segment
was primarily responsible for the increase in natural gas production from continuing operations
(489 MMcf), consistent with increased drilling activity in the region.
Operating revenues from continuing operations for the Exploration and Production segment
increased $69.0 million for the six months ended March 31, 2008 as compared with the six months
ended March 31, 2007. Oil production revenue after hedging from continuing operations increased
$44.4 million due primarily to a $29.58 per barrel increase in weighted average prices after
hedging for continuing operations. Gas production revenue after hedging from continuing operations
increased $25.9 million due to an increase in the weighted average price of gas after hedging for
continuing operations ($1.38 per Mcf) and an increase in gas production of 1,384 MMcf. The
increase in gas production from continuing operations occurred primarily in the Appalachian region
(1,012 MMcf), consistent with increased drilling activity in the region.
The Exploration and Production segments earnings from continuing operations for the quarter
ended March 31, 2008 were $34.5 million, an increase of $17.7 million when compared with earnings
from continuing operations of $16.8 million for the quarter ended March 31, 2007. Higher crude oil
prices, higher natural gas prices and higher natural gas production increased earnings by $15.0
million, $7.5 million and $3.2 million, respectively, while lower crude oil production decreased
earnings by $1.5 million. Higher lease operating costs, higher depletion expense, higher
general and administrative and other
-29-
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.) |
operating expenses, and mark-to-market adjustments on derivative financial instruments of $3.4
million, $2.3 million, $1.9 million and $1.1 million, respectively, also negatively impacted
earnings. Lower interest expense of $1.2 million and higher interest income of $0.5 million
slightly offset these decreases.
The Exploration and Production segments earnings from continuing operations for the six
months ended March 31, 2008 were $68.6 million, an increase of $34.9 million when compared with
earnings from continuing operations of $33.7 million for the quarter ended March 31, 2007. Higher
crude oil prices, higher natural gas prices and higher natural gas production increased earnings
by $30.3 million, $10.4 million and $6.5 million, respectively, while lower crude oil production
decreased earnings by $1.4 million. Higher lease operating costs ($4.9 million), higher depletion
expense ($5.9 million), higher general and administrative and other operating expenses ($2.3
million), mark-to-market adjustments on derivative financial instruments ($1.3 million), and
higher state income tax expense ($0.9 million) also negatively impacted earnings. Lower interest
expense of $2.4 million and higher interest income of $1.5 million slightly offset these
decreases.
Energy Marketing
Energy Marketing Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
Increase |
(Thousands) |
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
(Decrease) |
Natural Gas (after Hedging) |
|
$ |
191,261 |
|
|
$ |
163,274 |
|
|
$ |
27,987 |
|
|
$ |
277,996 |
|
|
$ |
246,544 |
|
|
$ |
31,452 |
|
Other |
|
|
2 |
|
|
|
64 |
|
|
|
(62 |
) |
|
|
(14 |
) |
|
|
112 |
|
|
|
(126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
191,263 |
|
|
$ |
163,338 |
|
|
$ |
27,925 |
|
|
$ |
277,982 |
|
|
$ |
246,656 |
|
|
$ |
31,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Marketing Volumes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
2008 |
|
2007 |
|
Increase |
|
2008 |
|
2007 |
|
Increase |
Natural Gas (MMcf) |
|
|
21,707 |
|
|
|
19,935 |
|
|
|
1,772 |
|
|
|
32,548 |
|
|
|
31,049 |
|
|
|
1,499 |
|
2008 Compared with 2007
Operating revenues for the Energy Marketing segment increased $27.9 million and $31.3 million,
respectively, for the quarter and six months ended March 31, 2008, as compared with the quarter and
six months ended March 31, 2007. The increase for both the quarter and six months ended March 31,
2008
reflects higher gas sales revenue due to an increase in throughput and an increase in the
price of natural gas that was recovered through revenues. The increase in throughput was primarily
due to an increase in volumes sold to low-margin wholesale customers, as well as an increase in the
number of commercial and industrial customers served by the Energy Marketing segment.
Earnings in the Energy Marketing segment decreased $1.1 million and $0.6 million,
respectively, for the quarter and six months ended March 31, 2008 as compared with the quarter and
six months ended March 31, 2007. Lower margins of $1.1 million and $0.6 million, respectively, for
the quarter and six-month periods are responsible for these decreases. A major factor in the
margin decrease for both periods is the non-recurrence of a purchased gas expense adjustment
recorded during the quarter ended March 31, 2007. During that quarter, the Energy Marketing
segment reversed an accrual for $2.3 million of purchased gas expense due to the resolution of a
contingency. The increase in throughput noted above, the profitable sale of certain gas held as
inventory, and the marketing flexibility that the Energy Marketing segment derives from its
contracts for significant storage capacity partially offset this decrease.
-30-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
Timber
Timber Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
|
|
|
Increase |
(Thousands) |
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
(Decrease) |
Log Sales |
|
$ |
8,750 |
|
|
$ |
9,381 |
|
|
$ |
(631 |
) |
|
$ |
13,924 |
|
|
$ |
13,446 |
|
|
$ |
478 |
|
Green Lumber Sales |
|
|
1,512 |
|
|
|
1,347 |
|
|
|
165 |
|
|
|
2,914 |
|
|
|
2,265 |
|
|
|
649 |
|
Kiln-Dried Lumber Sales |
|
|
6,217 |
|
|
|
7,225 |
|
|
|
(1,008 |
) |
|
|
12,766 |
|
|
|
13,495 |
|
|
|
(729 |
) |
Other |
|
|
945 |
|
|
|
231 |
|
|
|
714 |
|
|
|
720 |
|
|
|
741 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
17,424 |
|
|
$ |
18,184 |
|
|
$ |
(760 |
) |
|
$ |
30,324 |
|
|
$ |
29,947 |
|
|
$ |
377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timber Board Feet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
March 31, |
|
March 31, |
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
|
|
|
(Thousands) |
|
2008 |
|
2007 |
|
(Decrease) |
|
2008 |
|
2007 |
|
Increase |
Log Sales |
|
|
3,589 |
|
|
|
3,025 |
|
|
|
564 |
|
|
|
5,613 |
|
|
|
4,734 |
|
|
|
879 |
|
Green Lumber Sales |
|
|
2,792 |
|
|
|
2,380 |
|
|
|
412 |
|
|
|
5,223 |
|
|
|
3,910 |
|
|
|
1,313 |
|
Kiln-Dried Lumber Sales |
|
|
3,353 |
|
|
|
3,794 |
|
|
|
(441 |
) |
|
|
7,100 |
|
|
|
6,952 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,734 |
|
|
|
9,199 |
|
|
|
535 |
|
|
|
17,936 |
|
|
|
15,596 |
|
|
|
2,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared with 2007
Operating revenues for the Timber segment decreased $0.8 million for the quarter ended March
31, 2008, as compared with the quarter ended March 31, 2007. The decrease can be primarily
attributed to a decrease in both log sales and kiln-dried lumber sales of $0.6 million and $1.0
million, respectively. The decrease in log sales is due to a decrease in cherry veneer log sales
volumes of 117,000 board feet. Although there was an overall increase in log sales volumes in the
table above, most of the increase came from lower priced logs due to the mix of logs being
harvested in the current quarter as compared to the quarter ended March 31, 2007. Cherry veneer
logs are more valuable and sell at higher prices than other species and have the largest impact on
overall log sales revenue. The decrease in kiln-dried lumber sales is due to both a decline in
sales volumes of 441,000 board feet as well as a decline in the market price of kiln-dried lumber.
Operating revenues for the Timber segment increased $0.4 million for the six months ended
March 31, 2008, as compared with the six months ended March 31, 2007. The increase in revenues can
be attributed to more favorable weather conditions in the six months ended March 31, 2008 as
compared to unfavorable weather conditions that greatly diminished the harvesting of logs during
the six months ended March 31, 2007. Since weather conditions were more favorable during the
current six-month period, log sales increased by $0.5 million or 879,000 board feet. There was
also an increase in green lumber sales of $0.6 million since a larger amount of logs were available
for processing. The increase in revenues was offset by a decrease in kiln-dried lumber sales of
$0.7 million. A decline in market price of kiln-dried lumber was responsible for this decrease,
partially offset by slightly higher kiln-dried lumber sales volumes.
Earnings in the Timber segment were $3.9 million for the quarter ended March 31, 2008, an
increase of $0.7 million when compared with earnings of $3.2 million for the quarter ended March
31, 2007. This increase was the result of higher margins from log and lumber sales of $1.0
million. Higher margins were partially offset by an increase in depletion and depreciation
expense of $0.3 million due to harvesting more timber from Company owned land than the prior year
combined with the addition of a lumber sorter for Highlands sawmill operations that was placed
into service in October 2007.
-31-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
The Timber segments earnings were $4.3 million for the six months ended March 31, 2008, an
increase of $0.9 million when compared with earnings of $3.4 million for the six months ended March
31, 2007. The increase was primarily due to higher margins from lumber and log sales ($1.6
million), partially as a result of the increase in revenues noted above. An increase in depletion
and depreciation expense of $0.4 million partially offset this increase in margins. The increase
in depletion expense is due to harvesting more timber from Company owned land than the prior year.
The increase in depreciation expense reflects the addition of a lumber sorter for Highlands
sawmill operations that was placed into service in October 2007.
Corporate and All Other
2008 Compared with 2007
Corporate and All Other recorded earnings of $1.1 million for the quarter ended March 31, 2008
compared with earnings of $1.4 million for the quarter ended March 31, 2007. The positive earnings
impacts of lower interest expense ($1.2 million), a gain on the sale of a turbine by Horizon Power
($0.6 million) and slightly higher margins by Horizon LFG ($0.3 million) were more than offset by
higher operating costs ($1.4 million) and lower interest income ($1.3 million). The increase in
operating costs is attributable to the proxy contest with New Mountain Vantage GP, L.L.C.
For the six months ended March 31, 2008, Corporate and All Other had earnings of $3.4 million
compared with earnings of $3.6 million for the six months ended March 31, 2007. The positive
earnings impacts of lower interest expense ($2.0 million), lower income tax expense ($0.4 million),
a gain on the sale of a turbine by Horizon Power ($0.6 million), higher income from unconsolidated
subsidiaries ($0.7 million) and slightly higher margins by Horizon LFG ($0.3 million) were more
than offset by higher operating costs ($3.7 million) and lower interest income ($0.7 million). The
increase in operating costs can be attributed to the proxy contest with New Mountain Vantage GP,
L.L.C.
Interest Income
Interest income was $1.5 million higher in the quarter ended March 31, 2008 as compared to the
quarter ended March 31, 2007. For the six months ended March 31, 2008, interest income increased
$3.5 million as compared with the six months ended March 31, 2007. These increases are mainly due
to higher interest income in the Exploration and Production segment of $0.7 million and $2.4
million, respectively, for the quarter and six months ended March 31, 2008 as compared to the
quarter and six months ended March 31, 2007 as a result of the investment of cash proceeds received
from the sale of SECI in August 2007.
Interest Expense on Long-Term Debt
Interest on long-term debt decreased $1.6 million for the quarter ended March 31, 2008 as
compared with the quarter ended March 31, 2007. For the six months ended March 31, 2008, interest
on long-term debt decreased $1.4 million as compared with the six months ended March 31, 2007.
These decreases are due to an overall decline in interest on long-term debt as a result of a lower
average amount of long-term debt outstanding. The Company repaid $22.8 million of Empires secured
debt in December 2006. It also redeemed $96.3 million of 6.5% unsecured notes in April 2007.
Partially offsetting the decrease noted above for the six months ended March 31, 2008 as compared
to the six months ended March 31, 2007 is the non-recurrence of a $1.9 million benefit to interest
expense recognized in the quarter ended December 31, 2006 as a result of the discontinuance of
hedge accounting for Empires interest rate collar, as discussed above under Pipeline and Storage.
The underlying long-term debt associated with this interest rate collar was repaid in December 2006
and the unrealized gain recorded in accumulated other comprehensive income associated with the
interest rate collar was reclassified to interest expense.
-32-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
CAPITAL RESOURCES AND LIQUIDITY
The Companys primary source of cash during the six-month period ended March 31, 2008
consisted of cash provided by operating activities. This source of cash was supplemented by issues
of new shares of common stock as a result of stock option exercises. During the six months ended
March 31, 2008, the common stock used to fulfill the requirements of the Companys 401(k) plans and
Direct Stock Purchase and Dividend Reinvestment Plan was obtained via open market purchases.
During fiscal 2006, the Company began repurchasing outstanding shares of its common stock under a
share repurchase program, which is discussed below under Financing Cash Flow.
Operating Cash Flow
Internally generated cash from operating activities consists of net income available for
common stock, adjusted for non-cash expenses, non-cash income and changes in operating assets and
liabilities. Non-cash items include depreciation, depletion and amortization, deferred income
taxes, and income or loss from unconsolidated subsidiaries net of cash distributions.
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, 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 segments New York rate jurisdiction by
its WNC and in the Pipeline and Storage segment by Supply Corporations straight fixed-variable
rate design.
Because of the seasonal nature of the heating business in the Utility and Energy Marketing
segments, revenues in these segments are relatively high during the heating season, primarily the
first and second quarters of the fiscal year, and receivable balances historically increase during
these periods from the balances receivable at September 30.
The storage gas inventory normally declines during the first and second quarters of the fiscal
year and is replenished during the third and fourth quarters. For storage gas inventory accounted
for under the 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 under the caption Other Accruals and Current Liabilities. Such
reserve is reduced as the inventory is replenished.
Cash provided by operating activities in the Exploration and Production segment may vary from
period to period as a result of changes in the commodity prices of natural gas and crude oil. The
Company uses various derivative financial instruments, including price swap agreements, no cost
collars, options and futures contracts in an attempt to manage this energy commodity price risk.
Net cash provided by operating activities totaled $306.9 million for the six months ended
March 31, 2008, an increase of $32.2 million compared with $274.7 million provided by operating
activities for the six months ended March 31, 2007. This increase is partially due to the timing
of gas cost recovery in the Utility segment for the six months ended March 31, 2008 as compared to
the six months ended March 31, 2007. In the Exploration and Production segment, for the six months
ended March 31, 2008 as compared to the six months ended March 31, 2007, the increase in cash
provided by operations due to higher commodity prices was largely offset by the decrease in cash
provided by operations that resulted from the sale of SECI in August 2007.
Investing Cash Flow
Expenditures for Long-Lived Assets
The Companys expenditures for long-lived assets totaled $144.7 million during the six months
ended March 31, 2008. The table below presents these expenditures:
-33-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
Six Months Ended March 31, 2008 (in millions of dollars)
|
|
|
|
|
|
|
Total |
|
|
Expenditures for |
|
|
Long-Lived Assets |
Utility |
|
$ |
23.9 |
|
Pipeline and Storage |
|
|
57.1 |
|
Exploration and Production |
|
|
64.9 |
|
Timber |
|
|
1.1 |
|
Corporate and All Other |
|
|
0.1 |
|
Eliminations (1) |
|
|
(2.4 |
) |
|
|
|
|
|
$ |
144.7 |
|
|
|
|
|
|
|
(1) |
|
Represents $2.4 million of capital expenditures included in the Appalachian region
of the Exploration and Production segment for the purchase of storage facilities, buildings, and
base gas from Supply Corporation during the quarter ended March 31, 2008. |
Utility
The majority of the Utility capital expenditures for the six months ended March 31, 2008 were
made for replacement of mains and main extensions, as well as for the replacement of service lines.
Pipeline and Storage
The majority of the Pipeline and Storage capital expenditures for the six months ended March
31, 2008 were related to the Empire Connector project costs, which is discussed below, as well as
for additions, improvements, and replacements to this segments transmission and gas storage
systems.
The Company continues to explore various opportunities to expand its capabilities to transport
gas to the East Coast, either through the Supply Corporation or Empire systems or in partnership
with others. Construction of the Empire Connector, a pipeline that will connect the Empire
Pipeline with the Millennium Pipeline and which is designed to transport up to approximately 250
MDth of natural gas per day, began in September 2007. The planned in-service date is November
2008. Refer to the Rate and Regulatory Matters section that follows for further discussion of this
matter. The total cost to the Company of the Empire Connector project is estimated at $180
million, after giving effect to sales tax exemptions worth approximately $3.7 million. The Company
anticipates financing this project with cash on hand and/or through the use of the Companys lines
of credit. As of March 31, 2008, the Company had incurred approximately $65.0 million in costs
related to this project. Of this amount, $20.2 million and $45.3 million were incurred during the
quarter and six months ended March 31, 2008, respectively, and $1.0 million and $1.4 million were
incurred during the quarter and six months ended March 31, 2007, respectively. All project costs
incurred as of March 31, 2008 have been capitalized as Construction Work in Progress.
Supply Corporation continues to view its potential Tuscarora Extension project as an important
link to Millennium and potential storage development in the Corning, New York area. This new
pipeline, which would expand the Supply Corporation system from its Tuscarora storage field to the
intersection of the proposed Millennium and Empire Connector pipelines, could be designed initially
to transport up to approximately 130 MDth of natural gas per day. It may also provide Supply
Corporation with the opportunity to increase the deliverability of the existing Tuscarora storage
field. Using the results of a completed Open Season, Supply Corporation is also exploring a new
project (the West to East project) that would provide for new capacity from the Rockies Express
Project, Appalachian production, storage and other points to Leidy and to interconnections with
Millennium and Empire at Corning. The West to East project could include the Tuscarora Extension
project, or could be a second phase following the development of the Tuscarora Extension project.
Supply Corporation has plans to develop new storage capacity by pursuing expansion of its East
Branch and Galbraith storage facilities. The expansion of these two fields, which Supply
Corporation hopes to market through one offering at market-based rates, could provide approximately
7 Bcf of incremental storage capacity with incremental withdrawal deliverability of up to 80 MDth
of natural gas per day, available in 2011. Supply Corporation expects that the availability of
this incremental storage
capacity will complement the West to East pipeline project and help meet the demand for
storage created
-34-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
by the prospective increased flow of Rockies gas supply into the western Pennsylvania area,
although traditional gas supplies will also be able to take advantage of this incremental storage
capacity. An Open Season for this capacity is expected later in 2008.
The timeline associated with Supply Corporations pipeline and storage projects depends on
market development. Should the market materialize, the Company anticipates financing the Tuscarora
Extension project and/or the East Branch/Galbraith expansion(s) with cash on hand and/or through
the use of the Companys lines of credit. The capital cost of the West to East project would
amount to at least $700 million, which would be financed by a combination of debt and equity. As
of March 31, 2008, there have been no costs incurred by the Company related to the Tuscarora
Extension project, less than $0.1 million has been spent to study the West to East project, and
approximately $0.2 million has been spent to study the East Branch/Galbraith project. The Company
has not yet filed an application with the FERC for the authority to build either pipeline project
or the storage expansion(s).
Exploration and Production
The Exploration and Production segment capital expenditures for the six months ended March 31,
2008 included approximately $20.0 million for the Gulf Coast region, substantially all of which was
for the off-shore program in the Gulf of Mexico, $20.9 million for the West Coast region and $24.0
million for the Appalachian region. The Appalachian region capital expenditures include $2.4
million for the purchase of storage facilities, buildings, and base gas from Supply Corporation, as
shown in the table on the previous page. These amounts included approximately $9.0 million spent
to develop proved undeveloped reserves.
Estimated capital expenditures in the Exploration and Production segment for fiscal 2008 have
been increased from $154.0 million to $195.0 million. Gulf Coast region estimated capital
expenditures have been increased from $50.0 million to $57.0 million. West Coast region estimated
capital expenditures have been increased from $46.0 million to $65.0 million, and Appalachian
region estimated capital expenditures have been increased from $58.0 million to $73.0 million. The
upward revisions include acquisitions, primarily in California, increased drilling and lease
acquisition costs in the Marcellus Shale in Appalachia, and increased development costs in the Gulf
of Mexico due to continued exploration successes.
Timber
The majority of the Timber segment capital expenditures for the six months ended March 31,
2008 were for construction of a lumber sorter for Highlands sawmill operations that was placed
into service in October 2007 as well as for purchases of equipment for Highlands sawmill and kiln
operations.
All Other
In March 2008, Horizon Power sold a gas-powered turbine that it had planned to use in the
development of a co-generation plant. Horizon Power received proceeds of $5.3 million and recorded
a pre-tax gain of $0.9 million associated with the sale.
The Company continuously evaluates capital expenditures and investments in corporations,
partnerships, and other business entities. The amounts are subject to modification for
opportunities such as the acquisition of attractive oil and gas properties, timber or natural gas
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 Companys other business segments depends, to a large degree, upon market
conditions.
-35-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
Financing Cash Flow
The Company did not have any outstanding short-term notes payable to banks or commercial paper
at March 31, 2008. However, the Company continues to consider short-term debt (consisting of
short-term notes payable to banks and commercial paper) 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, margin calls on derivative financial instruments,
exploration and development expenditures, repurchases of stock, and other working capital needs.
Fluctuations in these items can have a significant impact on the amount and timing of short-term
debt. As for bank loans, the Company maintains a number of individual uncommitted or discretionary
lines of credit with certain financial institutions for general corporate purposes. Borrowings
under these lines of credit are made at competitive market rates. These credit lines, which
aggregate to $455.0 million, are revocable at the option of the financial institutions and are
reviewed on an annual basis. The Company anticipates that these lines of credit will continue to
be renewed, or replaced by similar lines. The total amount available to be issued under the
Companys commercial paper program is $300.0 million. The commercial paper program is backed by a
syndicated committed credit facility totaling $300.0 million that extends through September 30,
2010.
Under the Companys committed credit facility, the Company has agreed that its debt to
capitalization ratio will not exceed .65 at the last day of any fiscal quarter through September
30, 2010. At March 31, 2008, the Companys debt to capitalization ratio (as calculated under the
facility) was .38. The constraints specified in the committed credit facility would permit an
additional $2.02 billion in short-term and/or long-term debt to be outstanding (further limited by
the indenture covenants discussed below) before the Companys debt to capitalization ratio would
exceed .65. If a downgrade in any of the Companys credit ratings were to occur, access to the
commercial paper markets might not be possible. However, the Company expects that it could borrow
under its uncommitted bank lines of credit or rely upon other liquidity sources, including cash
provided by operations.
Under the Companys existing indenture covenants, at March 31, 2008, the Company would have
been permitted to issue up to a maximum of $1.4 billion in additional long-term unsecured
indebtedness at then-current market interest rates in addition to being able to issue new
indebtedness to replace maturing debt. The Companys present liquidity position is believed to be
adequate to satisfy known demands.
The Companys 1974 indenture pursuant to which $399.0 million (or 40%) of the Companys
long-term debt (as of March 31, 2008) was issued, contains a cross-default provision whereby the
failure by the Company to perform certain obligations under other borrowing arrangements could
trigger an obligation to repay the debt outstanding under the indenture. In particular, a
repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or
interest on any debt under any other indenture or agreement or (ii) to perform any other term in
any other such indenture or agreement, and the effect of the failure causes, or would permit the
holders of the debt to cause, the debt under such indenture or agreement to become due prior to its
stated maturity, unless cured or waived.
The Companys $300.0 million committed credit facility also contains a cross-default provision
whereby the failure by the Company or its significant subsidiaries to make payments under other
borrowing arrangements, or the occurrence of certain events affecting those other borrowing
arrangements, could trigger an obligation to repay any amounts outstanding under the committed
credit facility. In particular, a repayment obligation could be triggered if (i) the Company or
any of its significant subsidiaries fail to make a payment when due of any principal or interest on
any other indebtedness aggregating $20.0 million or more or (ii) an event occurs that causes, or
would permit the holders of any other indebtedness aggregating $20.0 million or more to cause, such
indebtedness to become due prior to its stated maturity. As of March 31, 2008, the Company had no
debt outstanding under the committed credit facility.
The Company may issue debt or equity securities in a public offering or a private placement
from time to time. The amounts and timing of the issuance and sale of debt or equity securities
will
depend on market conditions, indenture requirements, regulatory authorizations and the capital
requirements of the Company.
-36-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
In April 2008, the Company issued $300.0 million of 6.50% senior, unsecured notes in a private
placement exempt from registration under the Securities Act of 1933. The notes have a term of 10
years, with a maturity date in April 2018. The holders of the notes may require the Company to
repurchase their notes in the event of a change in control at a price equal to 101% of the
principal amount. In addition, the Company is required to either offer to exchange the notes for
substantially similar notes as are registered under the Securities Act of 1933 or, in certain
circumstances, register the resale of the notes. The Company intends to use $200.0 million of the
proceeds to refund $200.0 million of 6.303% medium-term notes that mature on May 27, 2008. The
$200.0 million of 6.303% medium-term notes were classified as Current Portion of Long-Term Debt at
September 30, 2007 and December 31, 2007. Since the Company has shown the intent and ability to
refinance the medium-term notes maturing in May 2008, the $200.0 million previously reported as
Current Portion of Long-Term Debt is now reported as Long-Term Debt, Net of Current Portion on the
Consolidated Balance Sheet at March 31, 2008.
On December 8, 2005, the Companys Board of Directors authorized the Company to implement a
share repurchase program, whereby the Company may repurchase outstanding shares of common stock, up
to an aggregate amount of 8 million shares in the open market or through privately negotiated
transactions. As of March 31, 2008, the Company has repurchased 6,227,553 shares for $242.2
million under this program, including 2,392,675 shares for $108.9 million during the quarter and
six months ended March 31, 2008. These share repurchases were funded with cash provided by
operating activities and/or through the use of the Companys lines of credit. In the future, it is
expected that this share repurchase program will continue to be funded with cash provided by
operating activities and/or through the use of the Companys lines of credit. It is expected that
open market repurchases will continue from time to time depending on market conditions.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has entered into certain off-balance sheet financing arrangements. These
financing arrangements are primarily operating and capital leases. The Companys consolidated
subsidiaries have operating leases, the majority of which are with the Utility and the Pipeline and
Storage segments, having a remaining lease commitment of approximately $32.3 million. These leases
have been entered into for the use of buildings, vehicles, construction tools, meters, and other
items and are accounted for as operating leases. The Companys unconsolidated subsidiaries, which
are accounted for under the equity method, have capital leases of electric generating equipment
having a remaining lease commitment of approximately $4.2 million. The Company has guaranteed 50%
or $2.1 million of these capital lease commitments.
OTHER MATTERS
In addition to the legal proceedings disclosed in Part II, Item 1 of this report, the Company
is involved in other litigation and regulatory matters arising in the normal course of business.
These other matters may include, for example, negligence claims and tax, regulatory or other
governmental audits, inspections, investigations or other proceedings. These matters may involve
state and federal taxes, safety, compliance with regulations, rate base, cost of service and
purchased gas cost issues, among other things. While these normal-course matters could have a
material effect on earnings and cash flows in the quarterly and annual period in which they are
resolved, they are not expected to change materially the Companys present liquidity position, nor
to have a material adverse effect on the financial condition of the Company.
Market Risk Sensitive Instruments
For a complete discussion of market risk sensitive instruments, refer to Market Risk
Sensitive Instruments in Item 7 of the Companys 2007 Form 10-K. There have been no subsequent
material changes to the Companys exposure to market risk sensitive instruments.
-37-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
Rate and Regulatory Matters
Utility Operation
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.
New York Jurisdiction
On January 29, 2007, Distribution Corporation commenced a rate case by filing proposed tariff
amendments and supporting testimony requesting approval to increase its annual revenues by $52.0
million. Following standard procedure, the NYPSC suspended the proposed tariff amendments to
enable its staff and intervenors to conduct a routine investigation and hold hearings.
Distribution Corporation explained in the filing that its request for rate relief was necessitated
by decreased revenues resulting from customer conservation efforts and increased customer
uncollectibles, among other things. The rate filing also included a proposal for an efficiency and
conservation initiative with a revenue decoupling mechanism designed to render the Company
indifferent to throughput reductions resulting from conservation. On September 20, 2007, the NYPSC
issued an order approving, with modifications, Distribution Corporations conservation program for
implementation on an accelerated basis. Associated ratemaking issues, however, were reserved for
consideration in the rate case.
On December 21, 2007, the NYPSC issued a rate order providing for an annual rate increase of
$1.8 million, together with a monthly bill surcharge that would collect up to $10.8 million to
recover expenses arising from the conservation program. The rate increase and bill surcharge
became effective December 28, 2007. The rate order further provided for a return on equity of
9.1%. The rate order also adopted Distribution Corporations proposed revenue decoupling
mechanism. Distribution Corporations revenue decoupling mechanism, like others, decouples
revenues from throughput by enabling the Company to collect from small volume customers its allowed
margin on average weather normalized usage per customer. The Company surcharges or credits any
difference from the average weather normalized usage per customer account. The surcharge or credit
is calculated to recover total margin for the most recent twelve-month period ending December 31,
and applied to customer bills annually, beginning March 1st.
On April 18, 2008, Distribution Corporation filed an appeal with Supreme Court, Albany County,
seeking review of the rate order. The appeal contends that portions of the rate order should be
invalidated because they fail to meet the applicable legal standard for agency decisions. Among
the issues challenged by the Company are the reasonableness of the NYPSCs disallowance of expense
items, including health care costs, and the methodology used for calculating rate of return, which
the appeal contends understated the Companys cost of equity. The Company cannot ascertain the
outcome of the appeal at this time.
Pennsylvania Jurisdiction
On June 1, 2006, Distribution Corporation filed proposed tariff amendments with PaPUC to
increase annual revenues by $25.9 million to cover increases in the cost of service to be effective
July 30, 2006. The rate request was filed to address increased costs associated with Distribution
Corporations ongoing construction program as well as increases in operating costs, particularly
uncollectible accounts. Following standard regulatory procedure, the PaPUC issued an order on July
20, 2006 instituting a rate proceeding and suspending the proposed tariff amendments until March 2,
2007. On October 2, 2006, the parties, including Distribution Corporation, Staff of the PaPUC and
intervenors, executed an agreement (Settlement) proposing to settle all issues in the rate
proceeding. The Settlement includes an increase in annual revenues of $14.3 million to non-gas
revenues, an agreement not to file a rate case
until January 28, 2008 at the earliest and an early implementation date. The Settlement was
approved by the PaPUC at its meeting on November 30, 2006, and the new rates became effective
January 1, 2007.
-38-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
On June 8, 2006, the NTSB issued safety recommendations to Distribution Corporation, the PaPUC
and certain other parties as a result of an investigation of a natural gas explosion that occurred
on Distribution Corporations system in Dubois, Pennsylvania in August 2004. The explosion
destroyed a residence, resulting in the death of two people who lived there, and damaged a number
of other houses in the immediate vicinity. Without admitting liability, Distribution Corporation
settled all significant third-party claims against it related to the explosion.
The NTSBs safety recommendations to Distribution Corporation involved revisions to its
butt-fusion procedures for joining plastic pipe, and revisions to its procedures for qualifying
personnel who perform plastic fusions. Although not required by law to do so, Distribution
Corporation implemented those recommendations. In December 2006, the NTSB classified its
recommendations as closed after determining that Distribution Corporation took acceptable action
with respect to the recommendations.
The NTSBs recommendation to the PaPUC was to require an analysis of the integrity of
butt-fusion joints in Distribution Corporations system and replacement of those joints that are
determined to have unacceptable characteristics. Distribution Corporation has worked cooperatively
with the Staff of the PaPUC to permit the PaPUC to undertake the analysis recommended by the NTSB.
In late
November 2007, Distribution Corporation reached a tentative settlement with the Law Bureau
Prosecutory Staff of the PaPUC (the Law Bureau) regarding the explosion and the PaPUCs
subsequent investigation. The Law Bureau and Distribution Corporation jointly submitted the
terms of the settlement to the PaPUC for approval. The PaPUC issued the Settlement Agreement
for public comment with a comment period ending April 3, 2008. While no comments were filed,
the Chairman of the PaPUC recommended that, pursuant to revised provisions of the Settlement
Agreement, Distribution Corporation should, without admitting liability, make a $100,000
payment to an assistance fund for payment-troubled customers and make an additional $50,000
payment to fund safety-related activities. Distribution Corporation is reviewing the terms
of the proposed Settlement Agreement. The PaPUC adopted the Chairmans recommendation
unanimously at its public meeting held on May 1, 2008, but a final order has not been issued.
Pipeline and Storage
Supply Corporation currently does not have a rate case on file with the FERC. The rate
settlement approved by the FERC on February 9, 2007 requires Supply Corporation to make a general
rate filing to be effective December 1, 2011, and bars Supply Corporation from making a general
rate filing before then, with some exceptions specified in the settlement.
Empire currently does not have a rate case on file with the NYPSC. Among the issues resolved
in connection with Empires FERC application to build the Empire Connector are the rates and terms
of service that will become applicable to all of Empires business, effective upon Empire
constructing and placing its new facilities into service (currently expected for November 2008). At
that time, Empire will become an interstate pipeline subject to FERC regulation. The order
described in the following paragraph requires Empire to make a filing at the FERC within three
years after the in-service date justifying Empires existing recourse rates or proposing
alternative rates.
On December 21, 2006, the FERC issued an order granting a Certificate of Public Convenience
and Necessity authorizing the construction and operation of the Empire Connector and various other
related pipeline projects by other unaffiliated companies. The Empire Certificate contains various
environmental and other conditions. Empire accepted that Certificate and received additional
environmental permits from the U.S. Army Corps of Engineers and state environmental agencies.
Empire also received, from all six upstate New York counties in which it will build the Empire
Connector project, final approval of sales tax exemptions and temporary partial property tax
abatements. In June 2007, Empire signed a firm transportation service agreement with KeySpan Gas
East Corporation, under which Empire is obligated to provide transportation service that will
require construction of this project. Construction began in September 2007 and is planned to be
complete by November 1, 2008.
-39-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
Environmental Matters
The Company is subject to various federal, state and local laws and regulations relating to
the protection of the environment. The Company has established procedures for the ongoing
evaluation of its operations to identify potential environmental exposures and comply with
regulatory policies and procedures. It is the Companys 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.
The Company received, in 1998 and again in October 1999, notice that the NYDEC believes the
Company is responsible for contamination discovered at a former manufactured gas plant site located
in New York for which the Company had not been named as a PRP. In February 2007, the NYDEC
identified the Company as a PRP for the site and issued a proposed remedial action plan. The NYDEC
estimated clean-up costs under its proposed remedy to be $8.9 million if implemented. Although the
Company commented to the NYDEC that the proposed remedial action plan contained a number of
material errors, omissions and procedural defects, the NYDEC, in a March 2007 Record of Decision,
selected the remedy it had previously proposed. In July 2007, the Company appealed the NYDECs
Record of Decision to the New York State Supreme Court, Albany County. The Court dismissed the
appeal in January 2008. The Company filed a notice of appeal in February 2008. The Company
believes that a negotiated resolution with the NYDEC regarding the site remains possible.
At March 31, 2008, the Company has estimated its remaining clean-up costs related to former
manufactured gas plant sites and third party waste disposal sites (including the former
manufactured gas plant site discussed above) will be in the range of $13.6 million to $17.3
million. The minimum estimated liability of $13.6 million has been recorded on the Consolidated
Balance Sheet at March 31, 2008. The Company expects to recover its environmental clean-up costs
from a combination of rate recovery and deferred insurance proceeds that are currently recorded as
a regulatory liability on the Consolidated Balance Sheet.
The Company is currently not aware of any material additional exposure to environmental
liabilities. However, changes in environmental regulations or other factors could adversely
impact the Company.
New Accounting Pronouncements
In September 2006, the FASB issued SFAS 157. SFAS 157 provides guidance for using fair value
to measure assets and liabilities. The pronouncement serves to clarify the extent to which
companies measure assets and liabilities at fair value, the information used to measure fair value,
and the effect that fair-value measurements have on earnings. SFAS 157 is to be applied whenever
another standard requires or allows assets or liabilities to be measured at fair value. In
accordance with FASB Staff Position FAS No. 157-2, SFAS 157 is effective for financial assets and
financial liabilities that are recognized or disclosed at fair value on a recurring basis as of the
Companys first quarter of fiscal 2009. The same FASB Staff Position delays the effective date for
nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed
at fair value on a recurring basis, until the Companys first quarter of fiscal 2010. The Company
is currently evaluating the impact that the adoption of SFAS 157 will have on its consolidated
financial statements.
In September 2006, the FASB also issued SFAS 158, (an amendment of SFAS 87, SFAS 88, SFAS 106,
and SFAS 132R). SFAS 158 requires that companies recognize a net liability or asset to report the
underfunded or overfunded status of their defined benefit pension and other post-retirement benefit
plans on their balance sheets, as well as recognize changes in the funded status of a defined
benefit post-retirement plan in the year in which the changes occur through comprehensive income.
The pronouncement also specifies that a plans assets and obligations that determine its funded
status be measured as of the end of the Companys fiscal year, with limited exceptions. In
accordance with SFAS 158, the Company has recognized the funded status of its benefit plans and
implemented the disclosure
requirements of SFAS 158 at September 30, 2007. The requirement to measure the plan
assets and
-40-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
benefit obligations as of the Companys fiscal year-end date will be adopted by the Company by the
end of fiscal 2009. Currently, the Company measures its plan assets and benefit obligations using a
June 30th measurement date.
In February 2007, the FASB issued SFAS 159. SFAS 159 permits entities to choose to measure
many financial instruments and certain other items at fair value that are not otherwise required to
be measured at fair value under GAAP. A company that elects the fair value option for an eligible
item will be required to recognize in current earnings any changes in that items fair value in
reporting periods subsequent to the date of adoption. SFAS 159 is effective as of the Companys
first quarter of fiscal 2009. The Company is currently evaluating the impact, if any, that the
adoption of SFAS 159 will have on its consolidated financial statements.
In December 2007, the FASB issued SFAS 141R. SFAS 141R will significantly change the
accounting for business combinations in a number of areas including the treatment of contingent
consideration, contingencies, acquisition costs, in process research and development and
restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation
allowances and acquired income tax uncertainties in a business combination after the measurement
period will impact income tax expense. SFAS 141R is effective as of the Companys first quarter of
fiscal 2010.
In December 2007, the FASB issued SFAS 160. SFAS 160 will change the accounting and reporting
for minority interests, which will be recharacterized as noncontrolling interests (NCI) and
classified as a component of equity. This new consolidation method will significantly change the
accounting for transactions with minority interest holders. SFAS 160 is effective as of the
Companys first quarter of fiscal 2010. The Company currently does not have any NCI.
In March 2008, the FASB issued SFAS 161. SFAS 161 requires entities to provide enhanced
disclosures related to an entitys derivative instruments and hedging activities in order to enable
investors to better understand how derivative instruments and hedging activities impact an entitys
financial reporting. The additional disclosures include how and why an entity uses derivative
instruments, how derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and how derivative instruments and related hedged items affect an
entitys financial position, financial performance, and cash flows. SFAS 161 is effective as of
the Companys second quarter of fiscal 2009. The Company is currently evaluating the impact that
the adoption of SFAS 161 will have on its consolidated financial statements.
Safe Harbor for Forward-Looking Statements
The Company is including the following cautionary statement in this Form 10-Q to make
applicable and take advantage of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives, goals, projections,
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 in this report,
including, without limitation, statements regarding future prospects, plans, performance and
capital structure, anticipated capital expenditures, completion of construction projects,
projections for pension and other post-retirement benefit obligations, impacts of the adoption of
new accounting rules, and possible outcomes of litigation or regulatory proceedings, as well as
statements that are identified by the use of the words anticipates, estimates, expects,
forecasts, intends, plans, predicts, projects, believes, seeks, will, may, and
similar expressions, are forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995 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 Companys expectations, beliefs and projections are
expressed in good faith and are believed by the Company to have a reasonable basis, including,
without limitation, managements examination of historical operating trends, data contained
in the Companys records and other data
-41-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
available from third parties, but there can be no assurance that managements expectations, beliefs
or projections will result or be achieved or accomplished. In addition to other factors and matters
discussed elsewhere herein, the following are important factors that, in the view of the Company,
could cause actual results to differ materially from those discussed in the forward-looking
statements:
1. |
|
Changes in economic conditions, including economic disruptions caused by terrorist
activities, acts of war or major accidents; |
|
2. |
|
Changes in demographic patterns and weather conditions, including the occurrence of severe
weather such as hurricanes; |
|
3. |
|
Changes in the availability and/or price of natural gas or oil and the effect of such
changes on the accounting treatment of derivative financial instruments or the valuation of
the Companys natural gas and oil reserves; |
|
4. |
|
Uncertainty of oil and gas reserve estimates; |
|
5. |
|
Ability to successfully identify, drill for and produce economically viable natural gas and
oil reserves, including shortages, delays or unavailability of equipment and services
required in drilling operations; |
|
6. |
|
Significant changes from expectations in the Companys actual production levels for natural
gas or oil; |
|
7. |
|
Changes in the availability and/or price of derivative financial instruments; |
|
8. |
|
Changes in the price differentials between various types of oil; |
|
9. |
|
Inability to obtain new customers or retain existing ones; |
|
10. |
|
Significant changes in competitive factors affecting the Company; |
|
11. |
|
Changes in laws and regulations to which the Company is subject, including changes in tax,
environmental, safety and employment laws and regulations; |
|
12. |
|
Governmental/regulatory actions, initiatives and proceedings, including those involving
acquisitions, financings, rate cases (which address, among other things, allowed rates of
return, rate design and retained gas), affiliate relationships, industry structure, franchise
renewal, and environmental/safety requirements; |
|
13. |
|
Unanticipated impacts of restructuring initiatives in the natural gas and electric
industries; |
|
14. |
|
Significant changes from expectations in actual capital expenditures and operating expenses
and unanticipated project delays or changes in project costs or plans; |
|
15. |
|
The nature and projected profitability of pending and potential projects and other
investments, and the ability to obtain necessary governmental approvals and permits; |
|
16. |
|
Occurrences affecting the Companys ability to obtain funds from operations, from borrowings
under our credit lines or other credit facilities or from issuances of other short-term notes
or debt or equity securities to finance needed capital expenditures and other investments,
including any downgrades in the Companys credit ratings; |
|
17. |
|
Ability to successfully identify and finance acquisitions or other investments and ability to
operate and integrate existing and any subsequently acquired business or properties; |
|
18. |
|
Impairments under the SECs full cost ceiling test for natural gas and oil reserves; |
|
19. |
|
Significant changes in tax rates or policies or in rates of inflation or interest; |
-42-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Concl.)
20. |
|
Significant changes in the Companys relationship with its employees or contractors and the
potential adverse effects if labor disputes, grievances or shortages were to occur; |
|
21. |
|
Changes in accounting principles or the application of such principles to the Company; |
|
22. |
|
The cost and effects of legal and administrative claims against the Company; |
|
23. |
|
Changes in actuarial assumptions and the return on assets with respect to the Companys
retirement plan and post-retirement benefit plans; |
|
24. |
|
Increasing health care costs and the resulting effect on health insurance premiums and on the
obligation to provide post-retirement benefits; or |
|
25. |
|
Increasing costs of insurance, changes in coverage and the ability to obtain insurance. |
The Company disclaims any obligation to update any forward-looking statements to reflect
events or circumstances after the date hereof.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to the Market Risk Sensitive Instruments section in Item 2 MD&A.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The term disclosure controls and procedures is defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act. These rules refer to the controls and other procedures of a company that
are designed to ensure that information required to be disclosed by a company in the reports that
it files or submits under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed is accumulated and communicated to the companys management, including its
principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. The Companys management, including the Chief Executive Officer and
Principal Financial Officer, evaluated the effectiveness of the Companys disclosure controls and
procedures as of the end of the period covered by this report. Based upon that evaluation, the
Companys Chief Executive Officer and Principal Financial Officer concluded that the Companys
disclosure controls and procedures were effective as of March 31, 2008.
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
On June 8, 2006, the NTSB issued safety recommendations to Distribution Corporation, the PaPUC
and certain others as a result of its investigation of a natural gas explosion that occurred on
Distribution Corporations system in Dubois, Pennsylvania in August 2004. For a discussion of this
matter, refer to Part II, Item 7 MD&A of this report under the heading Other Matters Rate
and Regulatory Matters. Although no assurances can be given, the Company believes, based on the
information presently known, that the ultimate resolution of this matter before the PaPUC will not
be material to the consolidated financial condition, results of operations, or cash flow of the
Company.
-43-
Item 1. Legal Proceedings (Concl.)
On November 8, 2007, Distribution Corporation filed a complaint with the PaPUC requesting that
the PaPUC commence an investigation to determine whether New Mountain Vantage GP, L.L.C. (New
Mountain), and others acting in concert with it, had violated Pennsylvania law by acquiring control
of Distribution Corporation without the prior approval of the PaPUC. Distribution Corporation also
petitioned the PaPUC for an order requiring New Mountain to show cause why it should not be
required to apply for and receive a certificate of public convenience prior to acquiring control of
Distribution Corporation. On December 19, 2007, Distribution Corporation filed a petition with the
NYPSC seeking relief in a form and manner substantially similar to the order sought in
Pennsylvania. Pursuant to an agreement dated January 24, 2008 among the Company, New Mountain and
certain affiliates of New Mountain, Distribution Corporation filed motions to withdraw the
complaint and petitions filed with the PaPUC and NYPSC. The NYPSC granted the motion on January
30, 2008, and the PaPUC granted the motion on February 5, 2008.
For a discussion of various environmental and other matters, refer to Part I, Item 1 at
Note 4 Commitments and Contingencies, and Part I, Item 2 MD&A of this report under the heading
Other Matters Environmental Matters.
In addition to the matters disclosed above, the Company is involved in other litigation and
regulatory matters arising in the normal course of business. These other matters may include, for
example, negligence claims and tax, regulatory or other governmental audits, inspections,
investigations or other proceedings. These matters may involve state and federal taxes, safety,
compliance with regulations, rate base, cost of service, and purchased gas cost issues, among other
things. While these normal-course matters could have a material effect on earnings and cash flows
in the quarterly and annual period in which they are resolved, they are not expected to change
materially the Companys present liquidity position, nor to have a material adverse effect on the
financial condition of the Company.
Item 1A. Risk Factors
The risk factors in Item 1A of the Companys 2007 Form 10-K have not materially changed other
than as set forth below. The risk factor presented below supplements the risk factors in the 2007
Form 10-K and should be read in conjunction with those risk factors.
Significant shareholders or potential shareholders may attempt to effect changes at the Company or
acquire control over the Company, which could adversely affect the Companys results of operations
and financial condition.
On January 24, 2008, the Company entered into an agreement with New Mountain Vantage GP,
L.L.C. (New Mountain) and certain parties related to New Mountain, including the California
Public Employees Retirement System (collectively, Vantage), to settle a proxy contest pertaining
to the election of directors to the Companys Board of Directors at the Companys 2008 Annual
Meeting of Stockholders. Pursuant to the settlement agreement, the Company and Vantage agreed,
among other things, to a standstill whereby, until September 2009, Vantage will not, among other
things, acquire voting securities that would increase its beneficial ownership to more than 9.6
percent of the Companys voting securities; engage in any proxy solicitations or advance any
shareholder proposals; attempt to control the Companys Board of Directors, management or policies;
call a meeting of shareholders; obtain additional representation to the Board of Directors; or
effect the removal of any member of the Board of Directors. At the end of the standstill period,
Vantage may again seek to effect changes at the Company or acquire control over the Company. In
addition, other existing or potential shareholders may engage in proxy solicitations, advance
shareholder proposals or otherwise attempt to effect changes or acquire control over the Company,
either prior to or after September 2009.
Campaigns by shareholders to effect changes at publicly traded companies are sometimes led by
investors seeking to increase short-term shareholder value through actions such as changes in
strategy or management, changes to the board of directors, restructuring, increased financial
leverage, special dividends, stock repurchases or sales of assets or the entire company.
Responding to proxy contests and other actions by activist shareholders can be costly and
time-consuming, disrupting the Companys
-44-
Item 1A. Risk Factors (Concl.)
operations and diverting the attention of the Companys Board of Directors and senior management.
As a result, shareholder campaigns could adversely affect the Companys results of operations and
financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 2, 2008, the Company issued a total of 2,400 unregistered shares of Company common
stock to the eight non-employee directors of the Company then serving on the Board of Directors,
300 shares to each such director. All of these unregistered shares were issued as partial
consideration for the directors services during the quarter ended March 31, 2008, pursuant to the
Companys Retainer Policy for Non-Employee Directors. These transactions were exempt from
registration by Section 4(2) of the Securities Act of 1933 as transactions not involving a public
offering.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
of Shares that May |
|
|
|
|
|
|
|
|
|
|
as Part of Publicly |
|
|
Yet Be Purchased |
|
|
Total Number of |
|
|
|
|
|
|
Announced Share |
|
|
Under Share |
|
|
Shares |
|
|
Average Price Paid |
|
Repurchase Plans |
|
|
Repurchase Plans |
Period |
|
Purchased(a) |
|
|
per Share |
|
or Programs |
|
|
or Programs (b) |
Jan. 1 - 31, 2008 |
|
|
447,398 |
|
|
$ |
40.71 |
|
|
|
438,724 |
|
|
|
3,726,398 |
|
Feb. 1 - 29, 2008 |
|
|
42,949 |
|
|
$ |
41.95 |
|
|
|
31,694 |
|
|
|
3,694,704 |
|
Mar. 1 - 31, 2008 |
|
|
1,929,422 |
|
|
$ |
46.65 |
|
|
|
1,922,257 |
|
|
|
1,772,447 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,419,769 |
|
|
$ |
45.50 |
|
|
|
2,392,675 |
|
|
|
1,772,447 |
|
|
|
|
(a) |
|
Represents (i) shares of common stock of the Company purchased on the open market
with Company matching contributions for the accounts of participants in the Companys 401(k)
plans, (ii) shares of common stock of the Company tendered to the Company by holders of stock
options or shares of restricted stock for the payment of option exercise prices or applicable
withholding taxes, and (iii) shares of common stock of the Company purchased on the open
market pursuant to the Companys publicly announced share repurchase program. Shares
purchased other than through a publicly announced share repurchase program totaled 8,674 in
January 2008, 11,255 in February 2008 and 7,165 in March 2008 (a three month total of 27,094).
Of those shares, 23,340 were purchased for the Companys 401(k) plans and 3,754 were
purchased as a result of shares tendered to the Company by holders of stock options or shares
of restricted stock. |
|
(b) |
|
On December 8, 2005, the Companys Board of Directors authorized the repurchase of
up to eight million shares of the Companys common stock. Repurchases may be made from time
to time in the open market or through private transactions. |
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of National Fuel Gas Company was held on February 21, 2008.
At that meeting, the shareholders elected directors and appointed an independent registered public
accounting firm.
The total votes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Withheld |
|
(i |
) |
|
Election of directors to
serve for a three-year
term: |
|
|
|
|
|
|
|
|
|
|
|
|
- Robert T. Brady |
|
|
65,037,333 |
|
|
|
3,050,493 |
|
|
|
|
|
- Rolland E. Kidder |
|
|
67,367,831 |
|
|
|
719,995 |
|
|
|
|
|
- John F. Riordan |
|
|
67,319,061 |
|
|
|
768,765 |
|
|
|
|
|
- Frederic V. Salerno |
|
|
52,184,362 |
|
|
|
4,662,144 |
|
-45-
Item 4. Submission of Matters to a Vote of Security Holders (Concl.)
Other directors whose term of office continued after the meeting:
Term expiring in 2009: R. Don Cash, George L. Mazanec and Stephen E. Ewing.
Term
expiring in 2010: Philip C. Ackerman, Craig G. Matthews, Richard G. Reiten and David F. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
|
Non- Votes |
(ii) |
|
Appointment of
PricewaterhouseCoopers
LLP as independent
registered public
accounting firm |
|
|
67,479,932 |
|
|
|
328,428 |
|
|
|
279,466 |
|
|
|
|
|
On January 24, 2008, the Company and New Mountain Vantage GP, L.L.C. and its affiliates,
including the California Public Employees Retirement System, entered into an agreement to settle a
proxy contest pertaining to the election of directors to the Companys Board of Directors at the
Annual Meeting of Stockholders held on February 21, 2008. A description of the terms of the
settlement is included under the headings Background, Certain Legal Proceedings and Cost of
Solicitation in the Companys Supplement to Proxy Statement filed with the SEC on January 30,
2008, and such description is incorporated herein by reference.
Item 5. Other Information
On February 21, 2008, the Board of Directors amended the procedures by which stockholders may
recommend Board candidates for consideration by the Nominating/Corporate Governance Committee of
the Board. The Board amended the procedures, which are set forth in Exhibit B to the Companys
Corporate Governance Guidelines and available on the Companys website at www.nationalfuelgas.com,
to provide that the Committee will evaluate candidates proposed by stockholders owning at least
five percent (5%) of the Companys outstanding common stock. The Board of Directors also amended
the procedures to provide that the deadline for the Companys receipt of recommendations is 120
days prior to the anniversary date of the Companys proxy statement released to stockholders in
connection with the previous years annual meeting of stockholders.
Item 6. Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
|
National Fuel Gas Company By-Laws as amended February 21, 2008 (incorporated
herein by reference to Exhibit 3.1, Form 8-K/A dated February 29, 2008). |
|
|
|
|
|
Settlement Agreement dated January 24, 2008 among National Fuel Gas Company,
New Mountain Vantage GP, L.L.C. (Vantage) and certain of Vantages affiliates
(incorporated herein by reference to Exhibit 10.1, Form 8-K dated January 24,
2008). |
|
|
|
10.1
|
|
Description of long-term performance incentives under National
Fuel Gas Company Performance Incentive Program. |
|
|
|
10.2
|
|
Form of Stock Appreciation Right Award Notice under National Fuel
Gas Company 1997 Award and Option Plan. |
-46-
Item 6. Exhibits (Concl.)
|
|
|
10.3
|
|
Administrative Rules of the Compensation Committee of the Board
of Directors of National Fuel Gas Company, as amended and restated effective
February 20, 2008. |
|
|
|
10.4 |
|
National Fuel Gas Company 1997
Award and Option Plan, as amended and restated as of July 23, 2007. |
|
|
|
10.5 |
|
Resolutions adopted by the National
Fuel Gas Company Board of Directors on February 21, 2008
regarding director stock ownership guidelines. |
|
|
|
12
|
|
Statements regarding Computation of Ratios: |
|
|
Ratio of Earnings to Fixed Charges for the Twelve Months Ended March
31, 2008 and the Fiscal Years Ended September 30, 2004 through 2007. |
|
|
|
31.1
|
|
Written statements of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934. |
|
|
|
31.2
|
|
Written statements of Principal Financial Officer pursuant to
Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934. |
|
|
|
32
|
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. |
|
|
|
99
|
|
National Fuel Gas Company Consolidated Statement of Income for
the Twelve Months Ended March 31, 2008 and 2007. |
-47-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
NATIONAL FUEL GAS COMPANY
|
|
|
|
|
|
|
|
|
|
(Registrant) |
|
|
|
|
|
|
|
|
|
|
|
/s/ R. J. Tanski
|
|
|
R. J. Tanski |
|
|
Treasurer and Principal Financial Officer |
|
|
|
|
|
|
/s/ K. M. Camiolo
|
|
|
K. M. Camiolo |
|
|
Controller and Principal Accounting Officer |
|
|
Date: May 2, 2008
-48-