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 June 30, 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
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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6363 Main Street
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 July 31, 2008: 81,475,950 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. |
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. |
-2-
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GLOSSARY OF TERMS (Cont.) |
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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 |
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 |
-3-
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GLOSSARY OF TERMS (Concl.) |
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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. |
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. |
VEBA
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Voluntary Employees Beneficiary Association |
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
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Page |
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6 - 7 |
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8 - 9 |
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10 |
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11 |
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12 - 22 |
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23 - 44 |
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44 |
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44 - 45 |
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45 |
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45 |
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45 - 46 |
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Item 3. Defaults Upon Senior Securities |
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§ |
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Item 4. Submission of Matters to a Vote of Security Holders |
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§ |
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Item 5. Other Information |
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§ |
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46 - 47 |
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48 |
EX-4.1 |
EX-12 |
EX-31.1 |
EX-31.2 |
EX-32 |
EX-99 |
§ |
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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 |
|
|
June 30, |
(Thousands of Dollars, Except Per Common Share Amounts) |
|
2008 |
|
2007 |
|
|
|
INCOME |
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
548,382 |
|
|
$ |
448,779 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
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|
Purchased Gas |
|
|
272,893 |
|
|
|
219,075 |
|
Operation and Maintenance |
|
|
102,602 |
|
|
|
90,390 |
|
Property, Franchise and Other Taxes |
|
|
19,135 |
|
|
|
17,622 |
|
Depreciation, Depletion and Amortization |
|
|
42,804 |
|
|
|
37,759 |
|
|
|
|
|
437,434 |
|
|
|
364,846 |
|
|
Operating Income |
|
|
110,948 |
|
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|
83,933 |
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
Income from Unconsolidated Subsidiaries |
|
|
1,561 |
|
|
|
926 |
|
Interest Income |
|
|
3,086 |
|
|
|
1,377 |
|
Other Income |
|
|
1,649 |
|
|
|
787 |
|
Interest Expense on Long-Term Debt |
|
|
(19,468 |
) |
|
|
(18,226 |
) |
Other Interest Expense |
|
|
(1,199 |
) |
|
|
(1,512 |
) |
|
Income from Continuing Operations Before Income Taxes |
|
|
96,577 |
|
|
|
67,285 |
|
Income Tax Expense |
|
|
36,722 |
|
|
|
26,073 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
59,855 |
|
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|
41,212 |
|
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|
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|
|
|
|
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|
Income from Discontinued Operations, Net of Tax |
|
|
|
|
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|
5,586 |
|
|
|
|
|
|
|
|
|
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|
Net Income Available for Common Stock |
|
|
59,855 |
|
|
|
46,798 |
|
|
|
|
|
|
|
|
|
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|
EARNINGS REINVESTED IN THE BUSINESS |
|
|
|
|
|
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|
Balance at April 1 |
|
|
1,008,084 |
|
|
|
834,902 |
|
|
|
|
|
1,067,939 |
|
|
|
881,700 |
|
Share Repurchases |
|
|
(17,083 |
) |
|
|
|
|
Dividends on Common Stock
(2008 - $0.325 per share; 2007 - $0.31 per share) |
|
|
(26,479 |
) |
|
|
(25,897 |
) |
|
Balance at June 30 |
|
$ |
1,024,377 |
|
|
$ |
855,803 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share: |
|
|
|
|
|
|
|
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Basic: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
0.74 |
|
|
$ |
0.49 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.07 |
|
|
Net Income Available for Common Stock |
|
$ |
0.74 |
|
|
$ |
0.56 |
|
|
Diluted: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
0.72 |
|
|
$ |
0.48 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.07 |
|
|
Net Income Available for Common Stock |
|
$ |
0.72 |
|
|
$ |
0.55 |
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
Used in Basic Calculation |
|
|
81,342,788 |
|
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|
83,483,718 |
|
|
Used in Diluted Calculation |
|
|
83,712,193 |
|
|
|
85,668,055 |
|
|
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)
|
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Nine Months Ended |
|
|
June 30, |
(Thousands of Dollars, Except Per Common Share Amounts) |
|
2008 |
|
2007 |
|
|
|
INCOME |
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
2,002,503 |
|
|
$ |
1,737,537 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
Purchased Gas |
|
|
1,082,340 |
|
|
|
938,918 |
|
Operation and Maintenance |
|
|
325,642 |
|
|
|
305,502 |
|
Property, Franchise and Other Taxes |
|
|
58,206 |
|
|
|
54,562 |
|
Depreciation, Depletion and Amortization |
|
|
129,337 |
|
|
|
115,561 |
|
|
|
|
|
1,595,525 |
|
|
|
1,414,543 |
|
|
Operating Income |
|
|
406,978 |
|
|
|
322,994 |
|
Other Income (Expense): |
|
|
|
|
|
|
|
|
Income from Unconsolidated Subsidiaries |
|
|
4,866 |
|
|
|
3,099 |
|
Interest Income |
|
|
8,356 |
|
|
|
3,098 |
|
Other Income |
|
|
4,982 |
|
|
|
4,028 |
|
Interest Expense on Long-Term Debt |
|
|
(52,045 |
) |
|
|
(52,158 |
) |
Other Interest Expense |
|
|
(4,209 |
) |
|
|
(4,877 |
) |
|
Income from Continuing Operations Before Income Taxes |
|
|
368,928 |
|
|
|
276,184 |
|
Income Tax Expense |
|
|
143,465 |
|
|
|
108,804 |
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
225,463 |
|
|
|
167,380 |
|
|
|
|
|
|
|
|
|
|
|
Income from Discontinued Operations, Net of Tax |
|
|
|
|
|
|
12,385 |
|
|
|
|
|
|
|
|
|
|
|
Net Income Available for Common Stock |
|
|
225,463 |
|
|
|
179,765 |
|
|
|
|
|
|
|
|
|
|
|
EARNINGS REINVESTED IN THE BUSINESS |
|
|
|
|
|
|
|
|
Balance at October 1 |
|
|
983,776 |
|
|
|
786,013 |
|
|
|
|
|
1,209,239 |
|
|
|
965,778 |
|
Share Repurchases |
|
|
(106,647 |
) |
|
|
(34,351 |
) |
Cumulative Effect of the Adoption of FIN 48 |
|
|
(406 |
) |
|
|
|
|
Dividends on Common Stock
(2008 - $0.945 per share; 2007 - $0.91 per share) |
|
|
(77,809 |
) |
|
|
(75,624 |
) |
|
Balance at June 30 |
|
$ |
1,024,377 |
|
|
$ |
855,803 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share: |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
2.72 |
|
|
$ |
2.02 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.15 |
|
|
Net Income Available for Common Stock |
|
$ |
2.72 |
|
|
$ |
2.17 |
|
|
Diluted: |
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
$ |
2.65 |
|
|
$ |
1.96 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
0.15 |
|
|
Net Income Available for Common Stock |
|
$ |
2.65 |
|
|
$ |
2.11 |
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
Used in Basic Calculation |
|
|
82,789,748 |
|
|
|
83,018,583 |
|
|
Used in Diluted Calculation |
|
|
85,000,381 |
|
|
|
85,192,777 |
|
|
See Notes to Condensed Consolidated Financial Statements
-7-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
September 30, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
$ |
4,730,708 |
|
|
$ |
4,461,586 |
|
Less Accumulated Depreciation, Depletion
and Amortization |
|
|
1,686,616 |
|
|
|
1,583,181 |
|
|
|
|
|
3,044,092 |
|
|
|
2,878,405 |
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and Temporary Cash Investments |
|
|
259,198 |
|
|
|
124,806 |
|
Cash Held in Escrow |
|
|
|
|
|
|
61,964 |
|
Hedging Collateral Deposits |
|
|
30,778 |
|
|
|
4,066 |
|
Receivables Net of Allowance for Uncollectible Accounts of
$35,588 and $28,654, Respectively |
|
|
302,522 |
|
|
|
172,380 |
|
Unbilled Utility Revenue |
|
|
19,580 |
|
|
|
20,682 |
|
Gas Stored Underground |
|
|
53,735 |
|
|
|
66,195 |
|
Materials and Supplies at average cost |
|
|
33,310 |
|
|
|
35,669 |
|
Unrecovered Purchased Gas Costs |
|
|
5,680 |
|
|
|
14,769 |
|
Other Current Assets |
|
|
31,767 |
|
|
|
45,057 |
|
Deferred Income Taxes |
|
|
84,297 |
|
|
|
8,550 |
|
|
|
|
|
820,867 |
|
|
|
554,138 |
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
Recoverable Future Taxes |
|
|
83,453 |
|
|
|
83,954 |
|
Unamortized Debt Expense |
|
|
14,501 |
|
|
|
12,070 |
|
Other Regulatory Assets |
|
|
129,640 |
|
|
|
137,577 |
|
Deferred Charges |
|
|
5,235 |
|
|
|
5,545 |
|
Other Investments |
|
|
82,474 |
|
|
|
85,902 |
|
Investments in Unconsolidated Subsidiaries |
|
|
16,916 |
|
|
|
18,256 |
|
Goodwill |
|
|
5,476 |
|
|
|
5,476 |
|
Intangible Assets |
|
|
26,839 |
|
|
|
28,836 |
|
Prepaid Pension and Post-Retirement Benefit Costs |
|
|
56,926 |
|
|
|
61,006 |
|
Fair Value of Derivative Financial Instruments |
|
|
|
|
|
|
9,188 |
|
Other |
|
|
7,442 |
|
|
|
8,059 |
|
|
|
|
|
428,902 |
|
|
|
455,869 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
4,293,861 |
|
|
$ |
3,888,412 |
|
|
See Notes to Condensed Consolidated Financial Statements
-8-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
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 81,473,550 Shares and
83,461,308 Shares, Respectively |
|
$ |
81,474 |
|
|
$ |
83,461 |
|
Paid in Capital |
|
|
583,693 |
|
|
|
569,085 |
|
Earnings Reinvested in the Business |
|
|
1,024,377 |
|
|
|
983,776 |
|
|
Total Common Shareholder Equity Before
Items of Other Comprehensive Loss |
|
|
1,689,544 |
|
|
|
1,636,322 |
|
Accumulated Other Comprehensive Loss |
|
|
(105,872 |
) |
|
|
(6,203 |
) |
|
Total Comprehensive Shareholders Equity |
|
|
1,583,672 |
|
|
|
1,630,119 |
|
Long-Term Debt, Net of Current Portion |
|
|
999,000 |
|
|
|
799,000 |
|
|
Total Capitalization |
|
|
2,582,672 |
|
|
|
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 |
|
|
162,838 |
|
|
|
109,757 |
|
Amounts Payable to Customers |
|
|
12,864 |
|
|
|
10,409 |
|
Dividends Payable |
|
|
26,479 |
|
|
|
25,873 |
|
Interest Payable on Long-Term Debt |
|
|
15,774 |
|
|
|
18,158 |
|
Customer Advances |
|
|
|
|
|
|
22,863 |
|
Other Accruals and Current Liabilities |
|
|
136,458 |
|
|
|
36,062 |
|
Fair Value of Derivative Financial Instruments |
|
|
180,255 |
|
|
|
16,200 |
|
|
|
|
|
634,668 |
|
|
|
439,346 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits |
|
|
|
|
|
|
|
|
Deferred Income Taxes |
|
|
605,818 |
|
|
|
575,356 |
|
Taxes Refundable to Customers |
|
|
14,037 |
|
|
|
14,026 |
|
Unamortized Investment Tax Credit |
|
|
4,866 |
|
|
|
5,392 |
|
Cost of Removal Regulatory Liability |
|
|
101,251 |
|
|
|
91,226 |
|
Other Regulatory Liabilities |
|
|
95,846 |
|
|
|
76,659 |
|
Post-Retirement Liabilities |
|
|
60,152 |
|
|
|
70,555 |
|
Asset Retirement Obligations |
|
|
74,653 |
|
|
|
75,939 |
|
Other Deferred Credits |
|
|
119,898 |
|
|
|
110,794 |
|
|
|
|
|
1,076,521 |
|
|
|
1,019,947 |
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities |
|
$ |
4,293,861 |
|
|
$ |
3,888,412 |
|
|
See Notes to Condensed Consolidated Financial Statements
-9-
Item 1. Financial Statements (Cont.)
National Fuel Gas Company
Consolidated Statement of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
June 30, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net Income Available for Common Stock |
|
$ |
225,463 |
|
|
$ |
179,765 |
|
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities: |
|
|
|
|
|
|
|
|
Depreciation, Depletion and Amortization |
|
|
129,337 |
|
|
|
125,986 |
|
Deferred Income Taxes |
|
|
27,603 |
|
|
|
27,107 |
|
Income from
Unconsolidated Subsidiaries, Net of Cash Distributions |
|
|
1,340 |
|
|
|
(1,486 |
) |
Excess Tax Benefits Associated with Stock-Based
Compensation Awards |
|
|
(16,275 |
) |
|
|
(13,689 |
) |
Other |
|
|
(1,120 |
) |
|
|
4,722 |
|
Change in: |
|
|
|
|
|
|
|
|
Hedging Collateral Deposits |
|
|
(26,712 |
) |
|
|
16,276 |
|
Receivables and Unbilled Utility Revenue |
|
|
(129,102 |
) |
|
|
(43,733 |
) |
Gas Stored Underground and Materials and Supplies |
|
|
14,819 |
|
|
|
34,725 |
|
Unrecovered Purchased Gas Costs |
|
|
9,089 |
|
|
|
12,970 |
|
Prepayments and Other Current Assets |
|
|
17,370 |
|
|
|
30,685 |
|
Accounts Payable |
|
|
53,081 |
|
|
|
(12,560 |
) |
Amounts Payable to Customers |
|
|
2,455 |
|
|
|
(4,738 |
) |
Customer Advances |
|
|
(22,863 |
) |
|
|
(29,417 |
) |
Other Accruals and Current Liabilities |
|
|
94,031 |
|
|
|
77,842 |
|
Other Assets |
|
|
19,178 |
|
|
|
918 |
|
Other Liabilities |
|
|
17,373 |
|
|
|
(821 |
) |
|
Net Cash Provided by Operating Activities |
|
|
415,067 |
|
|
|
404,552 |
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital Expenditures |
|
|
(264,728 |
) |
|
|
(206,509 |
) |
Investment in Partnership |
|
|
|
|
|
|
(3,300 |
) |
Cash Held in Escrow |
|
|
58,397 |
|
|
|
|
|
Net Proceeds from Sale of Oil and Gas Producing Properties |
|
|
5,675 |
|
|
|
5,137 |
|
Other |
|
|
(3,414 |
) |
|
|
(1,072 |
) |
|
Net Cash Used in Investing Activities |
|
|
(204,070 |
) |
|
|
(205,744 |
) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Excess Tax Benefits Associated with Stock-Based
Compensation Awards |
|
|
16,275 |
|
|
|
13,689 |
|
Shares Repurchased under Repurchase Plan |
|
|
(129,592 |
) |
|
|
(43,344 |
) |
Net Proceeds from Issuance of Long-Term Debt |
|
|
296,655 |
|
|
|
|
|
Reduction of Long-Term Debt |
|
|
(200,024 |
) |
|
|
(119,550 |
) |
Dividends Paid on Common Stock |
|
|
(77,204 |
) |
|
|
(74,748 |
) |
Net Proceeds from Issuance of Common Stock |
|
|
17,285 |
|
|
|
16,819 |
|
|
Net Cash Used in Financing Activities |
|
|
(76,605 |
) |
|
|
(207,134 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rates on Cash |
|
|
|
|
|
|
1,245 |
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Temporary Cash
Investments |
|
|
134,392 |
|
|
|
(7,081 |
) |
|
|
|
|
|
|
|
|
|
Cash and Temporary Cash Investments at October 1 |
|
|
124,806 |
|
|
|
69,611 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Temporary Cash Investments at June 30 |
|
$ |
259,198 |
|
|
$ |
62,530 |
|
|
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 |
|
|
June 30, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
Net Income Available for Common Stock |
|
$ |
59,855 |
|
|
$ |
46,798 |
|
|
Other Comprehensive Income (Loss), Before Tax: |
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
|
2 |
|
|
|
10,029 |
|
Unrealized Gain (Loss) on Securities Available for Sale
Arising During the Period |
|
|
(1,603 |
) |
|
|
1,570 |
|
Unrealized Gain (Loss) on Derivative Financial Instruments
Arising During the Period |
|
|
(139,684 |
) |
|
|
13,343 |
|
Reclassification Adjustment for Realized Losses on
Derivative Financial Instruments in Net Income |
|
|
33,082 |
|
|
|
5,581 |
|
|
Other Comprehensive Income (Loss), Before Tax |
|
|
(108,203 |
) |
|
|
30,523 |
|
|
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss)
On Securities Available for Sale Arising During the Period |
|
|
(608 |
) |
|
|
562 |
|
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss)
On Derivative Financial Instruments Arising During the Period |
|
|
(57,136 |
) |
|
|
5,433 |
|
Reclassification Adjustment for Income Tax Benefit on
Realized Losses on Derivative Financial Instruments
In Net Income |
|
|
13,546 |
|
|
|
2,277 |
|
|
Income Taxes Net |
|
|
(44,198 |
) |
|
|
8,272 |
|
|
Other Comprehensive Income (Loss) |
|
|
(64,005 |
) |
|
|
22,251 |
|
|
Comprehensive Income (Loss) |
|
$ |
(4,150 |
) |
|
$ |
69,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
June 30, |
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
|
|
Net Income Available for Common Stock |
|
$ |
225,463 |
|
|
$ |
179,765 |
|
|
Other Comprehensive Income (Loss), Before Tax: |
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
|
(72 |
) |
|
|
6,384 |
|
Minimum Pension Liability Adjustment |
|
|
|
|
|
|
(320 |
) |
Unrealized Gain (Loss) on Securities Available for Sale
Arising During the Period |
|
|
(4,817 |
) |
|
|
2,844 |
|
Unrealized Gain (Loss) on Derivative Financial Instruments
Arising During the Period |
|
|
(208,256 |
) |
|
|
2,388 |
|
Reclassification Adjustment for Realized Losses on
Derivative Financial Instruments in Net Income |
|
|
45,242 |
|
|
|
7,799 |
|
|
Other Comprehensive Income (Loss), Before Tax |
|
|
(167,903 |
) |
|
|
19,095 |
|
|
Income Tax Expense (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 |
|
|
(1,429 |
) |
|
|
1,046 |
|
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss)
On Derivative Financial Instruments Arising During the Period |
|
|
(85,300 |
) |
|
|
669 |
|
Reclassification Adjustment for Income Tax Benefit on
Realized Losses on Derivative Financial Instruments
In Net Income |
|
|
18,495 |
|
|
|
3,933 |
|
|
Income Taxes Net |
|
|
(68,234 |
) |
|
|
5,527 |
|
|
Other Comprehensive Income (Loss) |
|
|
(99,669 |
) |
|
|
13,568 |
|
|
Comprehensive Income |
|
$ |
125,794 |
|
|
$ |
193,333 |
|
|
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 nine months ended June 30, 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. At June 30, 2008, the Company accrued $19.9 million
of capital expenditures related to the construction of the Empire Connector project. This amount
has been excluded from the Consolidated Statement of Cash Flows at June 30, 2008 since it
represents a non-cash investing activity at that date.
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 nine months ended June 30, 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 $77.9 million at June 30, 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 June 30, 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 |
|
|
(155 |
) |
|
|
(83 |
) |
Net Unrealized Loss on Derivative
Financial Instruments |
|
|
(100,095 |
) |
|
|
(3,886 |
) |
Net Unrealized Gain on Securities
Available for Sale |
|
|
6,860 |
|
|
|
10,248 |
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss |
|
$ |
(105,872 |
) |
|
$ |
(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 nine months ended June 30,
2008, there were no stock options excluded as being antidilutive. There were 6,593 and 2,190
stock-settled SARs excluded as being antidilutive for the quarter and nine months ended June 30,
2008, respectively. For the quarter and nine months ended June 30, 2007, there were no stock
options excluded as being antidilutive. There were 1,817 and 271 stock-settled SARs excluded as
being antidilutive for the quarter and nine months ended June 30, 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 ended June 30, 2008, the Company granted 30,000
performance-based stock-settled SARs having a weighted average exercise price of $58.99 per share.
For the nine months ended June 30, 2008, the Company granted 321,000 performance-based
stock-settled SARs having a weighted average exercise price of $48.46 per share. The weighted
average grant date fair value of these stock-settled SARs was $12.23 per share and $9.06 per share
for the quarter and nine months ended June 30, 2008, respectively. 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 nine months ended June 30, 2008 vest and
become exercisable annually in 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 stock-settled SARs
-13-
Item 1. Financial Statements (Cont.)
granted during the quarter and nine months ended June 30, 2008 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 nine months ended June 30, 2008.
The Company granted 25,000 restricted share awards (non-vested stock as defined in SFAS 123R)
during the nine months ended June 30, 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 June 30, 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.
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
-14-
Item 1. Financial Statements (Cont.)
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 disclosures in its notes to 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):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Current Income Taxes |
|
|
|
|
|
|
|
|
Federal |
|
$ |
92,384 |
|
|
$ |
65,629 |
|
State |
|
|
23,388 |
|
|
|
19,259 |
|
Foreign |
|
|
90 |
|
|
|
22 |
|
|
|
Deferred Income Taxes |
|
|
|
|
|
|
|
|
Federal |
|
|
18,906 |
|
|
|
18,221 |
|
State |
|
|
8,697 |
|
|
|
5,270 |
|
Foreign |
|
|
|
|
|
|
3,616 |
|
|
|
|
|
|
|
143,465 |
|
|
|
112,017 |
|
Deferred Investment Tax Credit |
|
|
(523 |
) |
|
|
(523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
142,942 |
|
|
$ |
111,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented as Follows: |
|
|
|
|
|
|
|
|
Other Income |
|
$ |
(523 |
) |
|
$ |
(523 |
) |
Income Tax Expense Continuing Operations |
|
|
143,465 |
|
|
|
108,804 |
|
Income from Discontinued Operations |
|
|
|
|
|
|
3,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
142,942 |
|
|
$ |
111,494 |
|
|
|
|
The U.S. and foreign components of income before income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
|
|
|
U.S. |
|
$ |
368,191 |
|
|
$ |
275,196 |
|
Foreign |
|
|
214 |
|
|
|
16,063 |
|
|
|
|
|
|
$ |
368,405 |
|
|
$ |
291,259 |
|
|
|
|
-15-
Item 1. Financial Statements (Cont.)
Total income taxes as reported differ from the amounts that were computed by applying the
federal income tax rate to income before income taxes. The following is a reconciliation of this
difference (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
|
|
|
Income Tax Expense, Computed at
Statutory Rate of 35% |
|
$ |
128,942 |
|
|
$ |
101,941 |
|
|
|
|
|
|
|
|
|
|
Increase (Reduction) in Taxes Resulting From: |
|
|
|
|
|
|
|
|
State Income Taxes |
|
|
20,855 |
|
|
|
15,944 |
|
Miscellaneous |
|
|
(6,855 |
) |
|
|
(6,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Taxes |
|
$ |
142,942 |
|
|
$ |
111,494 |
|
|
|
|
Significant components of the Companys deferred tax liabilities and assets are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2008 |
|
At September 30, 2007 |
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Property, Plant and Equipment |
|
$ |
669,079 |
|
|
$ |
612,648 |
|
Other |
|
|
38,451 |
|
|
|
61,616 |
|
|
|
|
Total Deferred Tax Liabilities |
|
|
707,530 |
|
|
|
674,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments and
Securities |
|
|
(65,192 |
) |
|
|
|
|
Other |
|
|
(120,817 |
) |
|
|
(107,458 |
) |
|
|
|
Total Deferred Tax Assets |
|
|
(186,009 |
) |
|
|
(107,458 |
) |
|
|
|
Total Net Deferred Income Taxes |
|
$ |
521,521 |
|
|
$ |
566,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Presented as Follows: |
|
|
|
|
|
|
|
|
Net Deferred Tax Asset Current |
|
$ |
(84,297 |
) |
|
$ |
(8,550 |
) |
Net Deferred Tax Liability Non-Current |
|
|
605,818 |
|
|
|
575,356 |
|
|
|
|
Total Net Deferred Income Taxes |
|
$ |
521,521 |
|
|
$ |
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 June 30, 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 $83.5 million and $84.0
million at June 30, 2008 and September 30, 2007, respectively.
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 has been no change in the balance
of unrecognized tax benefits through June 30, 2008 and the Company does not anticipate any
significant change in this liability over the next twelve months.
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 through June 30, 2008 and has not accrued any penalties.
-16-
Item 1. Financial Statements (Cont.)
The Company files U.S. federal and various state income tax returns. The Internal Revenue
Service (IRS) is currently conducting an examination of the Company for fiscal 2008 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. The IRS has issued a Full Acceptance Letter for the fiscal 2007 CAP
audit, and is in the process of completing the post-filing review of this return. While the
federal statute of limitations remains open for fiscal 2005 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 nine months ended June 30, 2008, the Company issued 884,644 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
7,200 original issue shares of common stock to the eight non-employee directors of the Company who
receive compensation under the Companys Retainer Policy for Non-Employee Directors, as partial
consideration for the directors services during the nine months ended June 30, 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 nine months
ended June 30, 2008, 72,205 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 nine months ended June 30, 2008, the Company repurchased 2,832,397 shares
for $129.6 million under this program, funded with cash provided by operating activities. Since
the repurchase program was implemented, the Company has repurchased 6,667,275 shares for $262.8
million.
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 per full share. 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, including, among other things, certain
derivative or synthetic arrangements having characteristics of a long position in the Companys
common stock, (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, on July 11, 2008, entered into an amended and restated
Rights Agreement, reflecting the changes described in this paragraph, with the Bank of New York, as
Rights Agent, and on July 15, 2008, filed with the SEC copies of that agreement as exhibits to
Forms 8-A and Form 8-K.
-17-
Item 1. Financial Statements (Cont.)
Long-Term Debt. 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 used $200.0 million of the proceeds
to refund $200.0 million of 6.303% medium-term notes that subsequently matured on May 27, 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. In July 2008, the Company withdrew its appeal and agreed to the
terms of an Order on Consent issued by the NYDEC. Pursuant to the order, the Company will
remediate the site consistent with the remedy selected in the NYDECs Record of Decision. The
Company will also reimburse the NYDEC in the amount of approximately $1.5 million for costs
incurred in connection with the site from 1998 through May 30, 2007. The Company acknowledged that
additional charges related to the site will be billed to the Company at a later date, including
costs incurred by the NYDEC after May 30, 2007 and any costs incurred by the New York Department of
Health. The Company has not received any estimates of such additional costs. The Company has
recorded an estimated minimum liability of $10.4 million associated with this site.
At June 30, 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 $13.5 million to $17.2
million. The minimum estimated liability of $13.5 million has been recorded on the Consolidated
Balance Sheet at June 30, 2008, including the $10.4 million discussed above. 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 issues, among other things. While these normal-course matters
could have a material effect on earnings
-18-
Item 1. Financial Statements (Cont.)
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 |
|
Nine Months |
|
|
Ended |
|
Ended |
|
|
June 30, |
|
June 30, |
(Thousands) |
|
2007 |
|
2007 |
|
|
|
Operating Revenues |
|
$ |
14,366 |
|
|
$ |
42,004 |
|
Operating Expenses |
|
|
9,915 |
|
|
|
27,205 |
|
|
|
|
Operating Income |
|
|
4,451 |
|
|
|
14,799 |
|
Interest Income |
|
|
272 |
|
|
|
799 |
|
|
|
|
Income before Income Taxes |
|
|
4,723 |
|
|
|
15,598 |
|
Income Tax Expense (Benefit) |
|
|
(863 |
) |
|
|
3,213 |
|
|
|
|
Income from Discontinued Operations |
|
$ |
5,586 |
|
|
$ |
12,385 |
|
|
|
|
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.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline |
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
|
and |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
|
Intersegment |
|
|
Total |
|
Quarter Ended June 30, 2008 (Thousands) |
|
Utility |
|
Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
|
All Other |
|
|
Eliminations |
|
|
Consolidated |
|
|
Revenue from External
Customers |
|
$ |
217,339 |
|
|
$ |
32,054 |
|
|
$ |
126,154 |
|
|
$ |
162,129 |
|
|
$ |
10,114 |
|
|
$ |
547,790 |
|
|
$ |
395 |
|
|
$ |
197 |
|
|
$ |
548,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues |
|
$ |
3,154 |
|
|
$ |
20,131 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
23,285 |
|
|
$ |
4,439 |
|
|
$ |
(27,724 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
7,848 |
|
|
$ |
12,534 |
|
|
$ |
39,791 |
|
|
$ |
478 |
|
|
$ |
(2,066 |
) |
|
$ |
58,585 |
|
|
$ |
1,106 |
|
|
$ |
164 |
|
|
$ |
59,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline |
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
and |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
Total |
Nine Months Ended June 30, 2008 (Thousands) |
|
Utility |
|
Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Consolidated |
|
Revenue from External
Customers |
|
$ |
1,067,194 |
|
|
$ |
101,871 |
|
|
$ |
348,829 |
|
|
$ |
440,111 |
|
|
$ |
40,438 |
|
|
$ |
1,998,443 |
|
|
$ |
3,564 |
|
|
$ |
496 |
|
|
$ |
2,002,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues |
|
$ |
13,567 |
|
|
$ |
61,340 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
74,907 |
|
|
$ |
10,251 |
|
|
$ |
(85,158 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
62,228 |
|
|
$ |
40,931 |
|
|
$ |
108,385 |
|
|
$ |
7,079 |
|
|
$ |
2,214 |
|
|
$ |
220,837 |
|
|
$ |
5,137 |
|
|
$ |
(511 |
) |
|
$ |
225,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline |
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
and |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
Total |
|
Quarter Ended June 30, 2007 (Thousands) |
|
Utility |
|
Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Consolidated |
|
|
Revenue from External
Customers |
|
$ |
210,604 |
|
|
$ |
30,128 |
|
|
$ |
80,028 |
|
|
$ |
113,380 |
|
|
$ |
13,131 |
|
|
$ |
447,271 |
|
|
$ |
1,308 |
|
|
$ |
200 |
|
|
$ |
448,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues |
|
$ |
2,586 |
|
|
$ |
20,332 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
22,918 |
|
|
$ |
2,253 |
|
|
$ |
(25,171 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from
Continuing Operations |
|
$ |
3,705 |
|
|
$ |
15,451 |
|
|
$ |
18,849 |
|
|
$ |
1,233 |
|
|
$ |
(364 |
) |
|
$ |
38,874 |
|
|
$ |
458 |
|
|
$ |
1,880 |
|
|
$ |
41,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline |
|
Exploration |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
Corporate and |
|
|
|
|
|
|
|
|
and |
|
and |
|
Energy |
|
|
|
|
|
Reportable |
|
|
|
|
|
Intersegment |
|
Total |
Nine Months Ended June 30, 2007 (Thousands) |
|
Utility |
|
Storage |
|
Production |
|
Marketing |
|
Timber |
|
Segments |
|
All Other |
|
Eliminations |
|
Consolidated |
|
Revenue from External
Customers |
|
$ |
1,000,860 |
|
|
$ |
94,889 |
|
|
$ |
233,708 |
|
|
$ |
360,036 |
|
|
$ |
43,079 |
|
|
$ |
1,732,572 |
|
|
$ |
4,387 |
|
|
$ |
578 |
|
|
$ |
1,737,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment Revenues |
|
$ |
12,556 |
|
|
$ |
61,585 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
74,141 |
|
|
$ |
6,540 |
|
|
$ |
(80,681 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
Continuing Operations |
|
$ |
54,322 |
|
|
$ |
43,075 |
|
|
$ |
52,573 |
|
|
$ |
8,431 |
|
|
$ |
3,053 |
|
|
$ |
161,454 |
|
|
$ |
1,911 |
|
|
$ |
4,015 |
|
|
$ |
167,380 |
|
-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 June 30, 2008 |
|
2007 |
|
|
Gross |
|
|
|
|
|
Net |
|
Net |
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
|
|
|
|
Intangible Assets Subject to Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Transportation Contracts |
|
$ |
8,580 |
|
|
$ |
(5,791 |
) |
|
$ |
2,789 |
|
|
$ |
3,591 |
|
Long-Term Gas Purchase Contracts |
|
|
31,864 |
|
|
|
(7,814 |
) |
|
|
24,050 |
|
|
|
25,245 |
|
|
|
|
|
|
|
|
$ |
40,444 |
|
|
$ |
(13,605 |
) |
|
$ |
26,839 |
|
|
$ |
28,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amortization Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
$ |
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
$ |
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2008 |
|
$ |
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2007 |
|
$ |
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount of intangible assets subject to amortization at June 30, 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 $0.3 million for the remainder of
2008 and $0.5 million 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 $0.4 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plan |
|
Other Post-Retirement Benefits |
|
Three months ended June 30, |
|
2008 |
|
2007 |
|
2008 |
|
|
2007 |
|
Service Cost |
|
$ |
3,149 |
|
|
$ |
3,225 |
|
|
$ |
1,276 |
|
|
$ |
1,403 |
|
Interest Cost |
|
|
11,237 |
|
|
|
11,087 |
|
|
|
6,770 |
|
|
|
6,800 |
|
Expected Return on Plan Assets |
|
|
(13,750 |
) |
|
|
(12,809 |
) |
|
|
(8,428 |
) |
|
|
(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) |
|
|
783 |
|
|
|
(344 |
) |
|
|
4,354 |
|
|
|
3,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
4,387 |
|
|
$ |
4,761 |
|
|
$ |
6,487 |
|
|
$ |
8,681 |
|
|
|
|
|
|
-21-
Item 1. Financial Statements (Cont.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plan |
|
Other Post-Retirement Benefits |
|
Nine months ended June 30, |
|
2008 |
|
2007 |
|
2008 |
|
|
2007 |
|
Service Cost |
|
$ |
9,448 |
|
|
$ |
9,674 |
|
|
$ |
3,828 |
|
|
$ |
4,210 |
|
Interest Cost |
|
|
33,712 |
|
|
|
33,263 |
|
|
|
20,311 |
|
|
|
20,399 |
|
Expected Return on Plan Assets |
|
|
(41,250 |
) |
|
|
(38,427 |
) |
|
|
(25,286 |
) |
|
|
(20,220 |
) |
Amortization of Prior Service Cost |
|
|
606 |
|
|
|
661 |
|
|
|
3 |
|
|
|
3 |
|
Amortization of Transition Amount |
|
|
|
|
|
|
|
|
|
|
5,346 |
|
|
|
5,345 |
|
Amortization of Losses |
|
|
8,298 |
|
|
|
10,146 |
|
|
|
2,195 |
|
|
|
6,160 |
|
Net Amortization and Deferral for
Regulatory Purposes (Including
Volumetric Adjustments) (1) |
|
|
7,597 |
|
|
|
3,885 |
|
|
|
20,028 |
|
|
|
16,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
18,411 |
|
|
$ |
19,202 |
|
|
$ |
26,425 |
|
|
$ |
32,350 |
|
|
|
|
|
|
|
|
|
(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 nine months ended June 30, 2008, the Company contributed $3.8
million to its retirement plan and $25.3 million to its VEBA trusts and 401(h) accounts in its
other post-retirement benefit plan. In the remainder of 2008, the Company expects to contribute
$12.2 million to its retirement plan and $3.8 million to its VEBA trusts and 401(h) accounts in its
other post-retirement benefit plan.
-22-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
The Company is a diversified energy company and reports its operating results in five
reportable business segments. For the quarter ended June 30, 2008 compared to the quarter ended
June 30, 2007, the Company has experienced an increase in earnings of $13.1 million, primarily due
to higher earnings in the Exploration and Production segment. The Utility segment and the All
Other category also contributed to the increase in earnings. These earnings increases discussed
above were slightly offset by lower earnings in the Pipeline and Storage and Energy Marketing
segments as well as in the Corporate category, combined with a higher loss in the Timber segment.
For the nine months ended June 30, 2008 compared to the nine months ended June 30, 2007, the
Company experienced an increase in earnings of $45.7 million, due primarily to higher earnings in
the Exploration and Production segment. The Utility segment and the All Other category also
contributed to the increase in earnings. These earnings increases discussed above were slightly
offset by lower earnings in the Pipeline and Storage, Energy Marketing, and Timber segments as well
as in the Corporate category. The Companys earnings are discussed further in the Results of
Operations section that follows.
From a capital resources and liquidity perspective, the Company spent $284.6 million on
capital expenditures during the nine months ended June 30, 2008, with approximately 49% being spent
in the Exploration and Production segment, 37% in the Pipeline and Storage segment and 14% in the
Utility segment. The amounts spent in the various segments reflect the Companys belief that the
Exploration and Production segment and the Pipeline and Storage segment currently provide the best
earnings growth opportunities for shareholders. In the Exploration and Production segment, the
Companys principal focus continues to be the development of its nearly one million acres in the
Appalachian region along with continued exploration and development in the Gulf and West Coast
regions. In the Pipeline and Storage segment, the majority of the expenditures were for
construction costs of the Empire Connector project. The project is on schedule to be completed by
the planned in-service date of November 2008, although the actual in-service date will depend upon
the completion of the Millennium Pipeline. This project and other capital expenditures are
discussed further in the Capital Resources and Liquidity section that follows.
The Company regularly considers the repurchase of 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 June 30, 2008,
the Company had repurchased 6,667,275 shares for $262.8 million under this program, including
2,832,397 shares for $129.6 million during the nine months ended June 30, 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. The Company is also exploring the
sale of Horizon Powers unconsolidated subsidiaries. This includes ESNE, which generates
electricity from an 80-megawatt, combined cycle, natural gas-fired power plant in North East,
Pennsylvania, as well as Seneca Energy and Model City, which generate and sell electricity using
methane gas obtained from landfills owned by outside parties.
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.
-23-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
RESULTS OF OPERATIONS
Earnings
The Companys earnings were $59.9 million for the quarter ended June 30, 2008 compared to
earnings of $46.8 million for the quarter ended June 30, 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 $59.9 million for the quarter ended June 30, 2008 compared to earnings
from continuing operations of $41.2 million for the quarter ended June 30, 2007. The increase in
earnings from continuing operations of $18.7 million is primarily the result of higher earnings in
the Exploration and Production segment. The Utility segment and the All Other category also
contributed to the increase in earnings. These earnings increases discussed above were slightly
offset by lower earnings in the Pipeline and Storage and Energy Marketing segments, as well as in
the Corporate category, combined with a higher loss in the Timber segment.
The Companys earnings were $225.5 million for the nine months ended June 30, 2008 compared to
earnings of $179.8 million for the nine months ended June 30, 2007. The Companys earnings from
continuing operations were $225.5 million for the nine months ended June 30, 2008 compared to
earnings from continuing operations of $167.4 million for the nine months ended June 30, 2007. The
increase in earnings from continuing operations of $58.1 million is primarily the result of higher
earnings in the Exploration and Production segment. The Utility segment and the All Other category
also contributed to the increase in earnings. These earnings increases discussed above were
slightly offset by lower earnings in the Pipeline and Storage, Energy Marketing, and Timber
segments as well as in the Corporate category.
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 |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Utility |
|
$ |
7,848 |
|
|
$ |
3,705 |
|
|
$ |
4,143 |
|
|
$ |
62,228 |
|
|
$ |
54,322 |
|
|
$ |
7,906 |
|
Pipeline and Storage |
|
|
12,534 |
|
|
|
15,451 |
|
|
|
(2,917 |
) |
|
|
40,931 |
|
|
|
43,075 |
|
|
|
(2,144 |
) |
Exploration and Production |
|
|
39,791 |
|
|
|
18,849 |
|
|
|
20,942 |
|
|
|
108,385 |
|
|
|
52,573 |
|
|
|
55,812 |
|
Energy Marketing |
|
|
478 |
|
|
|
1,233 |
|
|
|
(755 |
) |
|
|
7,079 |
|
|
|
8,431 |
|
|
|
(1,352 |
) |
Timber |
|
|
(2,066 |
) |
|
|
(364 |
) |
|
|
(1,702 |
) |
|
|
2,214 |
|
|
|
3,053 |
|
|
|
(839 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reportable Segments |
|
|
58,585 |
|
|
|
38,874 |
|
|
|
19,711 |
|
|
|
220,837 |
|
|
|
161,454 |
|
|
|
59,383 |
|
All Other |
|
|
1,106 |
|
|
|
458 |
|
|
|
648 |
|
|
|
5,137 |
|
|
|
1,911 |
|
|
|
3,226 |
|
Corporate |
|
|
164 |
|
|
|
1,880 |
|
|
|
(1,716 |
) |
|
|
(511 |
) |
|
|
4,015 |
|
|
|
(4,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earnings from
Continuing Operations |
|
|
59,855 |
|
|
|
41,212 |
|
|
|
18,643 |
|
|
|
225,463 |
|
|
|
167,380 |
|
|
|
58,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from Discontinued
Operations |
|
|
|
|
|
|
5,586 |
|
|
|
(5,586 |
) |
|
|
|
|
|
|
12,385 |
|
|
|
(12,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated |
|
$ |
59,855 |
|
|
$ |
46,798 |
|
|
$ |
13,057 |
|
|
$ |
225,463 |
|
|
$ |
179,765 |
|
|
$ |
45,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-24-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
Utility
Utility Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Retail Sales Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
153,058 |
|
|
$ |
158,922 |
|
|
$ |
(5,864 |
) |
|
$ |
793,124 |
|
|
$ |
778,572 |
|
|
$ |
14,552 |
|
Commercial |
|
|
20,459 |
|
|
|
24,380 |
|
|
|
(3,921 |
) |
|
|
124,582 |
|
|
|
127,485 |
|
|
|
(2,903 |
) |
Industrial |
|
|
1,178 |
|
|
|
1,432 |
|
|
|
(254 |
) |
|
|
6,754 |
|
|
|
7,081 |
|
|
|
(327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174,695 |
|
|
|
184,734 |
|
|
|
(10,039 |
) |
|
|
924,460 |
|
|
|
913,138 |
|
|
|
11,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation |
|
|
21,584 |
|
|
|
21,017 |
|
|
|
567 |
|
|
|
97,345 |
|
|
|
86,358 |
|
|
|
10,987 |
|
Off-System Sales |
|
|
20,540 |
|
|
|
3,727 |
|
|
|
16,813 |
|
|
|
48,606 |
|
|
|
3,727 |
|
|
|
44,879 |
|
Other |
|
|
3,674 |
|
|
|
3,712 |
|
|
|
(38 |
) |
|
|
10,350 |
|
|
|
10,193 |
|
|
|
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
220,493 |
|
|
$ |
213,190 |
|
|
$ |
7,303 |
|
|
$ |
1,080,761 |
|
|
$ |
1,013,416 |
|
|
$ |
67,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Throughput
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
(MMcf) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Retail Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
|
8,618 |
|
|
|
10,679 |
|
|
|
(2,061 |
) |
|
|
53,881 |
|
|
|
56,729 |
|
|
|
(2,848 |
) |
Commercial |
|
|
1,334 |
|
|
|
1,836 |
|
|
|
(502 |
) |
|
|
9,197 |
|
|
|
10,132 |
|
|
|
(935 |
) |
Industrial |
|
|
77 |
|
|
|
113 |
|
|
|
(36 |
) |
|
|
524 |
|
|
|
628 |
|
|
|
(104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,029 |
|
|
|
12,628 |
|
|
|
(2,599 |
) |
|
|
63,602 |
|
|
|
67,489 |
|
|
|
(3,887 |
) |
Transportation |
|
|
12,086 |
|
|
|
12,981 |
|
|
|
(895 |
) |
|
|
55,966 |
|
|
|
53,556 |
|
|
|
2,410 |
|
Off-System Sales |
|
|
1,711 |
|
|
|
467 |
|
|
|
1,244 |
|
|
|
4,790 |
|
|
|
467 |
|
|
|
4,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,826 |
|
|
|
26,076 |
|
|
|
(2,250 |
) |
|
|
124,358 |
|
|
|
121,512 |
|
|
|
2,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Degree Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Colder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Warmer) Than |
|
|
|
Normal |
|
|
2008 |
|
|
2007 |
|
|
Normal |
|
|
Prior Year |
|
Three Months Ended
June 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo |
|
|
927 |
|
|
|
817 |
|
|
|
921 |
|
|
|
(11.9 |
) |
|
|
(11.3 |
) |
Erie |
|
|
885 |
|
|
|
762 |
|
|
|
900 |
|
|
|
(13.9 |
) |
|
|
(15.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buffalo |
|
|
6,551 |
|
|
|
6,175 |
|
|
|
6,195 |
|
|
|
(5.7 |
) |
|
|
(0.3 |
) |
Erie |
|
|
6,142 |
|
|
|
5,737 |
|
|
|
5,930 |
|
|
|
(6.6 |
) |
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared with 2007
Operating revenues for the Utility segment increased $7.3 million for the quarter ended June
30, 2008 as compared with the quarter ended June 30, 2007. The increase for the quarter is
primarily attributable to a $16.8 million increase in off-system sales revenue (see discussion
below) partially offset by a $10.0 million decrease in retail sales revenue. The $10.0 million
decrease in retail gas sales revenues was a function of lower throughput volumes, partially offset
by the recovery of higher gas costs (subject to certain timing variations, gas costs are recovered
dollar for dollar in revenues) coupled with the revenue impact of a rate design change. 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,
-25-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
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. The rate order caused higher retail and transportation
revenues in the quarter ended June 30, 2008 compared to the quarter ended June 30, 2007. However,
on a year-to-date basis, retail and transportation revenues for the nine months ended June 30, 2008
(exclusive of the impact of higher gas costs) are still lower than the nine months ended June 30,
2007 as a result of the rate design change. It is expected that there will also be an increase in
retail and transportation revenue in the fourth quarter of this year compared to the prior year as
a result of the rate design change.
Operating revenues for the Utility segment increased $67.3 million for the nine months ended
June 30, 2008 as compared with the nine months ended June 30, 2007. This increase largely resulted
from a $44.9 million increase in off-system sales revenue (see discussion below) and an $11.3
million increase in retail sales revenue coupled with an $11.0 million increase in transportation
revenues. The increase in retail gas sales revenues for the Utility segment was largely a function
of higher gas costs (subject to certain timing variations, 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 2.4 Bcf increase in
transportation throughput, largely due to the migration of customers from retail sales 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 regarding 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 prior to the issuance of Order No. 2004 that had made it possible
for the Utility segment to engage in certain off-system sales without triggering the adverse
consequences that would otherwise arise under the Order No. 2004 standards of conduct. As a result,
the Utility segment resumed engaging in off-system sales on non-affiliated pipelines as of May
2007. Total off-system sales revenues for the quarters ended June 30, 2008 and June 30, 2007
amounted to $20.5 million and $3.7 million, respectively. Total off-system sales revenues for the
nine months ended June 30, 2008 and June 30, 2007 amounted to $48.6 million and $3.7 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 quarters and nine months
ended June 30, 2008 and 2007.
The Utility segments earnings for the quarter ended June 30, 2008 were $7.8 million, an
increase of $4.1 million compared to earnings of $3.7 million for the quarter ended June 30, 2007.
In the New York jurisdiction, earnings increased by $4.4 million. As a result of the rate design
change in the New York jurisdiction, earnings for the third quarter of fiscal 2008 increased by
$1.7 million from the third quarter of fiscal 2007. A $1.7 million decrease in operating costs
(mostly due to lower post-retirement benefit costs), a non-recurring regulatory adjustment made in
2007 ($0.9 million), and the positive impact of a lower effective tax rate ($0.8 million) also
contributed to the overall increase in earnings for the New York jurisdiction. These increases
were partly offset by lower usage per account ($1.0 million). In the Pennsylvania jurisdiction,
earnings decreased by $0.3 million due primarily to lower usage per account offset in part by lower
operating costs and lower interest expense.
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 jurisdiction. For the quarter ended June 30, 2008, the WNC preserved earnings of
approximately $0.4 million, as weather was warmer than normal for the period. For the quarter
ended June 30, 2007, the WNC did not have a significant impact on earnings as the weather was close
to normal.
The Utility segments earnings for the nine months ended June 30, 2008 were $62.2 million; an
increase of $7.9 million when compared with earnings of $54.3 million for the nine months ended
June 30, 2007. In the New York jurisdiction, earnings increased $5.2 million. Lower operating
costs of $4.5 million (mostly due to lower post-retirement benefit costs and lower bad debt
expense), the positive impact of non-recurring regulatory adjustments made in 2007 ($0.9
million), the positive impact of a lower effective
-26-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
tax rate ($0.9 million), a routine regulatory adjustment ($0.7 million), lower property taxes ($0.7
million), and higher customer usage per account ($0.3 million) also contributed to the overall
increase in earnings for the New York jurisdiction. These increases were partly offset by a $3.1
million decrease in earnings associated with the rate design change discussed above. In the
Pennsylvania jurisdiction, earnings increased $2.7 million due primarily to a base rate increase
that became effective in January 2007 ($2.6 million), higher usage per account ($0.9 million), and
a decrease in operating costs of $1.1 million (mostly due to lower bad debt expense). These
increases were partially offset by the negative earnings impact associated with warmer weather
($1.5 million).
For the nine months ended June 30, 2008, the WNC preserved earnings of approximately $2.5
million, as the weather was warmer than normal. For the nine months ended June 30, 2007, the WNC
preserved earnings of approximately $2.3 million, as the weather was also warmer than normal.
Pipeline and Storage
Pipeline and Storage Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
Increase |
|
Firm Transportation |
|
$ |
29,020 |
|
|
$ |
28,556 |
|
|
$ |
464 |
|
|
$ |
93,427 |
|
|
$ |
89,819 |
|
|
$ |
3,608 |
|
Interruptible Transportation |
|
|
1,151 |
|
|
|
1,170 |
|
|
|
(19 |
) |
|
|
3,237 |
|
|
|
3,071 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,171 |
|
|
|
29,726 |
|
|
|
445 |
|
|
|
96,664 |
|
|
|
92,890 |
|
|
|
3,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Firm Storage Service |
|
|
16,754 |
|
|
|
17,002 |
|
|
|
(248 |
) |
|
|
50,325 |
|
|
|
50,194 |
|
|
|
131 |
|
Other |
|
|
5,260 |
|
|
|
3,732 |
|
|
|
1,528 |
|
|
|
16,222 |
|
|
|
13,390 |
|
|
|
2,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
52,185 |
|
|
$ |
50,460 |
|
|
$ |
1,725 |
|
|
$ |
163,211 |
|
|
$ |
156,474 |
|
|
$ |
6,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline and Storage Throughput
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(MMcf) |
|
2008 |
|
|
2007 |
|
|
Decrease |
|
|
2008 |
|
|
2007 |
|
|
Increase |
|
Firm Transportation |
|
|
68,263 |
|
|
|
78,455 |
|
|
|
(10,192 |
) |
|
|
283,104 |
|
|
|
273,513 |
|
|
|
9,591 |
|
Interruptible Transportation |
|
|
1,540 |
|
|
|
1,670 |
|
|
|
(130 |
) |
|
|
3,844 |
|
|
|
3,597 |
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,803 |
|
|
|
80,125 |
|
|
|
(10,322 |
) |
|
|
286,948 |
|
|
|
277,110 |
|
|
|
9,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared with 2007
Operating revenues for the Pipeline and Storage segment increased $1.7 million for the quarter
ended June 30, 2008 as compared with the quarter ended June 30, 2007. The increase was primarily
due to increased efficiency gas revenues ($1.9 million) reported as part of other revenues in the
table above. The majority of this increase was due to higher gas prices in the quarter ended June
30, 2008 as compared with the quarter ended June 30, 2007. Overall, throughput decreased during
the quarter ended June 30, 2008 as compared with the quarter ended June 30, 2007. While Supply
Corporations and Empires transportation volumes decreased during the quarter, volume fluctuations
generally do not have a significant impact on revenues as a result of Supply Corporations straight
fixed-variable rate design and Empires modified fixed-variable rate design.
Operating revenues for the nine months ended June 30, 2008 increased $6.7 million as compared
with the nine months ended June 30, 2007. The increase was primarily due to a $3.8 million
increase in transportation 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 transportation service associated with storage. In addition, there was a $3.1
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 nine months ended June 30, 2008 as
compared with the nine months ended June 30, 2007.
-27-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Cont.)
The Pipeline and Storage segments earnings for the quarter ended June 30, 2008 were $12.5
million, a decrease of $2.9 million when compared to earnings of $15.4 million for the quarter
ended June 30, 2007. The decrease in earnings primarily reflects the earnings impact associated
with higher operation and maintenance expenses resulting from the non-recurrence in 2008 of a
reversal of a reserve for preliminary survey costs ($4.8 million) related to the Empire Connector
project recognized in the quarter ended June 30, 2007. In addition, there was an earnings decrease
associated with higher interest expense ($0.8 million). These earnings decreases were partially
offset by an increase in the allowance for funds used during construction ($1.0 million), higher
efficiency gas revenues ($1.2 million) and the earnings benefit associated with lower income taxes
($0.5 million).
The Pipeline and Storage segments earnings for the nine months ended June 30, 2008 were $40.9
million, a decrease of $2.1 million when compared to earnings of $43.0 million for the nine months
ended June 30, 2007. The main factors contributing to this decrease were higher operation and
maintenance expenses ($5.7 million), resulting from the non-recurrence in 2008 of a reversal of a
reserve for preliminary survey costs ($4.8 million) related to the Empire Connector project
recognized during the quarter ended June 30, 2007. In addition, there was a $1.9 million positive
earnings impact during the nine months ended June 30, 2007 associated with the discontinuance of
hedge accounting for Empires interest rate collar that did not recur during the nine months ended
June 30, 2008. There was also an earnings decrease associated with higher interest expense ($1.1
million). These earnings decreases were partially offset by an increase in the allowance for funds
used during construction ($2.3 million), higher efficiency gas revenues ($2.0 million), and higher
transportation and storage revenues ($2.5 million).
Exploration and Production
Exploration and Production Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Gas (after Hedging) from
Continuing Operations |
|
$ |
56,591 |
|
|
$ |
34,712 |
|
|
$ |
21,879 |
|
|
$ |
155,793 |
|
|
$ |
107,976 |
|
|
$ |
47,817 |
|
Oil (after Hedging) from
Continuing Operations |
|
|
66,695 |
|
|
|
42,577 |
|
|
|
24,118 |
|
|
|
185,650 |
|
|
|
117,084 |
|
|
|
68,566 |
|
Gas Processing Plant from
Continuing Operations |
|
|
13,566 |
|
|
|
10,466 |
|
|
|
3,100 |
|
|
|
35,674 |
|
|
|
28,212 |
|
|
|
7,462 |
|
Other from Continuing
Operations |
|
|
(291 |
) |
|
|
(291 |
) |
|
|
|
|
|
|
(3,174 |
) |
|
|
165 |
|
|
|
(3,339 |
) |
Intrasegment Elimination
from Continuing
Operations
(1) |
|
|
(10,407 |
) |
|
|
(7,436 |
) |
|
|
(2,971 |
) |
|
|
(25,114 |
) |
|
|
(19,729 |
) |
|
|
(5,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues from
Continuing Operations |
|
$ |
126,154 |
|
|
$ |
80,028 |
|
|
$ |
46,126 |
|
|
$ |
348,829 |
|
|
$ |
233,708 |
|
|
$ |
115,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues from
Canada Discontinued
Operations |
|
$ |
|
|
|
$ |
14,366 |
|
|
$ |
(14,366 |
) |
|
$ |
|
|
|
$ |
42,004 |
|
|
$ |
(42,004 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the elimination of certain West Coast gas production revenue 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. |
-28-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
Production Volumes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Gas Production (MMcf) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
|
3,019 |
|
|
|
2,317 |
|
|
|
702 |
|
|
|
8,868 |
|
|
|
7,934 |
|
|
|
934 |
|
West Coast |
|
|
1,007 |
|
|
|
1,019 |
|
|
|
(12 |
) |
|
|
3,010 |
|
|
|
2,883 |
|
|
|
127 |
|
Appalachia |
|
|
1,793 |
|
|
|
1,266 |
|
|
|
527 |
|
|
|
5,538 |
|
|
|
3,998 |
|
|
|
1,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production from
Continuing Operations |
|
|
5,819 |
|
|
|
4,602 |
|
|
|
1,217 |
|
|
|
17,416 |
|
|
|
14,815 |
|
|
|
2,601 |
|
Canada Discontinued Operations |
|
|
|
|
|
|
1,639 |
|
|
|
(1,639 |
) |
|
|
|
|
|
|
5,216 |
|
|
|
(5,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production |
|
|
5,819 |
|
|
|
6,241 |
|
|
|
(422 |
) |
|
|
17,416 |
|
|
|
20,031 |
|
|
|
(2,615 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Production (Mbbl) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
|
124 |
|
|
|
165 |
|
|
|
(41 |
) |
|
|
409 |
|
|
|
540 |
|
|
|
(131 |
) |
West Coast |
|
|
598 |
|
|
|
599 |
|
|
|
(1 |
) |
|
|
1,825 |
|
|
|
1,789 |
|
|
|
36 |
|
Appalachia |
|
|
23 |
|
|
|
32 |
|
|
|
(9 |
) |
|
|
88 |
|
|
|
91 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production from
Continuing Operations |
|
|
745 |
|
|
|
796 |
|
|
|
(51 |
) |
|
|
2,322 |
|
|
|
2,420 |
|
|
|
(98 |
) |
Canada Discontinued Operations |
|
|
|
|
|
|
58 |
|
|
|
(58 |
) |
|
|
|
|
|
|
175 |
|
|
|
(175 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Production |
|
|
745 |
|
|
|
854 |
|
|
|
(109 |
) |
|
|
2,322 |
|
|
|
2,595 |
|
|
|
(273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
Increase |
|
2008 |
|
2007 |
|
Increase |
Average Gas Price/Mcf |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
$ |
12.17 |
|
|
$ |
7.37 |
|
|
$ |
4.80 |
|
|
$ |
9.66 |
|
|
$ |
6.74 |
|
|
$ |
2.92 |
|
West Coast |
|
$ |
10.61 |
|
|
$ |
7.20 |
|
|
$ |
3.41 |
|
|
$ |
8.43 |
|
|
$ |
6.76 |
|
|
$ |
1.67 |
|
Appalachia |
|
$ |
11.53 |
|
|
$ |
8.59 |
|
|
$ |
2.94 |
|
|
$ |
9.25 |
|
|
$ |
7.71 |
|
|
$ |
1.54 |
|
Weighted Average
for Continuing
Operations |
|
$ |
11.71 |
|
|
$ |
7.67 |
|
|
$ |
4.04 |
|
|
$ |
9.32 |
|
|
$ |
7.01 |
|
|
$ |
2.31 |
|
Weighted Average
After Hedging for
Continuing
Operations |
|
$ |
9.73 |
|
|
$ |
7.54 |
|
|
$ |
2.19 |
|
|
$ |
8.95 |
|
|
$ |
7.29 |
|
|
$ |
1.66 |
|
Canada -
Discontinued
Operations |
|
|
N/M |
|
|
$ |
6.82 |
|
|
|
N/M |
|
|
|
N/M |
|
|
$ |
6.34 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Oil Price/bbl |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gulf Coast |
|
$ |
124.43 |
|
|
$ |
65.17 |
|
|
$ |
59.26 |
|
|
$ |
103.46 |
|
|
$ |
59.37 |
|
|
$ |
44.09 |
|
West Coast |
|
$ |
114.35 |
|
|
$ |
57.77 |
|
|
$ |
56.58 |
|
|
$ |
94.64 |
|
|
$ |
52.96 |
|
|
$ |
41.68 |
|
Appalachia |
|
$ |
114.99 |
|
|
$ |
60.43 |
|
|
$ |
54.56 |
|
|
$ |
94.18 |
|
|
$ |
59.35 |
|
|
$ |
34.83 |
|
Weighted Average
for Continuing
Operations |
|
$ |
116.05 |
|
|
$ |
59.41 |
|
|
$ |
56.64 |
|
|
$ |
96.17 |
|
|
$ |
54.63 |
|
|
$ |
41.54 |
|
Weighted Average
After Hedging for
Continuing
Operations |
|
$ |
89.55 |
|
|
$ |
53.54 |
|
|
$ |
36.01 |
|
|
$ |
79.97 |
|
|
$ |
48.39 |
|
|
$ |
31.58 |
|
Canada -
Discontinued
Operations |
|
|
N/M |
|
|
$ |
51.58 |
|
|
|
N/M |
|
|
|
N/M |
|
|
$ |
48.16 |
|
|
|
N/M |
|
2008 Compared with 2007
Operating revenues from continuing operations for the Exploration and Production segment
increased $46.1 million for the quarter ended June 30, 2008 as compared with the quarter ended June
30, 2007. Oil production revenue after hedging from continuing operations increased $24.1
million due to a
-29-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
$36.01 per barrel increase in weighted average prices after hedging for continuing operations. Gas
production revenue after hedging from continuing operations increased $21.9 million due to an
increase in the weighted average price of gas after hedging for continuing operations ($2.19 per
Mcf) as well as an increase in gas production of 1,217 MMcf. The Gulf Coast region of this segment
was primarily responsible for the increase in natural gas production from continuing operations
(702 MMcf). Production from new fields in 2008 (primarily in the High Island area) outpaced
declines in production from some existing fields, quarter to quarter. The Appalachian region of
this segment also contributed to the increase in natural gas production from continuing operations
(527 MMcf), consistent with increased drilling activity in the region.
Operating revenues from continuing operations for the Exploration and Production segment
increased $115.1 million for the nine months ended June 30, 2008 as compared with the nine months
ended June 30, 2007. Oil production revenue after hedging from continuing operations increased
$68.6 million due primarily to a $31.58 per barrel increase in weighted average prices after
hedging for continuing operations. Gas production revenue after hedging from continuing operations
increased $47.8 million due to an increase in the weighted average price of gas after hedging for
continuing operations ($1.66 per Mcf) and an increase in gas production of 2,601 MMcf. The increase
in gas production from continuing operations occurred primarily in the Appalachian region (1,540
MMcf), consistent with increased drilling activity in the region. The Gulf Coast region also
contributed to the increase in natural gas production from continuing operations (934 MMcf).
Production from new fields in 2008 (primarily in the High Island area) outpaced declines in
production from some existing fields, period to period, as discussed above.
The Exploration and Production segments earnings from continuing operations for the quarter
ended June 30, 2008 were $39.8 million, an increase of $21.0 million when compared with earnings
from continuing operations of $18.8 million for the quarter ended June 30, 2007. Higher crude oil
prices, higher natural gas prices and higher natural gas production increased earnings by $17.4
million, $8.3 million and $6.0 million, respectively, while lower crude oil production decreased
earnings by $1.8 million. Higher lease operating costs ($4.2 million), higher depletion expense
($3.1 million), higher state income tax expense ($2.5 million) and higher general and
administrative and other operating expenses ($1.5 million) also negatively impacted earnings. Lower
interest expense of $2.1 million slightly offset these decreases.
The Exploration and Production segments earnings from continuing operations for the nine
months ended June 30, 2008 were $108.4 million, an increase of $55.8 million when compared with
earnings from continuing operations of $52.6 million for the nine months ended June 30, 2007.
Higher crude oil prices, higher natural gas prices and higher natural gas production increased
earnings by $47.7 million, $18.8 million and $12.3 million, respectively, while lower crude oil
production decreased earnings by $3.1 million. Higher lease operating costs ($9.0 million), higher
depletion expense ($8.9 million), higher state income tax expense ($3.4 million), higher general
and administrative and other operating expenses ($3.8 million), and mark-to-market adjustments on
derivative financial instruments ($1.3 million) also negatively impacted earnings. Lower interest
expense of $4.5 million and higher interest income of $1.6 million slightly offset these decreases.
Energy Marketing
Energy Marketing Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Natural Gas (after Hedging) |
|
$ |
162,127 |
|
|
$ |
113,351 |
|
|
$ |
48,776 |
|
|
$ |
440,123 |
|
|
$ |
359,895 |
|
|
$ |
80,228 |
|
Other |
|
|
2 |
|
|
|
29 |
|
|
|
(27 |
) |
|
|
(12 |
) |
|
|
141 |
|
|
|
(153 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
162,129 |
|
|
$ |
113,380 |
|
|
$ |
48,749 |
|
|
$ |
440,111 |
|
|
$ |
360,036 |
|
|
$ |
80,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-30-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
Energy Marketing Volumes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2008 |
|
2007 |
|
Increase |
|
2008 |
|
2007 |
|
Increase |
Natural Gas (MMcf) |
|
|
14,641 |
|
|
|
13,014 |
|
|
|
1,627 |
|
|
|
47,189 |
|
|
|
44,063 |
|
|
|
3,126 |
|
2008 Compared with 2007
Operating revenues for the Energy Marketing segment increased $48.7 million and $80.1 million,
respectively, for the quarter and nine months ended June 30, 2008 as compared with the quarter and
nine months ended June 30, 2007. The increase for both the quarter and nine months ended June 30,
2008 is primarily due to higher gas sales revenue due to an increase in the price of natural gas
that was recovered through revenues as well as an increase in volumes. The increase in volumes is
attributable 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 $0.8 million and $1.4 million,
respectively, for the quarter and nine months ended June 30, 2008 as compared with the quarter and
nine months ended June 30, 2007. For the quarter ended June 30, 2008, higher operating costs of
$0.8 million, primarily due to an increase in bad debt expense, are responsible for the decrease in
earnings. Despite higher operating revenues and volumes, margins did not change significantly
because the volume increase is primarily attributable to low-margin customers. For the nine months
ended June 30, 2008, higher operating costs of $1.0 million (primarily due to an increase in bad
debt expense) coupled with lower margins of $0.5 million are responsible for the decrease in
earnings. A major factor in the margin decrease 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 volumes 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.
Timber
Timber Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
|
(Thousands) |
|
2008 |
|
|
2007 |
|
|
Decrease |
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
Log Sales |
|
$ |
2,726 |
|
|
$ |
3,504 |
|
|
$ |
(778 |
) |
|
$ |
16,649 |
|
|
$ |
16,950 |
|
|
$ |
(301 |
) |
Green Lumber Sales |
|
|
958 |
|
|
|
1,318 |
|
|
|
(360 |
) |
|
|
3,872 |
|
|
|
3,582 |
|
|
|
290 |
|
Kiln-Dried Lumber Sales |
|
|
5,846 |
|
|
|
7,247 |
|
|
|
(1,401 |
) |
|
|
18,612 |
|
|
|
20,742 |
|
|
|
(2,130 |
) |
Other |
|
|
584 |
|
|
|
1,062 |
|
|
|
(478 |
) |
|
|
1,305 |
|
|
|
1,805 |
|
|
|
(500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
10,114 |
|
|
$ |
13,131 |
|
|
$ |
(3,017 |
) |
|
$ |
40,438 |
|
|
$ |
43,079 |
|
|
$ |
(2,641 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-31-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
Timber Board Feet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
June 30, |
|
June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/ |
(Thousands) |
|
2008 |
|
2007 |
|
Decrease |
|
2008 |
|
2007 |
|
(Decrease) |
Log Sales |
|
|
1,527 |
|
|
|
1,724 |
|
|
|
(197 |
) |
|
|
7,140 |
|
|
|
6,458 |
|
|
|
682 |
|
Green Lumber Sales |
|
|
2,273 |
|
|
|
2,709 |
|
|
|
(436 |
) |
|
|
7,496 |
|
|
|
6,619 |
|
|
|
877 |
|
Kiln-Dried Lumber Sales |
|
|
3,436 |
|
|
|
4,001 |
|
|
|
(565 |
) |
|
|
10,536 |
|
|
|
10,953 |
|
|
|
(417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,236 |
|
|
|
8,434 |
|
|
|
(1,198 |
) |
|
|
25,172 |
|
|
|
24,030 |
|
|
|
1,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Compared with 2007
Operating revenues for the Timber segment decreased $3.0 million for the quarter ended June
30, 2008 as compared with the quarter ended June 30, 2007. The decrease can be primarily
attributed to a decrease in both log sales and kiln-dried lumber sales of $0.8 million and $1.4
million, respectively. Overall, the Timber segment is currently selling a greater amount of lower
priced, low margin species than higher margin species due to poor market conditions and wet weather
that hampered harvesting, resulting in a decline in revenues. The decrease in log sales is due to
a decline in cherry veneer log sales volumes of 106,000 board feet that can be attributed to the
mix of logs being harvested in the current quarter as compared to the quarter ended June 30, 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 565,000 board feet as well as a decline in the market price of
kiln-dried lumber.
Operating revenues for the Timber segment decreased $2.6 million for the nine months ended
June 30, 2008 as compared with the nine months ended June 30, 2007. This decrease is largely due
to a decline in kiln-dried lumber sales of $2.1 million. The decrease in kiln-dried lumber sales
is due to both a decline in the market price of kiln-dried lumber as well as a decline in
kiln-dried lumber sales volumes of 417,000 board feet. Log sales also decreased $0.3 million
primarily due to a decline in cherry veneer log sales volumes of 130,000 board feet, partially
offset by increases in log sales volumes from lower priced logs. 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 Timber segment recorded a loss of $2.1 million for the quarter ended June 30, 2008, a
decrease of $1.7 million when compared with a loss of $0.4 million for the quarter ended June 30,
2007. This decrease was the result of lower margins of $1.7 million, largely from lumber and log
sales due to the decrease in revenues noted above.
The Timber segments earnings for the nine months ended June 30, 2008 were $2.2 million, a
decrease of $0.9 million when compared with earnings of $3.1 million for the nine months ended June
30, 2007. The decrease was primarily due to an increase in depletion and depreciation expense of
$0.6 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. Lower margins of $0.1 million also contributed to the decrease in earnings.
During the six months ended March 31, 2008, margins were up over the prior year, largely due to
favorable weather conditions, resulting in an increase in the harvesting of higher margin species.
The change in market and weather conditions in the quarter ended June 30, 2008, as discussed above,
eliminated the margin improvements seen during the six months ended March 31, 2008.
-32-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
Corporate and All Other
2008 Compared with 2007
Corporate and All Other recorded earnings of $1.3 million for the quarter ended June 30, 2008
compared with earnings of $2.3 million for the quarter ended June 30, 2007. The positive earnings
impacts of higher income from unconsolidated subsidiaries ($0.4 million) and lower income tax
expense ($0.4 million) were more than offset by higher interest expense ($1.2 million) and higher
operating costs ($0.8 million). The increase in operating costs can be attributed to the proxy
contest with New Mountain Vantage GP, L.L.C.
For the nine months ended June 30, 2008, Corporate and All Other had earnings of $4.6 million
compared with earnings of $5.9 million for the nine months ended June 30, 2007. The positive
earnings impacts of higher income from unconsolidated subsidiaries ($1.1 million), lower income tax
expense ($0.8 million), lower interest expense ($0.7 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 ($4.5 million) and lower interest income ($0.6 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 $1.7 million higher in the quarter ended June 30, 2008 as compared to the
quarter ended June 30, 2007. For the nine months ended June 30, 2008, interest income increased
$5.3 million as compared with the nine months ended June 30, 2007. These increases are mainly due
to higher interest income (excluding intercompany interest income) in the Exploration and
Production segment of $1.1 million and $4.0 million, respectively, for the quarter and nine months
ended June 30, 2008 as compared to the quarter and nine months ended June 30, 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 increased $1.2 million for the quarter ended June 30, 2008 as
compared with the quarter ended June 30, 2007. For the nine months ended June 30, 2008, interest
on long-term debt decreased $0.1 million as compared with the nine months ended June 30, 2007. The
increase in the quarter ended June 30, 2008 is due to the issuance in April 2008 of a $300 million,
6.5% Note due in April 2018. This increase was offset slightly by the repayment of $200 million of
6.303% medium-term notes that matured on May 27, 2008. The decrease in the nine months ended June
30, 2008 as compared to the nine months ended June 30, 2007 is 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.
CAPITAL RESOURCES AND LIQUIDITY
The Companys primary sources of cash during the nine-month period ended June 30, 2008
consisted of cash provided by operating activities and proceeds from the issuance of long-term
debt. These sources of cash were supplemented by issues of new shares of common stock as a result
of stock option exercises. During the nine months ended June 30, 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.
-33-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
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 and futures contracts in an attempt to manage this energy commodity price risk.
Net cash provided by operating activities totaled $415.1 million for the nine months ended
June 30, 2008, an increase of $10.5 million compared with $404.6 million provided by operating
activities for the nine months ended June 30, 2007. The increase is partially due to lower working
capital requirements in the Utility segment for the nine months ended June 30, 2008 as compared to
the nine months ended June 30, 2007. In the Exploration and Production segment, for the nine
months ended June 30, 2008 as compared to the nine months ended June 30, 2007, cash provided by
operations increased due to higher commodity prices, partially offset by the decrease in cash
provided by operations that resulted from the sale of SECI in August 2007. Offsetting these
increases were higher working capital requirements in the Energy Marketing segment.
Investing Cash Flow
Expenditures for Long-Lived Assets
The Companys expenditures for long-lived assets totaled $284.6 million during the nine months
ended June 30, 2008. The table below presents these expenditures:
-34-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
Nine Months Ended June 30, 2008 (in millions of dollars)
|
|
|
|
|
|
|
Total |
|
|
|
Expenditures for |
|
|
|
Long-Lived Assets |
|
Utility |
|
$ |
38.8 |
|
Pipeline and Storage (1) |
|
|
106.2 |
|
Exploration and Production |
|
|
140.6 |
|
Timber |
|
|
1.2 |
|
Corporate and All Other |
|
|
0.2 |
|
Eliminations (2) |
|
|
(2.4 |
) |
|
|
|
|
|
|
$ |
284.6 |
|
|
|
|
|
|
|
|
(1) |
|
Amount includes $19.9 million of accrued capital expenditures related to the Empire
Connector project. This amount has been excluded from the Consolidated Statement of Cash Flows at
June 30, 2008 since it represents a non-cash investing activity at that date. |
|
(2) |
|
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 nine months ended June 30, 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 nine months ended June
30, 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 designed to transport up to
approximately 250 MDth of natural gas per day that will connect the Empire Pipeline with the
Millennium Pipeline, began in September 2007. The Empire Connector is on schedule to be completed
by the planned in-service date of November 2008, although the actual in-service date will depend
upon the completion of the Millennium Pipeline. 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. As of June 30, 2008, the Company had incurred approximately $107.7
million in costs related to this project. Of this amount, $42.7 million and $88.0 million were
incurred during the quarter and nine months ended June 30, 2008, respectively, and $2.1 million and
$3.5 million were incurred during the quarter and nine months ended June 30, 2007, respectively.
All project costs incurred as of June 30, 2008 have been capitalized as Construction Work in
Progress. The Company anticipates financing the remaining cost of this project with cash on hand.
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 preliminary 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.
-35-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
In light of the rapidly growing demand for pipeline capacity to move natural gas from new
wells being drilled in Appalachia, Supply Corporation recently initiated a new Open Season for its
Appalachian Lateral, a project designed to complement the West to East project. The Appalachian
Lateral is expected to be located through an area where producers are actively drilling and seeking
to find access to the market for their newly discovered reserves.
In conjunction with the West to East and Appalachian Lateral projects, Supply Corporation has
plans to develop new storage capacity by pursuing expansion of certain of its existing storage
facilities. The expansion of these fields, which Supply Corporation hopes to market through one
offering at market-based rates, could provide approximately 8.5 Bcf of incremental storage capacity
with incremental withdrawal deliverability of up to 121 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 and Appalachian Lateral pipeline projects and help meet the demand for
storage created by the prospective increased flow of Rockies and Appalachian 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 storage capacity is planned to be held
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 storage 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 and Appalachian Lateral projects
would amount to at least $700 million, which would be financed by a combination of debt and equity.
As of June 30, 2008, there have been no costs incurred by Supply Corporation related to the
Tuscarora Extension project, $0.1 million has been spent to study the West to East and Appalachian
Lateral projects, and approximately $0.2 million has been spent to study the storage expansion
project. Supply Corporation 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 nine months ended June 30,
2008 included approximately $46.9 million for the Gulf Coast region, substantially all of which was
for the off-shore program in the shallow waters of the Gulf of Mexico, $51.1 million for the West
Coast region and $42.6 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 $20.7 million spent to develop proved undeveloped reserves.
Timber
The majority of the Timber segment capital expenditures for the nine months ended June 30,
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.
-36-
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 June 30, 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 $430.0 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 which totals $300.0 million and 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 June 30, 2008, the Companys debt to capitalization ratio (as calculated under the
facility) was .41. The constraints specified in the committed credit facility would permit an
additional $1.84 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 June 30, 2008, the Company would have
been permitted to issue up to a maximum of $1.2 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 $199.0 million (or 18%) of the Companys
long-term debt (as of June 30, 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 to (i) pay any scheduled principal or
interest on any debt under any other indenture or agreement, or (ii) 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 June 30, 2008, the Company had no
debt outstanding under the committed credit facility.
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
-37-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
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 used $200.0 million of the proceeds to refund $200.0 million of 6.303%
medium-term notes that subsequently matured on May 27, 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 June 30, 2008, the Company has repurchased 6,667,275 shares for $262.8
million under this program, including 439,722 and 2,832,397 shares for $20.7 million and $129.6
million, respectively, during the quarter and nine months ended June 30, 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 anticipated that open market repurchases will continue from time
to time depending on market conditions.
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.
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 $30.7 million. These leases
have been entered into for the use of buildings, vehicles, construction tools, meters, computer
equipment 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 $3.9 million. The
Company has guaranteed 50% or $2.0 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
are they expected 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.
-38-
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 rate 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 for implementation of 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. The 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 effect of the revenue decoupling mechanism is to render the
Company financially indifferent to throughput decreases resulting from conservation. 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 predict 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.
-39-
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. The PaPUC adopted the Chairmans recommendation unanimously at its
public meeting held on May 1, 2008, and a tentative final order was issued on May 21, 2008.
Distribution Corporation accepted the proposed Settlement Agreement. No other comments were filed,
and by its terms the tentative order approving the Settlement Agreement became final on June 5,
2008 without further action by the PaPUC. On June 19, 2008, Distribution Corporation fulfilled the
last condition for closing the proceeding by providing notice to the Secretary of the PaPUC that
the $100,000 payment to the assistance fund had been made. Distribution Corporation is working
with the Staff of the PaPUC to determine how the additional $50,000 in safety-related funding will
be spent.
Pipeline and Storage
Supply Corporation currently does not have a rate case on file with the FERC. A 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
-40-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
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 on schedule to be completed by the
planned in-service date of November 2008, although the actual in-service date will depend upon the
completion of the Millennium Pipeline.
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. In July 2008, the
Company withdrew its appeal and agreed to the terms of an Order on Consent issued by the NYDEC.
Pursuant to the order, the Company will remediate the site consistent with the remedy selected in
the NYDECs Record of Decision. The Company will also reimburse the NYDEC in the amount of
approximately $1.5 million for costs incurred in connection with the site from 1998 through May 30,
2007. The Company acknowledged that additional charges related to the site will be billed to the
Company at a later date, including costs incurred by the NYDEC after May 30, 2007 and any costs
incurred by the New York Department of Health. The Company has not received any estimates of such
additional costs. The Company has recorded an estimated minimum liability of $10.4 million
associated with this site.
At June 30, 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 $13.5 million to $17.2
million. The minimum estimated liability of $13.5 million has been recorded on the Consolidated
Balance Sheet at June 30, 2008, including the $10.4 million discussed above. 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
-41-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
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 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 disclosures in its notes to 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
-42-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Cont.)
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
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, and downturns in economic activity including
national or regional recessions; |
|
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; |
-43-
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Concl.)
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. |
|
Changes in the market price of timber and the impact such changes might have on the types and
quantity of timber harvested by the Company; |
|
20. |
|
Significant changes in tax rates or policies or in rates of inflation or interest; |
|
21. |
|
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; |
|
22. |
|
Changes in accounting principles or the application of such principles to the Company; |
|
23. |
|
The cost and effects of legal and administrative claims against the Company; |
|
24. |
|
Changes in actuarial assumptions and the return on assets with respect to the Companys
retirement plan and post-retirement benefit plans; |
|
25. |
|
Increasing health care costs and the resulting effect on health insurance premiums and on the
obligation to provide post-retirement benefits; or |
|
26. |
|
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 June 30, 2008.
-44-
Item 4. Controls and Procedures (Concl.)
Changes in Internal Controls Over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred
during the quarter ended June 30, 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.
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 referenced 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, as amended by Item 1A of the
Companys Form 10-Q for the quarter ended March 31, 2008, have not materially changed other than as
set forth below. The risk factor presented below supersedes the risk factor having the same caption
in the 2007 Form 10-K and should otherwise be read in conjunction with all of the risk factors
disclosed in the 2007 Form 10-K and the March 31, 2008 Form 10-Q.
National Fuel may be adversely affected by economic conditions.
Periods of slowed economic activity generally result in decreased energy consumption,
particularly by industrial and large commercial companies. As a consequence, national or regional
recessions or other downturns in economic activity could adversely affect National Fuels revenues
and cash flows or restrict its future growth. Economic conditions in National Fuels utility
service territories and energy marketing territories also impact its collections of accounts
receivable. Customers of National Fuels Utility and Energy Marketing segments may have particular
trouble paying their bills during periods of declining economic activity and high commodity prices,
potentially resulting in increased bad debt expense and reduced earnings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 1, 2008, the Company issued a total of 2,400 unregistered shares of Company common
stock to the eight non-employee directors of the Company who receive compensation under the
Companys Retainer Policy for Non-Employee 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 June 30, 2008. These transactions were exempt from registration by Section 4(2)
of the Securities Act of 1933 as transactions not involving a public offering.
-45-
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (Concl.)
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 |
|
Repurchase Plans |
|
Repurchase Plans |
Period |
|
Purchased(a) |
|
Paid per Share |
|
or Programs |
|
or Programs (b) |
Apr. 1 - 30, 2008 |
|
|
446,666 |
|
|
$ |
46.99 |
|
|
|
439,722 |
|
|
|
1,332,725 |
|
May 1 - 31, 2008 |
|
|
32,337 |
|
|
$ |
57.99 |
|
|
|
|
|
|
|
1,332,725 |
|
June 1 - 30, 2008 |
|
|
9,686 |
|
|
$ |
58.43 |
|
|
|
|
|
|
|
1,332,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
488,689 |
|
|
$ |
47.94 |
|
|
|
439,722 |
|
|
|
1,332,725 |
|
|
|
|
(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, and (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 6,944 in
April 2008, 32,337 in May 2008 and 9,686 in June 2008 (a three month total of 48,967). Of
those shares, 19,363 were purchased for the Companys 401(k) plans and 29,604 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 6. Exhibits
(a) Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
3(ii)
|
|
By-Laws: |
|
|
|
|
National Fuel Gas Company By-Laws as amended June 11, 2008
(incorporated herein by reference to Exhibit 3.1, Form 8-K dated June 16,
2008). |
|
|
|
4
|
|
Instruments defining the rights of security holders: |
|
|
4.1
|
|
Officers Certificate establishing 6.50% Notes due 2018, dated April 11,
2008 |
|
|
|
|
|
Amended and Restated Rights
Agreement, dated as of July 11, 2008, between National Fuel Gas Company and The Bank of New York, as rights
agent (incorporated herein by reference to Exhibit 4.1, Form 8-K
dated July 15, 2008). |
|
|
|
10
|
|
Material contracts: |
|
|
|
|
Director Services Agreement, dated as of June 1, 2008, between National Fuel
Gas Company and Philip C. Ackerman (incorporated herein by reference to Exhibit
99, Form 8-K dated June 16, 2008). |
|
|
|
12
|
|
Statements regarding Computation of Ratios: |
|
|
|
|
Ratio of Earnings to Fixed Charges for the Twelve Months Ended June
30, 2008 and the Fiscal Years Ended September 30, 2004 through 2007. |
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Item 6. Exhibits (Concl.)
|
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Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
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 June 30, 2008 and 2007. |
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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: August 8, 2008
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