Edgar Filing: NATIONAL FUEL GAS CO

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

[ ] 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)



New Jersey	13-1086010
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6363 Main Street
Williamsville, New York	14221
(Address of principal executive offices)	(Zip Code)

(716) 857-7000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES þ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer	þ	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	¨
		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share	NFG	New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common stock, par value $1.00 per share, outstanding at April 30, 2019: 86,306,427 shares.

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GLOSSARY OF TERMS

Frequently used abbreviations, acronyms, or terms used in this report:



National Fuel Gas Companies
Company	The Registrant, the Registrant and its subsidiaries or the Registrant’s subsidiaries as appropriate in the context of the disclosure
Distribution Corporation	National Fuel Gas Distribution Corporation
Empire	Empire Pipeline, Inc.
Midstream Company	National Fuel Gas Midstream Company, LLC
National Fuel	National Fuel Gas Company
NFR	National Fuel Resources, Inc.
Registrant	National Fuel Gas Company
Seneca	Seneca Resources Company, LLC
Supply Corporation	National Fuel Gas Supply Corporation



Regulatory Agencies
CFTC	Commodity Futures Trading Commission
EPA	United States Environmental Protection Agency
FASB	Financial Accounting Standards Board
FERC	Federal Energy Regulatory Commission
NYDEC	New York State Department of Environmental Conservation
NYPSC	State of New York Public Service Commission
PaDEP	Pennsylvania Department of Environmental Protection
PaPUC	Pennsylvania Public Utility Commission
SEC	Securities and Exchange Commission



Other
2018 Form 10-K	The Company’s Annual Report on Form 10-K for the year ended September 30, 2018
2017 Tax Reform Act	Tax legislation referred to as the "Tax Cuts and Jobs Act," enacted December 22, 2017.
Bbl	Barrel (of oil)
Bcf	Billion cubic feet (of natural gas)
Bcfe (or Mcfe) – represents Bcf (or Mcf) Equivalent	The total heat value (Btu) of natural gas and oil expressed as a volume of natural gas. The Company uses a conversion formula of 1 barrel of oil = 6 Mcf of natural gas.
Btu	British thermal unit; the amount of heat needed to raise the temperature of one pound of water one degree Fahrenheit
Capital expenditure	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	A cash resolution of a gas imbalance whereby a customer (e.g. a marketer) pays for gas the customer receives in excess of amounts delivered into pipeline/storage or distribution systems by the customer’s shipper.
Degree day	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	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, forward contracts, options, no cost collars and swaps.

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Development costs	Costs incurred to obtain access to proved oil and gas reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act.
Dth	Decatherm; one Dth of natural gas has a heating value of 1,000,000 British thermal units, approximately equal to the heating value of 1 Mcf of natural gas.
Exchange Act	Securities Exchange Act of 1934, as amended
Expenditures for long-lived assets	Includes capital expenditures, stock acquisitions and/or investments in partnerships.
Exploration costs	Costs incurred in identifying areas that may warrant examination, as well as costs incurred in examining specific areas, including drilling exploratory wells.
Exploratory well	A well drilled in unproven or semi-proven territory for the purpose of ascertaining the presence underground of a commercial hydrocarbon deposit.
FERC 7(c) application	An application to the FERC under Section 7(c) of the federal Natural Gas Act for authority to construct, operate (and provide services through) facilities to transport or store natural gas in interstate commerce.
Firm transportation and/or storage	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	Accounting principles generally accepted in the United States of America
Goodwill	An intangible asset representing the difference between the fair value of a company and the price at which a company is purchased.
Hedging	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	Location where pipelines intersect enabling the trading, transportation, storage, exchange, lending and borrowing of natural gas.
ICE	Intercontinental Exchange. An exchange which maintains a futures market for crude oil and natural gas.
Interruptible transportation and/or storage	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.
LDC	Local distribution company
LIBOR	London Interbank Offered Rate
LIFO	Last-in, first-out
Marcellus Shale	A Middle Devonian-age geological shale formation that is present nearly a mile or more below the surface in the Appalachian region of the United States, including much of Pennsylvania and southern New York.
Mbbl	Thousand barrels (of oil)
Mcf	Thousand cubic feet (of natural gas)
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
MDth	Thousand decatherms (of natural gas)
MMBtu	Million British thermal units (heating value of one decatherm of natural gas)
MMcf	Million cubic feet (of natural gas)
NEPA	National Environmental Policy Act of 1969, as amended
NGA	The Natural Gas Act of 1938, as amended; the federal law regulating interstate natural gas pipeline and storage companies, among other things, codified beginning at 15 U.S.C. Section 717.
NYMEX	New York Mercantile Exchange. An exchange which maintains a futures market for crude oil and natural gas.

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Open Season	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.
Precedent Agreement	An agreement between a pipeline company and a potential customer to sign a service agreement after specified events (called “conditions precedent”) happen, usually within a specified time.
Proved developed reserves	Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods.
Proved undeveloped (PUD) reserves	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.
Reserves	The unproduced but recoverable oil and/or gas in place in a formation which has been proven by production.
Revenue decoupling mechanism	A rate mechanism which adjusts customer rates to render a utility financially indifferent to throughput decreases resulting from conservation.
S&P	Standard & Poor’s Rating Service
SAR	Stock appreciation right
Service agreement	The binding agreement by which the pipeline company agrees to provide service and the shipper agrees to pay for the service.
Stock acquisitions	Investments in corporations
Utica Shale	A Middle Ordovician-age geological formation lying several thousand feet below the Marcellus Shale in the Appalachian region of the United States, including much of Ohio, Pennsylvania, West Virginia and southern New York.
VEBA	Voluntary Employees’ Beneficiary Association
WNC	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.

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INDEX		Page

Part I. Financial Information

Item 1. Financial Statements (Unaudited)		6

a. Consolidated Statements of Income and Earnings Reinvested in the Business - Three and Six Months Ended March 31, 2019 and 2018		6
b. Consolidated Statements of Comprehensive Income – Three and Six Months Ended March 31, 2019 and 2018		7
c. Consolidated Balance Sheets – March 31, 2019 and September 30, 2018		8
d. Consolidated Statements of Cash Flows – Six Months Ended March 31, 2019 and 2018		10
e. Notes to Condensed Consolidated Financial Statements		11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk		50
Item 4. Controls and Procedures		50

Part II. Other Information

Item 1. Legal Proceedings		50
Item 1 A. Risk Factors		50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3. Defaults Upon Senior Securities		•
Item 4. Mine Safety Disclosures		•
Item 5. Other Information		•
Item 6. Exhibits		51
Signatures		52

• The Company has nothing to report under this item.

All references to a certain year in this report are to the Company’s fiscal year ended September 30 of that year, unless otherwise noted.

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Part I. Financial Information

Item 1. Financial Statements

National Fuel Gas Company

Consolidated Statements of Income and Earnings

Reinvested in the Business

(Unaudited)



	Three Months Ended March 31,						Six Months Ended March 31,
(Thousands of U.S. Dollars, Except Per Common Share Amounts)	2019			2018			2019			2018
INCOME
Operating Revenues:
Utility and Energy Marketing Revenues	$	357,654		$	339,422		$	629,747		$	565,147
Exploration and Production and Other Revenues	146,467			147,868			310,403			288,318
Pipeline and Storage and Gathering Revenues	48,423			53,615			102,641			107,096
	552,544			540,905			1,042,791			960,561

Operating Expenses:
Purchased Gas	195,037			176,608			333,697			270,642
Operation and Maintenance:
Utility and Energy Marketing	48,559			46,708			92,475			90,789
Exploration and Production and Other	40,141			39,127			72,936			74,209
Pipeline and Storage and Gathering	27,249			22,916			52,182			43,227
Property, Franchise and Other Taxes	22,535			22,802			46,540			43,650
Depreciation, Depletion and Amortization	65,664			61,155			129,918			116,985
	399,185			369,316			727,748			639,502
Operating Income	153,359			171,589			315,043			321,059
Other Income (Expense):
Other Income (Deductions)	(5,919		)	(13,092		)	(15,521		)	(16,594		)
Interest Expense on Long-Term Debt	(25,273		)	(27,148		)	(50,713		)	(55,235		)
Other Interest Expense	(1,787		)	(1,233		)	(2,860		)	(1,736		)
Income Before Income Taxes	120,380			130,116			245,949			247,494
Income Tax Expense (Benefit)	29,785			38,269			52,693			(43,007		)

Net Income Available for Common Stock	90,595			91,847			193,256			290,501

EARNINGS REINVESTED IN THE BUSINESS
Balance at Beginning of Period	1,172,334			1,014,733			1,098,900			851,669
	1,262,929			1,106,580			1,292,156			1,142,170

Dividends on Common Stock	(36,678		)	(35,641		)	(73,342		)	(71,231		)
Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities	—			—			7,437			—
Cumulative Effect of Adoption of Authoritative Guidance for Reclassification of Stranded Tax Effects	10,406			—			10,406			—
Balance at March 31	$	1,236,657		$	1,070,939		$	1,236,657		$	1,070,939

Earnings Per Common Share:
Basic:
Net Income Available for Common Stock	$	1.05		$	1.07		$	2.24		$	3.39
Diluted:
Net Income Available for Common Stock	$	1.04		$	1.06		$	2.23		$	3.37
Weighted Average Common Shares Outstanding:
Used in Basic Calculation	86,290,047			85,809,233			86,159,932			85,718,779
Used in Diluted Calculation	86,767,673			86,323,636			86,738,809			86,318,892
Dividends Per Common Share:
Dividends Declared	$	0.425		$	0.415		$	0.850		$	0.830

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended March 31,						Six Months Ended March 31,
(Thousands of U.S. Dollars)	2019			2018			2019			2018
Net Income Available for Common Stock	$	90,595		$	91,847		$	193,256		$	290,501
Other Comprehensive Income (Loss), Before Tax:
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period	—			(678		)	—			(722		)
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period	(26,000		)	(12,582		)	19,390			(18,081		)
Reclassification Adjustment for Realized (Gains) Losses on Securities Available for Sale in Net Income	—			—			—			(430		)
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income	4,739			3,199			24,384			(9,349		)
Reclassification Adjustment for the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities to Earnings Reinvested in the Business	—			—			(11,738		)	—
Other Comprehensive Income (Loss), Before Tax	(21,261		)	(10,061		)	32,036			(28,582		)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period	—			(252		)	—			(317		)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period	(7,399		)	(3,519		)	5,593			(5,824		)
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Securities Available for Sale in Net Income	—			—			—			(158		)
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income	1,328			551			6,874			(4,646		)
Reclassification Adjustment for Income Tax Benefit (Expense) on the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities to Earnings Reinvested in the Business	—			—			(4,301		)	—
Reclassification Adjustment for Stranded Tax Effects Related to the 2017 Tax Reform Act to Earnings Reinvested in the Business	10,406			—			10,406			—
Income Taxes – Net	4,335			(3,220		)	18,572			(10,945		)
Other Comprehensive Income (Loss)	(25,596		)	(6,841		)	13,464			(17,637		)
Comprehensive Income	$	64,999		$	85,006		$	206,720		$	272,864

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Balance Sheets

(Unaudited)



	March 31, 2019		September 30, 2018
(Thousands of U.S. Dollars)
ASSETS
Property, Plant and Equipment	$	10,788,894	$	10,439,839
Less - Accumulated Depreciation, Depletion and Amortization	5,573,020		5,462,696
	5,215,874		4,977,143
Current Assets
Cash and Temporary Cash Investments	100,643		229,606
Hedging Collateral Deposits	1,983		3,441
Receivables – Net of Allowance for Uncollectible Accounts of $30,234 and $24,537, Respectively	235,586		141,498
Unbilled Revenue	60,196		24,182
Gas Stored Underground	6,848		37,813
Materials and Supplies - at average cost	37,695		35,823
Unrecovered Purchased Gas Costs	5,760		4,204
Other Current Assets	57,586		68,024
	506,297		544,591

Other Assets
Recoverable Future Taxes	113,441		115,460
Unamortized Debt Expense	14,922		15,975
Other Regulatory Assets	108,193		112,918
Deferred Charges	39,634		40,025
Other Investments	135,022		132,545
Goodwill	5,476		5,476
Prepaid Post-Retirement Benefit Costs	86,802		82,733
Fair Value of Derivative Financial Instruments	11,130		9,518
Other	42,184		102
	556,804		514,752

Total Assets	$	6,278,975	$	6,036,486

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Balance Sheets

(Unaudited)



	March 31, 2019			September 30, 2018
(Thousands of U.S. Dollars)
CAPITALIZATION AND LIABILITIES
Capitalization:
Comprehensive Shareholders’ Equity
Common Stock, $1 Par Value
Authorized - 200,000,000 Shares; Issued And Outstanding – 86,300,675 Shares and 85,956,814 Shares, Respectively	$	86,301		$	85,957
Paid in Capital	821,837			820,223
Earnings Reinvested in the Business	1,236,657			1,098,900
Accumulated Other Comprehensive Loss	(54,286		)	(67,750		)
Total Comprehensive Shareholders’ Equity	2,090,509			1,937,330
Long-Term Debt, Net of Current Portion and Unamortized Discount and Debt Issuance Costs	2,132,488			2,131,365
Total Capitalization	4,222,997			4,068,695

Current and Accrued Liabilities
Notes Payable to Banks and Commercial Paper	—			—
Current Portion of Long-Term Debt	—			—
Accounts Payable	141,851			160,031
Amounts Payable to Customers	15,463			3,394
Dividends Payable	36,678			36,532
Interest Payable on Long-Term Debt	18,508			19,062
Customer Advances	433			13,609
Customer Security Deposits	18,519			25,703
Other Accruals and Current Liabilities	195,797			132,693
Fair Value of Derivative Financial Instruments	5,749			49,036
	432,998			440,060

Deferred Credits
Deferred Income Taxes	618,850			512,686
Taxes Refundable to Customers	365,380			370,628
Cost of Removal Regulatory Liability	215,864			212,311
Other Regulatory Liabilities	156,722			146,743
Pension and Other Post-Retirement Liabilities	49,213			66,103
Asset Retirement Obligations	104,138			108,235
Other Deferred Credits	112,813			111,025
	1,622,980			1,527,731
Commitments and Contingencies (Note 7)	—			—

Total Capitalization and Liabilities	$	6,278,975		$	6,036,486

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Consolidated Statements of Cash Flows

(Unaudited)



	Six Months Ended March 31,
(Thousands of U.S. Dollars)	2019			2018
OPERATING ACTIVITIES
Net Income Available for Common Stock	$	193,256		$	290,501
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation, Depletion and Amortization	129,918			116,985
Deferred Income Taxes	90,468			(62,459		)
Stock-Based Compensation	10,731			7,862
Other	7,997			8,052
Change in:
Receivables and Unbilled Revenue	(130,377		)	(123,954		)
Gas Stored Underground and Materials and Supplies	29,093			28,004
Unrecovered Purchased Gas Costs	(1,556		)	4,197
Other Current Assets	10,438			(8,819		)
Accounts Payable	10,226			10,838
Amounts Payable to Customers	12,069			12,083
Customer Advances	(13,176		)	(15,547		)
Customer Security Deposits	(7,184		)	(1,399		)
Other Accruals and Current Liabilities	48,028			37,646
Other Assets	(38,686		)	(9,541		)
Other Liabilities	(10,410		)	(5,767		)
Net Cash Provided by Operating Activities	340,835			288,682

INVESTING ACTIVITIES
Capital Expenditures	(386,579		)	(261,720		)
Net Proceeds from Sale of Oil and Gas Producing Properties	—			17,310
Other	(2,616		)	5,355
Net Cash Used in Investing Activities	(389,195		)	(239,055		)

FINANCING ACTIVITIES
Reduction of Long-Term Debt	—			(307,047		)
Dividends Paid on Common Stock	(73,197		)	(71,091		)
Net Proceeds from Issuance (Repurchase) of Common Stock	(8,864		)	2,891
Net Cash Used in Financing Activities	(82,061		)	(375,247		)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash	(130,421		)	(325,620		)
Cash, Cash Equivalents, and Restricted Cash at October 1	233,047			557,271
Cash, Cash Equivalents, and Restricted Cash at March 31	$	102,626		$	231,651

Supplemental Disclosure of Cash Flow Information
Non-Cash Investing Activities:
Non-Cash Capital Expenditures	$	74,929		$	51,939

See Notes to Condensed Consolidated Financial Statements

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National Fuel Gas Company

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1 - Summary of Significant Accounting Policies

Principles of Consolidation. The Company consolidates all entities in which it has a controlling financial interest. All significant intercompany balances and transactions are eliminated. The Company uses proportionate consolidation when accounting for drilling arrangements related to oil and gas producing properties accounted for under the full cost method of accounting.

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.

Reclassifications. In November 2016, the FASB issued authoritative guidance related to the presentation of restricted cash on the statement of cash flows. The new guidance requires restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows, and requires disclosure of how cash and cash equivalents on the statement of cash flows reconciles to the balance sheet. The Company considers Hedging Collateral Deposits to be restricted cash. The Company adopted this guidance effective October 1, 2018 on a retrospective basis. As a result, prior periods have been reclassified to conform to the current year presentation. Additional discussion is provided below at Consolidated Statement of Cash Flows.

In March 2017, the FASB issued authoritative guidance related to the presentation of net periodic pension cost and net periodic postretirement benefit cost. The new guidance requires segregation of the service cost component from the other components of net periodic pension cost and net periodic postretirement benefit cost for financial reporting purposes. The service cost component is to be presented on the income statement in the same line items as other compensation costs included within Operating Expenses and the other components of net periodic pension cost and net periodic postretirement benefit cost are to be presented on the income statement below the subtotal labeled Operating Income (Loss). Under this guidance, the service cost component is eligible to be capitalized as part of the cost of inventory or property, plant and equipment while the other components of net periodic pension cost and net periodic postretirement benefit cost are generally not eligible for capitalization, unless allowed by a regulator. The Company adopted this guidance effective October 1, 2018. The Company applied the guidance retrospectively for the pension and postretirement benefit costs using amounts disclosed in prior period financial statement notes as estimates for the reclassifications in accordance with a practical expedient allowed under the guidance. For the quarter and six months ended March 31, 2018, Operating Income increased $14.9 million and $22.4 million, respectively, and Other Income (Deductions) decreased by the same amounts as a result of the reclassifications. For the quarter and six months ended March 31, 2019, Other Income (Deductions) includes $12.4 million and $19.8 million, respectively, of pension and postretirement benefit costs.

Earnings for Interim Periods. The Company, in its opinion, has included all adjustments (which consist of only normally recurring adjustments, unless otherwise disclosed in this Form 10-Q) 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, 2018, 2017 and 2016 that are included in the Company's 2018 Form 10-K. The consolidated financial statements for the year ended September 30, 2019 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.

The earnings for the six months ended March 31, 2019 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2019. 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 Company’s business segments are discussed more fully in Note 8 – Business Segment Information.

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Consolidated Statements of Cash Flows. The components, as reported on the Company’s Consolidated Balance Sheets, of the total cash, cash equivalents, and restricted cash presented on the Statement of Cash Flows are as follows (in thousands):



	Six Months Ended March 31, 2019				Six Months Ended March 31, 2018
	Balance at October 1, 2018		Balance at March 31, 2019		Balance at October 1, 2017		Balance at March 31, 2018

Cash and Temporary Cash Investments	$	229,606	$	100,643	$	555,530	$	227,994
Hedging Collateral Deposits	3,441		1,983		1,741		3,657
Cash, Cash Equivalents, and Restricted Cash	$	233,047	$	102,626	$	557,271	$	231,651

The Company considers all highly liquid debt instruments purchased with a maturity date of generally three months or less to be cash equivalents. The Company’s restricted cash is comprised entirely of amounts reported as Hedging Collateral Deposits on the Consolidated Balance Sheets. Hedging Collateral Deposits is an account title for cash held in margin accounts funded by the Company to serve as collateral for hedging positions. In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instruments liability or asset balances.

Gas Stored Underground. In the Utility segment, gas stored underground is carried at lower of cost or net realizable value, on a LIFO method. Gas stored underground 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 $36.9 million at March 31, 2019, is reduced to zero by September 30 of each year as the inventory is replenished.

Property, Plant and Equipment. In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.

Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired. Such costs amounted to $64.9 million and $62.2 million at March 31, 2019 and September 30, 2018, respectively. All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the pool of capitalized costs being amortized.

Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The natural gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter. At March 31, 2019, the ceiling exceeded the book value of the oil and gas properties by approximately $577.5 million. In adjusting estimated future cash flows for hedging under the ceiling test at March 31, 2019, estimated future net cash flows were decreased by $37.0 million.

Table of Contents

Accumulated Other Comprehensive Loss. The components of Accumulated Other Comprehensive Loss and changes for the six months ended March 31, 2019 and 2018, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):



	Gains and Losses on Derivative Financial Instruments			Gains and Losses on Securities Available for Sale			Funded Status of the Pension and Other Post-Retirement Benefit Plans			Total
Three Months Ended March 31, 2019
Balance at January 1, 2019	$	17,886		$	—		$	(46,576	)	$	(28,690	)
Other Comprehensive Gains and Losses Before Reclassifications	(18,601		)	—			—			(18,601		)
Amounts Reclassified From Other Comprehensive Income (Loss)	3,411			—			—			3,411
Reclassification of Stranded Tax Effects Related to the 2017 Tax Reform Act	1,866			—			(12,272		)	(10,406		)
Balance at March 31, 2019	$	4,562		$	—		$	(58,848	)	$	(54,286	)
Six Months Ended March 31, 2019
Balance at October 1, 2018	$	(28,611	)	$	7,437		$	(46,576	)	$	(67,750	)
Other Comprehensive Gains and Losses Before Reclassifications	13,797			—			—			13,797
Amounts Reclassified From Other Comprehensive Income (Loss)	17,510			—			—			17,510
Reclassification Adjustment for the Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities	—			(7,437		)	—			(7,437		)
Reclassification of Stranded Tax Effects Related to the 2017 Tax Reform Act	1,866			—			(12,272		)	(10,406		)
Balance at March 31, 2019	$	4,562		$	—		$	(58,848	)	$	(54,286	)
Three Months Ended March 31, 2018
Balance at January 1, 2018	$	10,256		$	7,311		$	(58,486	)	$	(40,919	)
Other Comprehensive Gains and Losses Before Reclassifications	(9,063		)	(426		)	—			(9,489		)
Amounts Reclassified From Other Comprehensive Income (Loss)	2,648			—			—