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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
COMMISSION FILE NUMBER: 1-11156
NGC CORPORATION
(Exact name of registrant as specified in its charter)
AND EACH OF THE SUBSIDIARY GUARANTORS OF $250 MILLION OF DEBT SECURITIES
DELAWARE 75-2386657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13430 NORTHWEST FREEWAY
HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 507-6400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, par value $.01 New York Stock Exchange
per share 6.75% Debt Securities
due 2005
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate value of Common Stock held by non-affiliates of the registrant was
approximately $237,388,000 on March 28, 1996, (based on $12.25 per share, the
last sale price of the Common Stock as reported on the New York Stock Exchange
Composite Tape on such date). 110,722,066 shares of the registrant's Common
Stock were outstanding as of March 28, 1996.
DOCUMENTS INCORPORATED BY REFERENCE. As to Part III (items 10, 11, 12 and 13),
Notice and Proxy Statement for the 1996 Annual Meeting of Stockholders to be
filed not later than 120 days after December 31, 1995.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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NGC CORPORATION
FORM 10-K
Page
PART I
ITEM 1A Executive Officers ...............................................
ITEM 2 Properties .......................................................
ITEM 3 Legal Proceedings ................................................
ITEM 4 Submission Of Matters To A Vote Of Security Holders ..............
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters ..........................................
Item 6 Selected Financial Data ..........................................
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................
Item 8 Financial Statements and Supplementary Data ......................
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .....................................
PART III
Item 10 Directors and Executive Officers of the Registrant ...............
Item 11 Executive Compensation ...........................................
Item 12 Security Ownership of Certain Beneficial Owners and Management ...
Item 13 Certain Relationships and Related Transactions ...................
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K .
Signatures ..................................................................
For definitions of certain terms used herein, see "Item 1. BUSINESS --
DEFINITIONS."
PART I
ITEM 1. BUSINESS
THE COMPANY
GENERAL
NGC Corporation ("NGC" or the "Company") is a leading North American
marketer of natural gas, natural gas liquids, crude oil and electric power and
is engaged in natural gas gathering, processing and transportation through
ownership and operation of natural gas processing plants, storage facilities and
pipelines. Acting in the role of a large-scale aggregator, processor, marketer
and reliable supplier of multiple energy products and services, NGC has evolved
into a "one-stop" energy commodity and service provider. Through joint ventures
in both Canada and the United Kingdom, the Company has expanded geographically
its vision of providing customers with multiple energy commodity needs combined
with cost-effective products and value added services. For the year ended
December 31, 1995, the Company reported revenues of $3.7 billion and net income
of $92.7 million.
NGC is a holding company that operates principally through two
subsidiaries, Natural Gas Clearinghouse ("Clearinghouse") and Trident NGL, Inc.
("Trident"). The Company is the result of a strategic business combination
("Combination"), consummated on March 14, 1995, between Clearinghouse and
Trident NGL Holding, Inc. ("Holding"), under which Holding was renamed NGC
Corporation. Following the Combination, British Gas plc, a United Kingdom
company ("British Gas"), and NOVA Corporation, an Alberta, Canada, company
("NOVA"), each indirectly owns approximately 35 percent of the outstanding
shares of common stock of the Company. British Gas and NOVA are among the
world's leading integrated natural gas service companies.
The principal executive office of the Company is located at 13430 Northwest
Freeway, Suite 1200, Houston, Texas 77040, and the telephone number of that
office is (713) 507-6400. NGC and its affiliates maintain marketing offices in
Boston, Massachusetts; Phoenix, Arizona; Englewood, Colorado; Rosemont,
Illinois; Tulsa, Oklahoma; Portland, Oregon; Pittsburgh, Pennsylvania; Mexico
City, Mexico; London, England and Calgary, Canada.
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DEFINITIONS
As used in this Form 10-K, the abbreviations listed below are defined
as follows:
BBL. 42 U.S. gallons, the basic unit for measuring
crude oil and natural gas condensate.
MBBLS. Volume of one thousand barrels.
MBBLS/D. Volume of one thousand barrels per day.
MMBBLS. Volume of one million barrels.
MMCF/D. Volume of one million cubic feet per day.
MMGALS. Volume of one millions gallons.
BCF. Volume of one billion cubic feet.
BCF/D. Volume of one billion cubic feet per day.
BPD. Barrels per day.
NGL Natural Gas Liquids.
SPOT. The Henry Hub cash price posting for natural gas
per the Inside FERC publication.
GROSS NGL PRODUCTION. The total volume of natural gas liquids extracted
from a natural gas stream by a gas processing
plant, adjusted for the Company's ownership
percentage in the plant.
NET NGL PRODUCTION. Gross NGL Production less volume taken-in-kind.
NYMEX New York Mercantile Exchange.
1
ACQUISITION OF GAS MARKETING AND MIDSTREAM ASSETS
On January 22, 1996, NGC and Chevron Corporation ("Chevron") jointly
announced they had entered into exclusive negotiations to merge substantially
all of Chevron's gas gathering, processing and marketing operations with NGC.
The combined company, which may retain the name NGC Corporation, will include
all of NGC and most of two Chevron business units: the Houston-based Natural Gas
Business Unit and Tulsa-based Warren Petroleum Company. As part of the proposed
transaction, NGC will market virtually all of Chevron's North American natural
gas production, NGLs and electricity as well as supply energy and feedstock to
virtually all of Chevron's refineries, chemical plants and other North American
facilities. For its contribution, Chevron will receive a total of 45.8 million
shares in the new company, in a combination of common and preferred stock, and
$300 million in cash and notes. Following consummation of the transaction,
Chevron, British Gas and NOVA will each own approximately 25 percent of the
outstanding common stock of the new company. The proposed transaction is
expected to be finalized in the second quarter of 1996.
The combination of NGC and the two Chevron business units will make the
combined company the leading marketer of natural gas in North America, with
average daily sales in excess of 10 billion cubic feet, or an estimated 14
percent of total North American gas consumption. The proposed transaction will
also establish NGC as the second largest producer and largest marketer of NGLs
in North America, with production of approximately 140,000 barrels per day and
sales of approximately 470,000 barrels per day. In addition, the proposed
transaction will allow NGC to expand its international operations and will
provide Chevron with an enhanced stake in the developing U.S. electric power
marketing industry.
BUSINESS
The Company has two primary business segments: (i) the natural gas and
electric power marketing segment and (ii) the natural gas liquids, crude oil and
gas transmission segment.
NATURAL GAS AND ELECTRIC POWER MARKETING
The Company's natural gas marketing activities consist of contracting to
purchase specific volumes of natural gas from suppliers at various points of
receipt to be supplied over a specific period of time; aggregating natural gas
supplies and arranging for the transportation of these gas supplies through
proprietary and third-party transmission systems; negotiating the sale of
specific volumes of natural gas over a specific period of time to local
distribution companies, utilities, power plants and other end-users; and
matching natural gas receipts and deliveries based on volumes required by
customers. The Company is also a provider of electric power products and
services in the United States.
NATURAL GAS PURCHASES. The Company purchases natural gas from a variety of
suppliers under contracts with varying terms and conditions intended to ensure a
stable supply of natural gas. When purchasing natural gas, the Company considers
price, location, liquids content and quantities available. In 1995, the Company
purchased natural gas in every major producing basin in the United States and
Canada from over 600 suppliers, ranging from major producers to small
independent companies. In recent years, Pan-Alberta Gas Ltd. ("Pan Alberta Gas")
and Apache Corporation ("Apache") were significant suppliers of natural gas to
the Company. An affiliate of the Company, Novagas Clearinghouse Ltd. ("NCL"),
acquired Pan Alberta Gas from NOVA in the second quarter of 1995 and effective
September 30, 1995, the gas supply contract with Apache terminated. The Company
believes sufficient alternative sources of natural gas are available and that
the termination of the Company's contract with Apache will not adversely affect
the Company's business. Further, the Company believes that the aforementioned
Chevron transaction will provide the Company with a significant natural gas
supply source. However, there can be no assurance that the Chevron transaction
will be consummated on the terms currently contemplated, if at all.
TRANSPORTATION. The Company arranges for transportation of the natural gas
it markets from the supplier receipt point to the delivery point requested by
the purchaser by utilizing its proprietary management information system to
schedule and nominate pipeline transportation and monitor transportation
availability. The Company generally retains title to the natural gas from the
receipt point to the delivery point and obtains transportation on unaffiliated
pipelines. The Company believes that its understanding of the United States'
pipeline network, along with the scale and geographic reach of its gas marketing
efforts, are important to the Company's success as a gas marketer. These
factors, as well as its efficiency in utilizing the gas transportation network,
allow the Company to provide its suppliers with multiple outlets for their
natural gas and, in times of significant changes in demand or supply due to
weather or other factors, to route gas to areas of the United States where it is
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most needed. The Company attempts to reduce transportation charges by taking
advantage of its broad array of transportation agreements and by negotiating
competitive discounts. The Company uses a variety of transportation arrangements
to move its customers' volumes, including short-term and long-term firm and
interruptible agreements with pipelines and its customers.
NATURAL GAS SALES. The Company sells natural gas under sales agreements
that have varying terms and conditions intended to match seasonal and other
changes in demand. The Company's customer base consists primarily of gas and
electric utilities and industrial and commercial end-users. In 1995, sales were
made to over 850 customers located throughout the United States and parts of
Canada. For the year ended December 31, 1995, the Company's North American
operations sold an aggregate average of approximately 5.8 Bcf per day of natural
gas and during the fourth quarter of 1995 sold an aggregate 6.8 Bcf of natural
gas per day.
NATURAL GAS STORAGE, MARKETING HUBS AND MANAGEMENT INFORMATION SYSTEMS.
Natural gas storage capacity plays an important role in the Company's ability to
act as a full-service natural gas marketer by allowing it to manage relatively
constant gas supply volumes with uneven demand levels. Through the use of its
storage capabilities, the Company offers peak delivery services to satisfy
winter heating and summer electric-generating demands. Storage inventories also
provide performance security or "backup" service to the Company's customers. The
Company at various times leases short-term and long-term firm and interruptible
storage across the country.
The Company, together with three major gas utilities, maintains three
natural gas market area hubs to allow customers to manage short-term prices and
help solve imbalance and transportation problems. These strategic market hubs,
located where regional interstate pipelines converge, are designed to bring
buyers and sellers together over a broad geographic area. Services offered by
the hubs include wheeling, loaning, parking and title transfer, which complement
existing natural gas supply, transportation and storage services, and contribute
to a more efficient, reliable, cost-effective marketplace. Wheeling refers to
the simultaneous transfer of natural gas from one pipeline to another, while
loaning occurs when one party allows another party to borrow natural gas.
Parking services allow a customer to store natural gas in a hub for future
redelivery, while title transfer services allow a customer to assign title to
natural gas that is in storage.
The Company has developed a proprietary administrative, accounting and
management information system for its natural gas marketing and transportation
businesses and a complementary risk management information system. The Company
believes these proprietary systems provide it with a competitive advantage in
its natural gas marketing business.
FOREIGN MARKETS. The Company has entered into a joint venture with each of
its two principal stockholders, NOVA and British Gas, to provide energy
marketing services in Canada, the United Kingdom and Western Europe. The Company
owns an approximate 50 percent interest in NCL and a 49 percent interest in
Accord Energy Limited. ("Accord") and jointly controls each of these ventures.
NCL, formed by the Company and NOVA in 1994, is a full-service gas
gathering, processing, storage and marketing company operating in Canada. By
combining the Company's marketing and risk management capabilities with NOVA's
established operations and technical expertise, NCL is strategically positioned
to provide Canadian producers and consumers with comprehensive, value-added
services. NCL supplies natural gas and provides related services to customers in
the utility, industrial, commercial and other core marketing segments across
Canada. As previously stated, in June 1995 NCL acquired Pan Alberta Gas which
has served Canadian producers for more than 20 years as a major aggregator,
transporter and marketer of natural gas. The combined operations of NCL and Pan
Alberta Gas sold an average of 3.1 Bcf per day of natural gas in the fourth
quarter of 1995.
Accord was formed by the Company and British Gas in 1994 to develop energy
marketing and trading opportunities in the United Kingdom and, ultimately,
Western Europe. Accord is an active participant in the U.K. wholesale natural
gas and crude oil markets and purchases products from a wide assortment of
producers, including British Gas. In the fourth quarter of 1995, Accord sold an
average 0.5 Bcf per day of natural gas.
ELECTRIC POWER MARKETING. The Company formed Electric Clearinghouse, Inc.
("ECI") in February 1994 to pursue electric power marketing opportunities that
are being created as the domestic electric power industry becomes deregulated.
On January 1, 1995, ECI's trading center began real-time operations, trading and
scheduling power 24 hours a day, 365 days a year. ECI is also an electricity
risk management market maker, providing products and services similar to those
that are currently used
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in the natural gas industry to manage customers' price risks. The Company's
electric power sales averaged 402 megawatts per hour in 1995 and have increased
from an average of 88 megawatts per hour in January 1995 to an average of 651
megawatts per hour during the last quarter of 1995.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
The Company's natural gas liquids, crude oil and gas transmission segment
includes natural gas gathering and processing, fractionation, NGL marketing,
natural gas transmission and crude oil marketing operations. The Company's
natural gas liquids business complements its natural gas marketing business by
providing the Company's customers with a full range of NGL products and related
services.
NATURAL GAS GATHERING AND PROCESSING. The natural gas processing industry
is a major segment of the oil and gas industry, providing the necessary service
of refining raw natural gas into marketable pipeline quality natural gas and
NGLs. The Company currently owns interests in 33 gas processing plants,
including 26 plants which it operates, and operates approximately 10,700 miles
of natural gas gathering pipeline systems. These assets are primarily located in
the key producing areas of Texas, Louisiana, Oklahoma and Kansas. During 1995,
on a pro forma basis giving effect to the Combination, the Company processed an
average of more than 2.0 Bcf per day of natural gas and produced an average of
84,000 barrels per day of NGLs, net to the Company's ownership interest.
FRACTIONATION. The NGLs removed from the natural gas stream at gas
processing plants are generally in the form of a commingled stream of liquid
hydrocarbons (raw product). The commingled NGLs are separated at fractionation
facilities into the component products ethane, propane, normal butane, isobutane
and natural gasoline. The Company has ownership interests in three fractionation
facilities. During 1995, the Company received 1,756 million gallons of product
for fractionation.
NGL MARKETING. The Company maintains a diversified NGL marketing program,
which includes all commercial NGL products, and currently markets these products
through a number of delivery means, including pipelines, trucks, tank cars,
barges and ships. The Company markets its own NGL production and also purchases
NGLs from third parties for resale. Through the Company's strategic combination
of pipeline connections, terminals and storage facilities, the Company moves NGL
products from producing regions in the Gulf Coast and Midwest to most major
domestic and international markets. The Company operates a large-scale marine
terminal in Hackberry, Louisiana, which can be used for both exporting and
importing NGLs. This terminal offers importers a variety of methods for
transporting products to the marketplace.
NGLs are typically consumed as a fuel or as petrochemical or petroleum
refining feedstocks. NGL fuel markets are dominated by propane, which is used in
commercial and residential heating and cooking, crop drying and as a motor fuel.
Petrochemical feedstocks are used principally in the production of ethylene, a
chemical used in the production of various plastics.
NATURAL GAS TRANSMISSION. Ozark Gas Transmission System ("Ozark"), acquired
by the Company in May 1995, expanded the Company's transmission capabilities.
Ozark gathers gas from eastern Oklahoma and transports it to central Arkansas,
where the system interconnects with interstate pipelines that serve the Midwest
and Northeast markets. The Company also operates an intrastate natural gas
pipeline system in south-central Kansas, which serves markets in the Wichita
area and throughout the Midwest and Mid-Continent areas on interconnected
intrastate and interstate pipelines.
CRUDE OIL MARKETING. The Company provides a full range of crude oil
marketing services to producers, and serves the United States refining community
as a regionally diversified supplier of crude oil. Through its participation in
major trading centers in the Mid-Continent, Rocky Mountain and Gulf Coast areas,
the Company has established itself as a dependable source of competitively
priced crude oil. In August 1995, the Company acquired the Oklahoma crude oil
pipeline and truck gathering assets of Kerr-McGee Refining & Marketing
Corporation. The 1,300-mile system gathers crude oil in 25 central and southern
Oklahoma counties, accessing more than half of the state's production, and
serves the U.S. crude oil trading hub in Cushing, Oklahoma and the Wynnewood,
Oklahoma refinery.
4
RISK MANAGEMENT ACTIVITIES
NGC utilizes certain types of fixed-price contracts in connection with
its natural gas and NGL marketing lines of business. These contracts include
contracts which commit the Company to purchase or sell energy commodities at
fixed prices in the future (i.e. fixed-price forward purchase and sales
contracts), futures and options contracts traded on the NYMEX and swaps and
options traded in the over-the-counter financial markets.
The availability and use of these types of contracts allow NGC to
manage and hedge its fixed-price purchase and sales commitments, to provide
fixed-price commitments as a service to its customers and suppliers, to reduce
its exposure relative to the volatility of cash market prices and to protect its
investment in storage inventories. The Company may, at times, have a bias in the
market, within established limits, resulting from the management of its
portfolio. In addition, by utilizing exchange for physical transactions allowed
by the NYMEX, which enable entities to take delivery of, or sell, a physical
quantity of natural gas in exchange for a futures position, NGC is able to
secure additional sources of physical natural gas supply, or create additional
markets for existing supply, through the use of natural gas futures contracts.
These fixed-price activities are referred to herein as risk management
activities.
Although the Company generally attempts to balance its fixed-price
physical and financial purchase and sales contracts in terms of contract volumes
and the timing of performance and delivery obligations, net open positions often
exist or are established due to the origination of new transactions and the
assessment of, and response to, changing market conditions. NGC will take
advantage of its bias in the market when it believes, based upon competitive
information gained from its energy marketing activities, that future price
movements will be consistent with its net open position. To the extent net open
positions exist, NGC is exposed to the risk that fluctuating market prices may
adversely impact its financial position or results of operations.
In addition to the risk associated with price movements, credit risk is
also inherent in the Company's risk management activities. Credit risk relates
to the risk of loss resulting from the nonperformance of contractual obligations
by a counterparty. NGC maintains credit policies with regard to its
counterparties which the Company believes significantly minimizes its overall
credit risk.
NGC has established a risk management committee which oversees its risk
management activities. This committee meets regularly to establish the Company's
overall risk management strategy and to monitor and ensure compliance with risk
management limitations, policies and procedures.
To assist in the monitoring of its risk management activities, NGC has
developed a risk management information system which allows monitoring of its
risk management activities and provides the wherewithal to assess the impact of
changing market conditions. The Company believes this proprietary risk
management information system provides risk management monitoring capability
rarely duplicated by its competitors.
THE COMBINATION
On October 21, 1994, Clearinghouse and Holding entered into a
definitive agreement providing for the strategic business combination of the two
companies. The Combination was consummated on March 14, 1995, with an effective
date of March 1, 1995, for accounting purposes.
Pursuant to the terms of the Combination, Holding, the legally
surviving corporation in the Combination, was renamed NGC Corporation and (i)
acquired through a tender offer (the "Tender Offer") 14.2 million shares of
Holding common stock (representing approximately 50 percent of the Holding
common stock outstanding immediately prior to the consummation of the
Combination) for $11.75 per share, net to the seller in cash; (ii) acquired
directly and indirectly, all of the outstanding general partnership interests in
Clearinghouse; (iii) the former owners of the partners of Clearinghouse (the
"Clearinghouse Owners") acquired 82 percent of the outstanding shares of NGC
common stock (giving effect to the issuance, but not allocation, of the
"Contingent Shares" (as defined below)), and (iv) the stockholders of Holding
prior to consummation of the Combination retained shares of common stock
representing approximately 13 percent of the outstanding shares of NGC common
stock (giving effect to the issuance, but not allocation, of the Contingent
Shares). The Contingent Shares, which total 5,461,538 shares of NGC common stock
and represent approximately 5 percent of the outstanding shares of NGC common
stock after giving effect
5
to the issuance of such shares, will be allocated in March 1996 in a ratio of 17
percent to the former stockholders of Holding and 83 percent to the
Clearinghouse Owners.
The Combination was accounted for under the purchase method of
accounting. Because the Clearinghouse Owners acquired approximately 82 percent
of NGC, Clearinghouse was the acquiring company for accounting purposes.
Accordingly, the purchase price of approximately $350 million was allocated to
the Trident assets acquired and liabilities assumed based on their estimated
fair values as of March 1, 1995, and the results of operations presented in the
financial statements contained in Item 8. of this Form 10-K include Trident's
results from March 1, 1995, forward.
RECENT DEVELOPMENTS
In 1995, NGC filed with the Securities and Exchange Commission a shelf
registration that provides for the issuance of $250 million of debt securities
pursuant to Rule 415 of the Securities Act of 1933. On December 15, 1995, under
this shelf registration, the Company sold $150 million of 6.75% Senior Notes due
December 15, 2005 ("Notes"). The Notes were issued at a price of 99.984 percent,
which, after deducting underwriting discounts and commissions, resulted in net
proceeds to the Company of approximately $149 million. Proceeds from the sale of
these notes were used to repay a portion of the Company's outstanding bank debt
under its $550 million revolving credit facility.
During 1995, the Company consummated several strategic asset
acquisitions, each of which expanded core business operations or enhanced the
economic viability of non-core businesses. Each of these transactions was
accounted for as a purchase of assets with the results of operations of the
acquired asset(s) included in the Company's consolidated results of operations
from the effective date of the transaction forward.
Effective May 1, 1995, NGC acquired Ozark for $44.8 million. Ozark
gathers gas from eastern Oklahoma and transports it to central Arkansas, where
the system interconnects with interstate pipelines that serve the Midwest and
Northeast markets. The Ozark gas transmissions system is a 266-mile interstate
natural gas pipeline having design capacity of 170 MMcf/d.
Effective June 1, 1995, NCL acquired Pan Alberta Gas from NOVA. NGC, as
an approximate 50 percent partner in NCL, contributed $13.7 million in cash to
NCL, representing its proportionate share of the acquisition value of Pan
Alberta Gas. The combined NCL/Pan Alberta Gas entity offers natural gas supply
services to consumers across Canada and provides gas gathering, processing,
storage and marketing services to Canadian natural gas producers. The
acquisition of Pan Alberta Gas provided NCL with access to long-term Canadian
gas supplies and ownership of the limited supply of pipeline capacity extending
across the border from Canada to the U.S.
In August 1995, the Company acquired the Oklahoma crude oil pipeline
and truck gathering assets of Kerr-McGee Refining & Marketing Corporation for
$8.3 million. The 1,300-mile system gathers crude oil in 25 central and southern
Oklahoma counties, accessing more than half of the state's production, and
serves the U.S. crude oil trading hub in Cushing, Oklahoma, and the Wynnewood,
Oklahoma refinery.
In October 1995, NGC purchased various gas gathering and processing
assets located in Kansas and Oklahoma from Sheffield Exploration Company, Inc.,
for $5.5 million. The Kansas-based assets include 284 miles of gathering lines
having throughput capacity of 7 MMcf/d and a storage reservoir having 1.2
billion cubic feet of capacity. The assets located in Oklahoma include 10 miles
of gathering lines and a gas processing facility capable of processing 4.5
MMcf/d.
In December 1995, NGC acquired the 180-mile Okeene gas gathering system
from ONG Gas Gathering Company, a subsidiary of ONEOK, Inc., for $2.4 million.
The gathering system extends through several central Oklahoma counties and
gathers approximately 18.5 million cubic feet per day of natural gas.
In February 1996, the Company consummated the acquisition of LPG
Services Group, Inc. ("LPG"), a Kansas City-based propane gas marketing and
distribution company for $2 million in cash and up to an additional $6.25
million in conditional payments primarily based on LPG's financial performance.
The acquisition of LPG provides the Company with a developed wholesale propane
marketing infrastructure which, in conjunction with NGC's established production
base and supply system, expands the Company's propane business nationwide.
6
COMPETITION
All phases of the businesses in which NGC is engaged are highly
competitive. In connection with both domestic and foreign operations, the
Company encounters strong competition from companies of all sizes, having
varying levels of financial and personnel resources.
NGC competes in its gas marketing business with other natural gas
merchants, producers and pipelines for sales based on its ability to aggregate
competitively priced supplies from a variety of sources and locations and to
efficiently utilize transportation through third-party pipelines. In past years,
the spot marketing business had a low cost barrier to entry; therefore, a number
of the Company's competitors were privately owned and relatively small in size
and may have been comparatively undercapitalized to meet the increasing
financial requirements of the natural gas industry. However, with respect to its
marketing operations, NGC anticipates that market customers will increasingly
scrutinize the financial condition of their suppliers to assure that contract
obligations will be met; suppliers and transporters will demand more stringent
credit terms to secure the performance of natural gas merchants; the increased
role of storage and other risk management tools will add to the financial costs
of doing business; the increasing availability of pricing information to
participants in the natural gas industry will continue to exert downward
pressure on per-unit profit margins in the industry; suppliers will have to be
multi-fuel marketers; and large competitors, such as megamarketer alliances,
will create competition from entities having significant liquidity and other
resources. As a result, NGC believes its financial condition and its access to
capital markets will play an increasing role in distinguishing the Company from
many of its competitors. Operationally, NGC believes its ability to remain a low
cost merchant and effectively combine value-added services, competitively priced
supplies and price risk management will determine the level of success in its
natural gas marketing operations.
NGC's electric power business is similar to its gas marketing business
in that it provides natural gas contract services to electric utilities, markets
and supplies electricity and invests in power-related assets and joint ventures.
As a result, the competition issues incumbent upon the Company's gas marketing
operations similarly impact the Company's electric power marketing business. As
with its gas marketing operations, the Company believes it has the ability to
establish itself as a low cost and dependable merchant providing competitively
priced supplies and a variety of services which will differentiate NGC from the
competition.
The Company's natural gas liquids, crude oil marketing and gas
transmission businesses face significant competition from a variety of
competitors including major integrated oil companies, major pipeline companies
and their marketing affiliates and national and local gas gatherers, processors,
brokers, marketers and distributors of varying sizes and experience. The
principal areas of competition include obtaining gas supplies for gathering and
processing operations, obtaining supplies of raw product for fractionation, the
marketing of NGLs, crude oil, residue gas, helium, condensate and sulfur, and
the transportation of natural gas, NGLs and crude oil. Competition typically
arises as a result of the location and operating efficiency of facilities, the
reliability of services and price and delivery capabilities. The Company
believes it has the infrastructure, long-term marketing abilities, financial
resources and management experience to enable it to compete effectively.
REGULATION
GENERAL. The Company is subject to the laws, rules and regulations of
the countries in which it conducts its operations. Domestically, numerous
departments and agencies at federal, state and local levels have issued rules
and regulations affecting the energy industry, some of which carry substantial
penalties for non-compliance. Internationally, environmental and other
regulatory matters are evolving as detailed rules and procedures are established
and their application and interpretation defined. The regulatory burden on the
energy industry increases its cost of doing business and, consequently, affects
its profitability. Inasmuch as these rules and regulations are frequently
amended or reinterpreted, the Company is unable to predict the future cost or
impact of complying with such regulations. These rules and regulations affect
the industry as a whole; therefore, the Company does not believe that it is
affected in a significantly different manner from its competitors.
REGULATORY MATTERS. The transportation and sale for resale of natural
gas is subject to regulation by the Federal Energy Regulatory Commission
("FERC") under the Natural Gas Act of 1938, as amended ("NGA") and, to a lesser
extent, the Natural Gas Policy Act of 1978, as amended ("NGPA"). Interstate
transportation and storage services by natural gas companies, including
interstate pipeline companies, and the rates charged for such services, are
regulated by the FERC. Certain of the
7
Company's pipeline activities and facilities are involved in interstate
transportation of natural gas and NGLs, and are subject to these federal
regulations.
Legislative and regulatory changes began in 1978 with the passage of
the NGPA, which initiated the process of price deregulation of gas sold at the
wellhead. Since 1978, various federal laws have been enacted which have resulted
in the termination on January 1, 1993 of all price and non-price controls for
natural gas sold in "first sales."
Commencing in 1985, the FERC promulgated a series of orders and
regulations adopting changes that significantly altered the business of
transporting and marketing natural gas by fostering competition. The thrust of
these regulations was to induce interstate pipeline companies to provide
nondiscriminatory transportation services to producers, distributors and other
shippers. The effect of the foregoing regulations has been the creation of a
more open access market for natural gas purchases and sales and the creation of
a business environment which has fostered the evolution of various unregulated,
privately negotiated natural gas sales, purchase and transportation
arrangements.
Order 636, issued in April 1992, as amended by Order 636-A (issued in
August 1992) and Order 636-B (issued in November 1992), was a continuation of
the FERC's efforts to improve the competitive structure of the pipeline industry
and to maximize consumer benefits resulting from a competitive structure of the
pipeline industry and a competitive wellhead gas market. The FERC's goal, as
stated in Order 636, "is to recognize the current characteristics of the natural
gas industry -- and to create a regulatory framework that will accommodate the
meeting of as many gas sellers and gas buyers as possible."
In Order 636, the FERC required interstate pipelines that perform open
access transportation under blanket certificates to "unbundle" or separate their
traditional merchant sales services from their transportation and storage
services and to provide comparable transportation and storage services with
respect to all gas supplies whether purchased from the pipeline or from other
merchants such as marketers or producers. The pipelines must now separately
state the applicable rates for each unbundled service (i.e., for the gas
commodity, transportation and storage). The unbundling and separate pricing of
services has significantly affected the pipelines' merchant function and
required a major restructuring of the relationships between pipeline companies
and their customers.
Certain segments of the industry have opposed aspects of Order 636, and
many parties have sought judicial review of Order 636. It is impossible for the
Company to predict the ultimate outcome regarding this judicial process because,
upon review, Order 636 may be reversed in whole or in part. In addition, parties
have sought judicial review of most of the FERC orders approving individual
pipeline restructuring plans which were authorized pursuant to Order 636.
Therefore, NGC cannot predict the ultimate outcome or permanence of the
unbundled regulatory regime of Order 636.
GAS PROCESSING. NGC's gas processing plant's primary function is the
extraction of NGLs and not natural gas transportation. The FERC has
traditionally maintained that a processing plant is not a facility for
transportation or sale for resale of natural gas in interstate commerce and
therefore is not subject to jurisdiction under the NGA. Even though the FERC has
made no specific declaration as to the jurisdictional status of the Company's
gas processing operations or facilities, NGC believes its gas processing plants
are primarily involved in removing NGLs and therefore exempt from FERC
jurisdiction.
GATHERING. The NGA exempts gas gathering facilities from the
jurisdiction of the FERC. Interstate transmission facilities, on the other hand,
remain subject to FERC jurisdiction. The FERC has historically distinguished
between these two types of facilities on a fact-specific basis. NGC believes its
gathering facilities and operations meet the current tests used by the FERC to
determine a nonjurisdictional gathering facility status. Some of the recent
cases applying these tests in a manner favorable to the determination of NGC's
nonjurisdictional status are still subject to rehearing and appeal. In addition,
the FERC's articulation and application of the tests used to distinguish between
jurisdictional pipelines and nonjurisdictional gathering facilities have varied
over time. While the Company believes current definitions create
nonjurisdictional status for NGC's gathering facilities, no assurance can be
given that such facilities will remain classified as gas gathering facilities
and the possibility exists that the rates, terms, and conditions of the services
rendered by those facilities, and the construction and operation of the
facilities will be subject to regulation by the FERC or by the various states in
the absence of FERC regulation.
PRORATION. The states of Texas and Oklahoma have adopted changes to oil
and gas production and proration regulations, as well as other regulatory
changes, that could affect volumes of gas available for purchase by NGC. To
date, the Company
8
has not experienced any material reductions in available supplies due to
proration. Nevertheless, these or future proration regulation revisions may
materially affect NGC's ability to purchase gas supplies.
MARKET HUBS. The market hubs for which Hub Services, Inc., a wholly
owned subsidiary of NGC, serves as hub administrator are combined gas storage,
transportation and interchange facilities. To the extent the market hubs provide
services in intrastate commerce, the rates, terms and conditions of service are
regulated by the applicable state public utility commissions. To the extent the
market hubs provide service in interstate commerce subject to the NGA or NGPA,
the FERC has overlapping regulatory authority with respect to rates, terms and
conditions of service.
OTHER REGULATORY ISSUES. The Company's gas purchases and sales are
generally not regulated by the FERC; however, as a gas merchant, the Company
depends on the gas transportation and storage services offered by various
interstate and intrastate pipeline companies to enable the sale and delivery of
its gas supplies. Additionally, certain other pipeline activities and facilities
of the Company are involved in intrastate transportation and storage services
and are subject to various state regulations which generally regulate rates,
terms and conditions of service.
ENVIRONMENTAL MATTERS
NGC's operations are subject to extensive federal, state and local
statutes, rules and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Compliance with
these statutes, rules and regulations requires capital and operating
expenditures including those related to monitoring and permitting at various
operating facilities and remediation obligations. The Company's environmental
expenditures have not been prohibitive in the past, but are anticipated to
increase in the future with the trend toward stricter standards, greater
regulation, more extensive permitting requirements and an increase in the number
of assets operated by the Company subject to environmental regulation.
The vast majority of federal environmental remediation provisions are
contained in the Superfund laws -- the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and the Superfund Amendments and
Reauthorization Act ("SARA") and in the corrective action provisions of the
Federal Resource Conservation and Recovery Act ("RCRA"). Typically, the
Environmental Protection Agency ("EPA") acts pursuant to Superfund legislation
to remediate facilities that are abandoned or inactive or whose owners are
insolvent; however, the legislation may be applied to sites still in operation.
Superfund law imposes liability, regardless of fault or the legality of the
original conduct, on certain classes of persons that contributed to the release
of a "hazardous substance" into the environment. These persons include the
current or previous owner and operator of a site and companies that disposed, or
arranged for the disposal, of the hazardous substance found at a site. CERCLA
also authorizes the EPA and, in certain instances, private parties to take
actions in response to threats to public health or the environment and to seek
recovery from such responsible party. RCRA provisions apply to facilities that
have been used to manage or are currently managing hazardous waste and which are
either still in operation or have recently been closed. As amended, RCRA
requires facilities to remedy any releases of hazardous wastes or hazardous
waste constituents at waste treatment, storage or disposal facilities.
NGC is subject to the environmental risks normally incident to the
operation and construction of storage facilities, pipelines, plants and other
facilities for gathering, processing, treating, storing and transporting natural
gas and other products including, but not limited to, uncontrollable flows of
natural gas, fluids and other substances into the environment, fires, pollution
and other environmental and safety risks. These activities are subject to
environmental and safety regulation by federal and state authorities, including,
without limitation, the EPA, the Arkansas Department of Pollution Control and
Ecology, the Kansas Department of Health and Environment, the Kansas Corporation
Commission, the Louisiana Department of Environmental Quality, the Oklahoma
Department of Environmental Quality, the Oklahoma State Department of Health,
the Oklahoma Water Resources Development Board, the Texas Railroad Commission,
Texas Natural Resources Conservation Commission, the Utah Department of
Environmental Quality and the Wyoming Department of Environmental Quality. The
design, construction, operation and maintenance of the Company's pipeline
facilities are subject to the safety regulations established by the Secretary of
the Department of Transportation pursuant to the Natural Gas Pipeline Safety Act
("NGPSA"), or by state regulations meeting the requirements of the NGPSA.
In connection with the acquisition of substantially all of the natural
gas liquids business of OXY USA, Inc. ("OXY USA") by Holding in 1991, OXY USA
agreed to indemnify Trident for any liability, claims, damages, costs, duties of
remediation or loss of use resulting from the following environmental claims;
tort liability to third persons as a result of Emissions or
9
exposure to Environmental Contaminants (as such terms are defined in the
Acquisition Agreement between OXY USA and Holding ("Acquisition Agreement"))
resulting from operations of OXY USA prior to the closing date of the
transaction between OXY USA and Holding ("Acquisition Closing Date"); the
presence or emission of environmental contaminants related to the existence on
the properties operated by OXY USA of landfills or pits which, as of the
Acquisition Closing Date, were no longer in service; any untrue environmental
representation or warranty or the breach of any environmental representation,
warranty or covenant contained in the Acquisition Agreement (if notice of the
claim is provided to OXY USA prior to the tenth anniversary of the Acquisition
Closing Date, or August 30, 2001); the designation of Trident as a Potentially
Responsible Party under CERCLA or any analogous state statute as a result of
onsite or offsite disposal of hazardous substances that occurred prior to the
Acquisition Closing Date, or the listing of any of Trident's properties on the
National Priorities List under CERCLA or any similar state law as a result of
onsite disposal of hazardous substances prior to the Acquisition Closing Date;
fines or penalties for which Trident may become liable with respect to any
violation of environmental laws (as they existed on the Acquisition Closing
Date) that occurred prior to the Acquisition Closing Date; all past, present or
future emissions of environmental contaminants associated with the fractionator
located within the CITGO refinery at Sulphur, Louisiana; and any environmental
liability associated with certain disclosed exceptions to OXY USA's
environmental representations and warranties. In addition, OXY USA agreed to
indemnify Trident against any and all liabilities, claims, damages, costs,
duties of remediation or loss of use resulting from or related to emissions
(whether onsite or offsite) of environmental contaminants in, on, at or from
Trident's properties that result from operations that occurred prior to the
Acquisition Closing Date if such claims, damages, costs or liabilities are not
covered by any matter described in the preceding sentences, and if notice of the
claims is provided to OXY USA prior to the tenth anniversary of the Acquisition
Closing Date. The Acquisition Agreement provides, however, that Trident will
contribute 30 percent of the first $25 million (i.e., up to a maximum of $7.5
million) of any such liabilities, claims, damages, costs, duties of remediation
or loss of use resulting from or relating to any such emissions of environmental
contaminants. The Company believes that OXY USA has sufficient financial
resources to satisfy its environmental indemnity obligations.
In acquiring other operating assets from third parties, NGC has often
been required to indemnify the seller against losses arising from pre-closing
environmental liabilities, although in other instances it has been indemnified
against such losses by the seller. To minimize its exposure for such
liabilities, environmental audits of the assets NGC wishes to acquire are made,
either by NGC personnel, outside environmental consultants, or a combination of
the two. The Company has not heretofore incurred any material environmental
liabilities arising from its acquisition activities. The incurrence of a
material environmental liability, and/or the failure of an indemnitor to meet
its indemnification obligations with respect thereto, could have a material
adverse effect on NGC's operations and financial condition.
To the Company's knowledge, it is in substantial compliance with, and
is expected to continue to comply in all material respects with, applicable
environmental laws, regulations, orders and rules. Further, to the best of the
Company's knowledge, there are no existing, pending or threatened actions,
suits, investigations, inquiries, proceedings or clean-up obligations by any
governmental authority or third party relating to any violations of any
environmental laws with respect to the Company's assets which would have a
material adverse effect on the Company's operations and financial condition.
NGC's aggregate expenditures for compliance with laws and regulations related to
the discharge of materials into the environment or otherwise related to the
protection of the environment totaled $2.2 million in 1995. Total environmental
expenditures for both capital and operating maintenance and administrative costs
are not expected to exceed $4 million in 1996.
The Company's operations are subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and other comparable state statutes.
The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the Federal Superfund Amendment and
Reauthorization Act and similar state statutes require that information be
organized and maintained about hazardous materials used or produced in its
operations. Certain of this information must be provided to employees, state and
local government authorities and citizens. The Company believes it is in
substantial compliance with these rules and regulations.
OPERATIONAL RISKS AND INSURANCE
NGC is subject to all risks inherent in the various businesses in which
it operates. These risks include, but are not limited to, explosions, fires and
product spillage, which could result in damage to or destruction of operating
assets and other property, or could result in personal injury, loss of life or
pollution of the environment, as well as curtailment or suspension of operations
at the affected facility.
10
NGC maintains general public liability, property and business
interruption insurance in amounts that it considers to be adequate for such
risks. Such insurance is subject to deductibles that the Company considers
reasonable and not excessive.
The occurrence of a significant event not fully insured or indemnified
against, and/or the failure of a party to meet its indemnification obligations,
could materially and adversely affect NGC's operations and financial condition.
Moreover, no assurance can be given that NGC will be able to maintain insurance
in the future at rates it considers reasonable.
EMPLOYEES
The Company employs approximately 430 employees at its administrative
offices and approximately 625 employees at its operating facilities.
Approximately 130 employees at Company-operated facilities are subject to
collective bargaining agreements with the Oil, Chemical and Atomic Workers
International Union or the Lake Charles Metal Trades Council. Management
considers relations with both union and non-union employees to be satisfactory.
ITEM 1A. EXECUTIVE OFFICERS
Set forth below are the names and positions of the current executive
officers of the Company, together with their ages, position(s) and years of
service with the Company.
SERVED WITH
THE COMPANY
NAME AGE * POSITION(S) SINCE
C. L. Watson 46 Chairman of the Board, Chief Executive Officer, 1985
President and a Director of the Company
Stephen W. Bergstrom 38 Senior Vice President and a Director of the 1986
Company; President of Clearinghouse
Bruce M. Withers, Jr. 69 Vice Chairman of the Company and Chief 1995
Executive Officer of Trident NGL, Inc.
H. Keith Kaelber 47 Senior Vice President and Chief Financial Officer 1990
of the Company
Kenneth E. Randolph 39 Senior Vice President, General Counsel and 1984
Secretary of the Company
* As of April 1, 1996.
The executive officers named above will serve in such capacities until
the next annual meeting of the Company's Board of Directors, or until their
respective successors have been duly elected and have been qualified, or until
their earlier death, resignation, disqualification or removal from office.
C. L. Watson serves as Chairman of the Board, Chief Executive Officer,
President, and a Director of the Company. He has served as Chairman and as a
member of the Management Committee since May 1989 and Chief Executive Officer
and President of NGC (or its predecessor, Clearinghouse) since September 1985.
Prior to his employment with the Company, Mr. Watson served as Director of Gas
Sales for the Western United States for Conoco Inc.
Stephen W. Bergstrom serves as Senior Vice President and a Director of
the Company and as President of Clearinghouse. He has served as Executive Vice
President of NGC (or its predecessor, Clearinghouse) and as a member of the
Management Committee since May 1989. In addition, Mr. Bergstrom served as Senior
Vice President -- Gas Marketing and Supply of Clearinghouse from May 1987
through May 1990 and as Vice President -- Gas Supply of Clearinghouse from July
1986
11
through May 1987. Prior to his employment with the Company, Mr. Bergstrom served
as Vice President -- Gas Supply of Enron Gas Marketing, a subsidiary of Enron
Corp.
Bruce M. Withers, Jr. serves as Vice Chairman of the Company and
Chairman of the Board and Chief Executive Officer of Trident. He served as
Chairman of the Board and Chief Executive Officer of Holding and Trident prior
to the Combination with Clearinghouse. Prior to his employment with Holding and
Trident, which began in 1991, Mr. Withers was employed by Mitchell Energy for 17
years where he served as President of the Transmission and Processing Division.
H. Keith Kaelber serves as Senior Vice President and Chief Financial
Officer of the Company. He has served as Senior Vice President and Chief
Financial Officer of NGC (or its predecessor, Clearinghouse) since August 1990.
Prior thereto, Mr. Kaelber was employed by NCNB, which has since become
NationsBank, from 1978 to 1990, serving as Executive Vice President.
Kenneth E. Randolph serves as Senior Vice President, General Counsel
and Secretary of the Company. He has served as Senior Vice President and General
Counsel of NGC (or its predecessor, Clearinghouse) since July 1987. In addition,
he served as a member of the Clearinghouse Management Committee from May 1989
through February 1994 and managed Clearinghouse's marketing operations in the
Western and Northwestern United States from July 1984 through July 1987. Prior
to his employment with the Company, Mr. Randolph was associated with the
Washington, D.C. office of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
ITEM 2. PROPERTIES
All of the Company's operating assets are held through wholly owned
subsidiaries. The Company's operations are principally located in Texas,
Oklahoma, Louisiana, Kansas, Arkansas, Utah, western Canada and the United
Kingdom. Current year activity conducted in these areas is discussed under "Item
1. BUSINESS -- General." Following is a description of such properties owned by
the Company at December 31, 1995.
GATHERING SYSTEMS AND PROCESSING FACILITIES
NGC's natural gas processing services are provided at two types of gas
processing plants, referred to as field plants and straddle plants. Field plants
aggregate volumes from multiple producing wells into quantities that can be
economically processed to extract NGLs and to remove water vapor, solids and
other contaminants. Straddle plants are situated on third-party mainline natural
gas pipelines and serve to provide flexibility to changing market conditions by
allowing operators to extract NGLs from a natural gas stream when the market
value of NGLs separated from the natural gas stream is higher than the market
value of the same unprocessed natural gas. NGC owns an interest in 22 field
plants which are each associated with a gas gathering system that collects and
transports natural gas from individual wells to the plant. The Company owns an
interest in 18 of the gas gathering systems associated with its field plants.
The gathering systems associated with the other 4 field plants are owned
entirely by third parties. The remaining 11 gas processing plants in which NGC
owns an interest are straddle plants. The Company owns an interest in the gas
gathering systems associated with 2 of these straddle plants, with the remainder
being owned entirely by third parties. The following table provides certain
information, including operational data for the year ended December 31, 1995,
concerning the gathering systems and gas processing plants in which NGC owns an
interest.
LOCATION TOTAL PLANT
----------------- -----------------------------
COUNTY/ PRACTICAL 1995 INLET GAS NGL
GAS PROCESSING FACILITIES % OWNED PARISH STATE CAPACITY(3) THROUGHPUT PRODUCTION
(MMCFD)(1) (BPD)(2)
COMPANY OPERATED:
*Ambrose (4)(10)(12) ...................100.00 Kay OK 400.0 163.6 5,052
*Barracuda (8) ...................100.00 Cameron LA 195.0 184.3 5,164
Binger (4) ...................100.00 Caddo OK 8.0 7.5 820
Breckenridge (4)(12)...................100.00 Stephens TX 15.0 8.9 1,357
Bridger Lake (9) ..............100 - 33.33 Summit UT 25.0 11.1 378
*Cameron (4)(12)(13) ....................50.00 Cameron LA 500.0 357.3 3,467
*Cheney (12) ...................100.00 Kingman KS 85.0 65.8 3,595
Chico (4)(12) ...................100.00 Wise TX 100.0 66.3 10,691
12
LOCATION TOTAL PLANT
----------------- -----------------------------
COUNTY/ PRACTICAL 1995 INLET GAS NGL
GAS PROCESSING FACILITIES % OWNED PARISH STATE CAPACITY(3) THROUGHPUT PRODUCTION
(MMCFD)(1) (BPD)(2)
Company Operated:
East Texas (4)(12) ................... 100.00 Gregg TX 33.0 24.3 4,746
Eustace (4)(12) ...................... 100.00 Henderson TX 64.0 29.8 2,267
Haynesville I ........................ 96.00 Claiborne LA 35.0 33.8 1,104
Haynesville II ....................... 100.00 Claiborne LA 50.0 53.2 2,829
*Jayhawk (12) ......................... 100.00 Grant KS 480.0 393.4 10,432
Kellerville (4)(12) .................. 100.00 Wheeler TX 9.5 5.9 1,223
Lefors (4)(12) ....................... 100.00 Gray TX 11.6 6.7 1,617
*Lowry (12) ........................... 100.00 Cameron LA 300.0 222.7 5,501
Madill (4)(12) ....................... 100.00 Marshall OK 25.0 17.8 972
Ringwood (4)(11) ..................... 100.00 Major OK 75.0 64.3 4,292
Roberts Ranch (4)(12) ................ 56.25 Midland TX 82.0 47.3 1,033
Rodman (4)(12) ....................... 100.00 Garfield OK 50.0 33.9 3,095
Shackelford (4)(12) .................. 100.00 Shackelford TX 15.0 10.3 1,647
Sligo ................................ 100.00 Bossier LA 40.0 33.4 629
Spivey (5)(6)(12) .................... 3.87 Harper KS 66.0 15.2 27
*Stingray (8) ......................... 100.00 Cameron LA 300.0 303.1 2,540
Texarkana (4) ........................ 100.00 Miller AR 22.0 18.2 588
West Seminole (4)(12) ................ 40.14 Gaines TX 15.0 12.0 439
Outside Operated:
*Calumet (6)(12) ...................... 1.94 St. Mary's LA 1,200.0 842.5 237
Corney Bayou(12) ..................... 10.05 Union LA 6.0 5.2 10
*Grand Chenier (6)(12) ................ 2.69 Cameron LA 950.0 220.7 161
*Laverne (12) ......................... 7.89 Harper OK 240.0 77.4 287
Maysville (4)(12) .................... 23.00 Garvin OK 135.0 121.0 3,333
Snyder (7)(12) ....................... 3.25 Scurry TX 60.0 39.0 132
*Yscloskey (6)(12) .................... 5.97 St. Bernard LA 1,850.0 1,475.1 1,196
- -------------------
* Indicates a straddle plant, all other gas processing facilities are field
plants.
(1) Gross to the facility.
(2) Gross production, net to the Company's ownership interest. In certain
instances, production associated with assets consolidated into a given
facility is included in the surviving facility's production.
(3) Capacity data is at practical recovery rates.
(4) NGC owns the indicated percentage of an associated gas gathering system.
(5) NGC owns 2.19 percent of the associated gas gathering system.
(6) NGC ownership is adjustable and subject to periodic (usually annual)
redetermination.
(7) NGC owns the indicated percentage of the Snyder gas gathering system and
3.98 percent of the Diamond M gas gathering system which also supplies the
Snyder plant.
(8) This facility has no gathering lines.
(9) This facility consists of a 100 percent interest in a processing plant and
an NGL pipeline, a 100 percent interest in a crude oil pipeline and a 33.33
percent interest in reserves connected and dedicated to the plant. The
gathering system behind the processing plant gathers production from Utah
and Wyoming.
(10) This facility was shut down in December 1995.
(11) Includes Enid facility.
(12) These assets were acquired in the Combination. Consequently, the "1995
Inlet Gas Throughput" and "NGL Production" statistics are for the ten month
period ended December 31, 1995.
(13) Effective March 1, 1996, NGC no longer acts as operator of this facility.
FRACTIONATION FACILITIES
NGLs removed from a natural gas stream at gas processing plants
are in the form of a commingled stream of liquid hydrocarbons. The commingled
hydrocarbons are separated at fractionation facilities into the component NGL
products ethane, propane, normal butane, isobutane and natural gasoline. The
following table provides certain information concerning the fractionation
facilities in which NGC owns an interest, including operational data for the ten
months ended December 31, 1995.
13
Location Total Plant
------------------ ----------------------------
County/ Practical 1995 Inlet Gas
Fractionation Facilities: % Owned Parish State Capacity(1) Throughput (2)
(MBbls/d)
Lake Charles (3) ............................ 100.00 Calcasieu LA 39.8 30.2
Mont Belvieu I .............................. 80.00 Chambers TX 110.0 96.9
Mont Belvieu II ............................. 38.75 Chambers TX 110.0 101.5
(1) Capacity data is at practical recovery rates.
(2) These assets were acquired in the Combination. Consequently, the "1995
Inlet Gas Throughput" statistics are for the ten month period ended
December 31, 1995.
(3) NGC also owns the associated liquids gathering system. In August 1995, the
Company shutdown operations principally as a result of operational
inefficiencies resulting from the age of the facility. The Company diverted
daily production in part to a third-party fractionator and in part to its
fractionation facilities at Mont Belvieu and is currently assessing its
options, which focus on the construction of a new fractionation facility.
STORAGE AND TERMINAL FACILITIES
The Hackberry marine import/export terminal is located on the Calcasieu
ship channel south of Lake Charles, Louisiana. The terminal is capable of
receiving certain NGL products from water-borne carriers as well as loading
carriers for shipment to international ports. The terminal is connected to a
Company-operated storage facility at Hackberry, Louisiana and, by pipeline, to
markets along the Gulf Coast and the southeastern United States. The storage
facility consists of numerous storage caverns, which provide 15.5 million
barrels of NGL storage capacity, used to support the Company's fractionation
operations and marketing program. Some excess capacity is leased to or exchanged
with third parties. The following table provides information concerning these
facilities.
LOCATION
------------------
COUNTY/
STORAGE AND TERMINAL FACILITIES: % OWNED PARISH STATE
Hackberry Storage .................... 100.00 Cameron LA
Hackberry Terminal ................... 100.00 Cameron LA
MARKETING HUBS
Effective in June 1995, the Company, through its wholly owned
subsidiary Hub Services, Inc. ("HSI"), participated in the formation of
Enerchange L.L.C. ("Enerchange") which owns and operates three natural gas
market area hubs. These marketing hubs are transportation and interchange
facilities located in the vicinity of an interconnection of two or more
interstate pipelines. Each hub takes deliveries from a large number of suppliers
and provides these suppliers with a wide variety of markets in which to sell
their gas. By providing access to a large number of gas buyers and sellers, a
hub improves the gas market by reducing transaction costs of matching buyers and
sellers of gas, enhances the reliability of gas supply and provides buyers and
sellers a wide range of gas marketing services. Each marketing hub provides
customers with "wheeling", "loaning", "parking" and "title transfer" services.
"Wheeling" refers to the simultaneous transfer of gas from one pipeline to
another, while "loaning" occurs when one party allows another party to borrow
gas. "Parking" services allow a customer to store gas in a hub for future
redelivery and "title transfer" services allow a customer to assign title to gas
that is in storage. A fee is charged by the hub for services provided to its
customers.
The three gas marketing hubs are the Chicago Hub, the California Energy
Hub and the Ellisburg-Leidy Northeast Hub. These hubs are each operated by
Enerchange and HSI provides administrative services with respect to these hubs.
The hub operator generally provides asset management services, such as
determining the availability of hub services, confirming all nominations for hub
services and providing personnel to operate the hub. The hub administrator
typically provides marketing, accounting and administrative services. The
accounting and administrative services include performing credit checks on
prospective customers, negotiating and executing agreements with hub customers,
billing and making collections from customers, distributing revenues to hub
partner(s) and maintaining accounting records. Although HSI owns a revenue
interest in each hub, HSI provides administrative services independent of any
influence of NGC and the Company may only use a hub's services on a
non-discriminatory basis in accordance with the mandates of pertinent federal
and state regulations and contractual terms with its hub partners.
14
The following table provides information with respect to the marketing
hubs in which NGC indirectly owns an interest.
HSI'S
REVENUE SERVICE NAMES OF
FACILITY NAME HSI'S PARTNERS INTEREST AREA CONNECTING PIPELINES
Chicago Hub................ NICOR Hub Services 51% Midwest ANR Pipeline Company, Midwestern Gas
Pacific Enerchange Transmission Company, Northern Natural
Leidy Hub Inc. Gas Company and Natural Gas Pipeline
Company of America
Ellisburg-Leidy
Northeast Hub............ NICOR Hub Services 51% Northeast Transcontinental Gas Pipeline Corporation,
Pacific Enerchange Tennessee Gas Pipeline, CNG
Leidy Hub Inc. Company, Columbia Gas Transmission
Company and National Fuel Gas Supply
Corporation
California Energy Hub...... NICOR Hub Services 51% California El Paso Natural Gas Company, Kern River
Pacific Enerchange Gas Transmission Company, Mojave
Leidy Hub Inc. Pipeline Operating Company, Pacific Gas
& Electric Company, San Diego Gas &
Electric Company, and Transwestern
Pipeline Company
NATURAL GAS AND CRUDE OIL PIPELINES
NGC owns interests in various interstate and intrastate pipelines and
gathering systems, the more significant of which include: (i) the Ozark Gas
Transmission System, a 266-mile interstate natural gas pipeline with design
capacity of 170 MMcf/d that transports gas from eastern Oklahoma to central
Arkansas, where the system interconnects with interstate pipelines that serve
Midwest and Northeast markets; (ii) the crude oil pipeline system acquired from
Kerr-McGee Refining & Marketing Corporation, a 1,300-mile system which gathers
crude oil in 25 central and southern Oklahoma counties, accessing more than half
of the state's production, and serves the U.S. crude oil trading hub in Cushing,
Oklahoma and the Wynnewood, Oklahoma refinery; (iii) the Kansas Gas Supply
Corporation that owns and operates an approximate 1,200 mile regulated
intrastate gas pipeline system in south-central Kansas maintaining current
capacity to transport approximately 100 MMcf/d of natural gas; and (iv) an
extensive liquids gathering system at the Lake Charles fractionation facility
and a 12-inch liquids pipeline that connects the Lake Charles area facilities
with the Mont Belvieu fractionation facilities. The following table identifies
these and other pipeline and gathering system assets in which NGC owns an
interest:
1995
PIPELINE SYSTEMS: % OWNED THROUGHPUT STATE
DESCRIPTION:
Ozark Gas Transmission System...............100.00 102.5 MMcf/d OK/AR Interstate gas pipeline
Crude Oil Pipeline System...................100.00 44.0 MBbls/d OK Intrastate crude oil pipeline
Kansas Gas Supply...........................100.00 68.9 MMcf/d KS/OK Intrastate natural gas pipeline
Trident NGL Pipeline........................100.00 99.0 MBbls/d TX/LA Liquids pipeline between Lake
Charles and Mont Belvieu
Bridger Lake/Phantex Pipeline...............100.00 2.2 MBbls/d UT/WY Interstate crude oil/liquids pipeline
Cominco Pipeline............................100.00 15.5 MMcf/d TX Intrastate natural gas pipeline
Pelican Pipeline............................100.00 43.5 MMcf/d LA Gas gathering pipeline
Vermillion Pipeline.........................100.00 50.6 MMcf/d Gulf of Mexico Gas gathering pipeline
Western Gas Gathering.......................100.00 3.2 MMcf/d KS Gas gathering pipeline
Mesa Pipeline...............................100.00 6.6 MMcf/d UT Gas gathering pipeline
Bradshaw Gathering.......................... 50.00 19.4 MMcf/d KS Gas gathering pipeline
TITLE TO PROPERTIES
15
The Company believes it has satisfactory title to its properties in
accordance with standards generally accepted in the energy industry, subject to
such exceptions which, in the opinion of the Company, in the aggregate would not
have a material adverse effect on the use or value of said properties.
The operating agreements for certain of the Company's natural gas
processing plants and fractionation facilities grant a preferential purchase
right to the plant owners in the event any owner desires to sell its interest.
Such agreements may also require the consent of a certain percentage of owners
before rights under such agreements can be transferred. The Company is subject,
as a plant owner under such agreements, to all such restrictions on transfer of
its interest. In addition, Trident has granted OXY USA certain rights of first
refusal with respect to any future sale of certain assets.
Substantially all of NGC's gathering and transmission lines are
constructed on rights-of-way granted by the apparent record owners of such
property. In some instances, land over which rights-of-way have been obtained
may be subject to prior liens that have not been subordinated to the
right-of-way grants. Permits have been obtained from public authorities to cross
over or under, or to lay facilities in or along, water courses, county roads,
municipal streets and state highways, and in some instances, such permits are
revocable at the election of the grantor. Permits have also been obtained from
railroad companies to cross over or under lands or rights-of-way, many of which
are also revocable at the grantor's election. Some such permits require annual
or other periodic payments. In a few minor cases, property was purchased in fee.
ACQUISITION AND CONSTRUCTION PROJECTS
NGC, indirectly through subsidiaries, has formed a joint venture to
develop the Avoca storage project located in southeastern New York. The Avoca
facility will be developed in three stages and, upon completion of each
respective stage, is expected to have storage capacity of 2 Bcf, 4 Bcf and 5
Bcf, respectively. NGC expects the three stages will be completed in October of
1997, 1998 and 1999, respectively, at an aggregate cost of $10.1 million, net to
NGC's interest. Upon completion of the facility, NGC will own an approximate 28
percent interest in the Avoca storage facility.
A subsidiary of the Company is committed to contribute a total of $10
million to Indeck North American Power Fund, L.P. and Indeck North American
Power Partners, L.P. (collectively "Indeck"), two partnerships that are engaged
in the acquisition of electric power generating facilities. The contributions
represent the Company's pro rata share of funds to be used for selected
acquisitions. At December 31, 1995, the Company had paid $3.7 million of this
commitment.
INDUSTRY SEGMENTS
Segment financial information is included in Note 13 of NGC's
consolidated financial statements and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
NGC is involved in certain legal proceedings that have arisen in the
ordinary course of business. Management believes the outcome of such
proceedings, even if adversely determined, will not have a material effect on
NGC's business or financial condition.
On July 24, 1995, definitive settlement documentation was entered into
relating to two separate purported class-action lawsuits that were filed in
connection with the Combination and alleged, among other things, that members of
the Trident Board of Directors breached their fiduciary duties to Trident's
stockholders by approving the Combination. The suits, JOSHUA TEITELBAUM V.
THOMAS O. HICKS, ET. AL.,which was filed on August 9, 1994, and ERROL RUDMAN V.
THOMAS O. HICKS, ET. AL., which was filed on September 16, 1994, sought certain
injunctive relief and recovery of unspecified monetary damages. The definitive
settlement documentation provides dismissal with prejudice of the lawsuits and
for the payment by Trident of the fees and expenses of the plaintiff
stockholders' attorneys in an aggregate amount not to exceed $350,000. The
definitive settlement documentation also provides that the members of the
Trident Board of Directors deny that they have committed any violations of law,
and that the settlement was agreed to solely to eliminate the burden, risk and
expense of further litigation. At a settlement hearing held on October 13, 1995,
Vice Chancellor Jacobs of the Delaware Chancery Court entered an order
certifying the lawsuits as a class action, dismissing the action with prejudice
and awarding plaintiffs' counsel $300,000 in legal fees and $49,835 in costs and
expenses. The order was not appealed and the fees and expenses awarded were paid
in 1995.
16
OXY USA has agreed to indemnify Trident for litigation based on
occurrences or events that occurred prior to the closing date of the 1991
acquisition by Trident of substantially all of the natural gas liquids business
of OXY USA, Inc. In view of such indemnity, management believes the outcome of
any proceedings which pertain to occurrences or events relating to Trident that
occurred prior to the Acquisition Closing Date, even if adversely determined,
will not have a material effect on NGC's business, financial condition or
results of operations. Although the Company believes OXY USA has sufficient
financial resources to satisfy its indemnity obligations, the failure of OXY USA
to meet such obligations could have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's $0.01 par value common stock ("Common Stock") is listed
and traded on the New York Stock Exchange under the ticker symbol "NGL". The
number of stockholders of record of the Common Stock as of March 28, 1996, was
322. On March 14, 1995, in connection with the Combination, each share of
Holding common stock (including Holding non-voting common stock) was converted
into one share of Common Stock. The following table sets forth the high and low
closing prices for transactions involving the Company's Common Stock for each
calendar quarter, as reported on the New York Stock Exchange Composite Tape and
related dividends paid per common share during such periods.
HIGH LOW DIVIDEND
------- ------ -------
1995 (a)
--------
First Quarter $11.500 $9.000 $0.0125
Second Quarter 10.375 8.750 0.0125
Third Quarter 10.375 9.000 0.0125
Fourth Quarter 9.625 8.375 0.0125
1994 (b)
--------
First Quarter $11.875 $ 8.875 $0.0125
Second Quarter 10.000 8.000 0.0125
Third Quarter 12.250 9.375 0.0125
Fourth Quarter 11.125 9.375 0.0125
------------
(a) Stock price and per share dividend rate information relates to Holding
for the period commencing on January 1, 1995 and continuing through
and including March 13, 1995, and NGC thereafter.
(b) Reflects the high and low price of Holding's common stock and the per
share dividend rate declared by Holding during the stated periods.
The holders of the Common Stock are entitled to receive dividends if,
when and as declared by the Board of Directors of the Company out of funds
legally available therefor. Consistent with the Board of Directors' intent to
establish a policy of declaring quarterly cash dividends, a cash dividend of
$0.0125 per share was declared and paid in each of the four quarters of 1995.
The NGC Corporation Credit Agreement and the Company's 6.75% Senior
Notes do not contain any specific restrictions on the ability of the Company or
any of its subsidiaries to declare and pay dividends in respect of its or their
capital stock, although certain financial covenants contained in such credit
agreement and in the indenture covering the 6.75% Senior Notes may limit the
ability of the Company to do so.
The indenture setting forth the terms and conditions of the 14% Senior
Subordinated Notes of Trident due 2001 and the 10.25% Subordinated Notes of
Trident due 2003 contain restrictions on Trident's ability to pay cash dividends
to NGC, which in turn may adversely affect NGC's ability to pay dividends to its
shareholders.
17
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information presented below was derived from,
and is qualified by reference to, the Consolidated Financial Statements of the
Company, including the Notes thereto, appearing elsewhere in this Report. Please
refer to the Notes to Consolidated Financial Statements for information on
transactions and accounting classifications which have affected the
comparability of the periods presented below. The selected financial information
should be read in conjunction with the Consolidated Financial Statements and
related Notes and "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 (1) 1994 (2) 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
STATEMENT OF OPERATIONS DATA:
Revenues ........................................... $ 3,665,946 $ 3,237,843 $ 2,790,977 $ 2,492,935 $ 2,098,773
Operating margin ................................... 194,660 99,126 91,850 96,806 78,477
General and administrative expenses ................ 68,057 47,817 36,585 41,103 31,659
Depreciation and amortization expense .............. 44,913 8,378 7,594 7,221 6,790
Net income (3) ..................................... $ 92,705 $ 42,101 $ 45,997 $ 43,858 $ 38,554
Pro forma income per common share (4) .............. $ 0.40 $ 0.28 $ 0.30 $ 0.30 $ 0.25
Net income per common share (5) .................... $ 0.82 n/a n/a n/a n/a
Weighted average common and common
equivalent shares outstanding ................... 113,176 97,804 97,804 97,804 97,804
CASH FLOW DATA:
Cash flows from operating activities ............... $ 90,648 $ 17,170 $ 20,292 $ 66,869 $ 24,577
Cash flows from investing activities ............... (310,623) (38,376) (7,911) (21,024) (38,754)
Cash flows from financing activities ............... 221,022 18,959 (46,418) (19,816) (12,930)
OTHER FINANCIAL DATA:
EBITDA (6) ......................................... $ 142,538 $ 57,716 $ 57,553 $ 58,299 $ 49,902
Dividends or distributions to partners ............. 9,253 14,041 14,118 19,816 16,418
Capital expenditures and investments (7) ........... 309,595 47,014 16,464 12,197 38,754
AS OF DECEMBER 31,
---------------------------------------------------------------------------
1995 (1) 1994 (2) 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Current assets...................................... $ 762,939 $ 445,782 $ 402,602 $ 385,334 $ 342,071
Current liabilities................................. 705,674 404,144 375,662 357,946 319,105
Property and equipment, net (8)..................... 948,511 114,062 84,539 90,037 83,637
Total assets........................................ 1,875,252 645,471 512,534 480,458 421,685
Long-term debt...................................... 522,764 33,000 --- 19,800 32,300
Total equity........................................ 552,380 152,213 120,689 88,745 61,570
- ------------------------------------
(1) The Combination was accounted for under the purchase method of
accounting and, because the Clearinghouse Owners acquired approximately
82 percent of NGC, for accounting purposes Clearinghouse was considered
the acquiring company. Accordingly, the purchase price was allocated to
the Trident assets acquired and liabilities assumed based on their
estimated fair values as of March 1, 1995, the effective date of the
Combination for accounting purposes, and the results of operations
include Trident's operations from March 1, 1995, forward.
(2) Results for the year ended December 31, 1994, include the effects of a
change to mark-to-market accounting for fixed-price natural gas
transactions. See Note 3 to the Notes to the Consolidated Financial
Statements for more information.
(3) Net income does not include a provision for federal income taxes, other
than minimal amounts on the taxable income of Clearinghouse's corporate
subsidiaries, for the years ended December 31, 1994, 1993, 1992 and
1991, respectively.
(4) Pro forma net income per common and common equivalent share is based on
reported net income for the period adjusted for the incremental
statutory federal and state income taxes that would have been provided
had Clearinghouse been a taxpaying entity. The weighted average shares
outstanding for the year ended December 31, 1995, is based on the
weighted average number of common shares outstanding plus the common
stock equivalents that would arise from the exercise of outstanding
options or warrants, when dilutive. Pro forma weighted average shares
outstanding of 97.8 million shares for the years ended December 31,
1994, 1993, 1992 and 1991, respectively, give effect to the terms of
the Combination and the common stock equivalent shares outstanding as
of the effective date of the Combination assuming a common stock market
price of $12 in all periods.
(5) Net income per common and common equivalent share is based on reported
net income for the period. The weighted average shares outstanding for
the year ended December 31, 1995, is based on the same parameters as
discussed in footnote (4).
(6) Earnings before interest, taxes, depreciation and amortization
("EBITDA") is presented as a measure of the Company's ability to
service its debt and to make capital expenditures, not as a measure of
operating results, and is not presented in the Consolidated Financial
Statements.
(7) Includes cash paid in 1995 for Trident NGL Holding, Inc.
(8) The 1992 amount of $90.0 million includes $16.4 million of property,
plant and equipment classified as held for sale. These assets were sold
in March 1993.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
COMPANY PROFILE
The Company is a leading North American marketer of natural gas,
natural gas liquids, crude oil and electric power and is engaged in natural gas
gathering, processing and transportation through ownership and operation of
natural gas processing plants, storage facilities and pipelines. Acting in the
role of a large-scale aggregator, processor, marketer and reliable supplier of
multiple energy products and services, NGC has evolved into a "one-stop" energy
commodity and service provider. Through joint ventures in both Canada and the
United Kingdom, the Company has expanded geographically its vision of providing
customers with multiple energy commodity needs combined with cost-effective
products and value-added services.
From inception of operations in 1984 until 1990, the Company limited
its activities primarily to natural gas marketing. Since 1990, the Company has
expanded its core business operations to now include natural gas marketing,
natural gas gathering and processing, and the marketing of natural gas liquids,
crude oil and electric power. Beginning in 1994, the Company initiated gas
gathering, processing and marketing operations in Canada through NCL, a joint
venture with NOVA Corporation ("NOVA"), and energy marketing operations in the
United Kingdom through Accord, a joint venture with British Gas plc ("British
Gas"). NOVA and British Gas are both major NGC shareholders.
NGC's operations are divided into two segments: the Natural Gas and
Electric Power Marketing Segment ("Marketing") and the Natural Gas Liquids,
Crude Oil and Gas Transmission Segment ("Liquids"). Marketing consists of
subsidiaries engaged in the business of; contracting to purchase specific
volumes of natural gas from suppliers at various points of receipt to be
supplied over a specific period of time; aggregating natural gas supplies and
arranging for the transportation of these gas supplies through proprietary and
third-party transmission systems; negotiating the sale of specific volumes of
natural gas over a specific period of time to local distribution companies,
utilities, power plants and other end-users; and matching natural gas receipts
and deliveries based on volumes required by customers. Marketing also includes
the operations of Electric Clearinghouse Inc., a provider of electric power
products and services in the United States. Liquids consists of subsidiaries
engaged in the business of natural gas gathering and processing, fractionation,
NGL marketing, natural gas transmission and crude oil marketing. The Company's
natural gas liquids business complements its natural gas marketing business by
providing the Company's customers with a full range of NGL products and related
services.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
This Annual Report contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, words such as "anticipate", "estimate", "project", and "expect" are
intended to identify forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
key factors that may have a direct bearing on NGC's results of operations and
financial condition are: (i) competitive practices in the industries in which
NGC competes, (ii) fluctuations in energy commodity prices which have not been
properly hedged or which are inconsistent with NGC's open position in its energy
marketing activities, (iii) environmental liabilities to which NGC may become
subject in the future which are not covered by indemnity or insurance, and (iv)
the impact of current and future laws and governmental regulations (particularly
environmental regulations) affecting the energy industry in general and NGC's
operations in particular.
ACQUISITION OF GAS MARKETING AND MIDSTREAM ASSETS
On January 22, 1996, NGC and Chevron jointly announced they had entered
into exclusive negotiations to merge substantially all of Chevron's gas
gathering, processing and marketing operations with NGC. The combined company,
which may retain the name NGC Corporation, will include all of NGC and most of
two Chevron business units: the Houston-based
19
Natural Gas Business Unit and Tulsa-based Warren Petroleum Company. As part of
the proposed transaction, NGC will market virtually all of Chevron's North
American natural gas production, NGLs and electricity as well as supply energy
and feedstock to virtually all of Chevron's refineries, chemical plants and
other North American facilities. For its contribution, Chevron will receive a
total of 45.8 million shares in the new company, in a combination of common and
preferred stock, and $300 million in cash and notes. Following consummation of
the transaction, Chevron, British Gas and NOVA will each own approximately 25
percent of the outstanding common stock of the new company. The proposed
transaction is expected to be finalized in the second quarter of 1996.
The combination of NGC and the two Chevron business units will make the
combined company the leading marketer of natural gas in North America, with
average daily sales in excess of 10 billion cubic feet, or an estimated 14
percent of total North American gas consumption. The proposed transaction will
also establish NGC as the second largest producer and largest marketer of NGLs
in North America, with production of approximately 140,000 barrels per day and
sales of approximately 470,000 barrels per day. In addition, the proposed
transaction will allow NGC to expand its international operations and will
provide Chevron with an enhanced stake in the developing U.S. electric power
marketing industry.
IMPACT OF PRICE FLUCTUATIONS
Marketing's operating margin, exclusive of risk management activities,
is relatively insensitive to commodity price fluctuations since most of this
segment's purchase and sales contracts do not contain fixed-price provisions.
Generally, the prices contained in these contracts are tied to a current or
index price and, therefore, adjust with changes in overall market conditions.
Commodity price fluctuations can, however, have a significant impact on the
operating margin derived from the segment's risk management activities. The
impact depends, in large part, on NGC's net open position and the magnitude of
any price fluctuation.
Portions of the Liquids businesses are sensitive to commodity price
fluctuations. Operating margin associated with natural gas gathering and
processing activities is sensitive to changes in NGL prices and to a lesser
extent, natural gas prices. Straddle plants are more sensitive to changing
prices than field plants because field plant margins are impacted primarily by
fluctuations in NGL prices. Straddle plant margins are impacted by changes in,
and the relationship between, NGL and natural gas prices. In the NGL marketing
business, NGC enters into contracts with third-party gas plants and producers
which, when favorable gas processing economics exist, allow the Company to
process natural gas at such third-party plants and market the extracted NGLs and
residue gas. Like straddle plant margins, operating margins associated with such
third-party processing activities are not only sensitive to changes in both NGL
and natural gas prices, but also the relationship between the two.
SEASONALITY
NGC's revenue and operating margin are subject to fluctuations during
the year primarily due to the impact certain seasonal factors have on sales
volumes and the prices of natural gas and NGLs. Marketing's sales volumes and
operating margin are typically higher in the winter months than in the summer
months, reflecting increased demand due to greater heating requirements and,
typically, higher natural gas prices. Liquids is also subject to seasonal
factors; however, such factors typically have a greater impact on sales prices
than on sales volumes. NGL prices typically increase during the winter season
due to greater heating requirements.
EFFECT OF INFLATION
Although NGC's operations are affected by general economic trends,
management does not believe inflation has had a material effect on the Company's
results of operations.
RESULTS OF OPERATIONS
On March 14, 1995, Clearinghouse consummated a strategic Combination
with Holding, and the combined entities were renamed NGC Corporation. The
Combination was accounted for under the purchase method of accounting and,
because the Clearinghouse Owners acquired approximately 82 percent of the
outstanding shares of NGC, Clearinghouse was considered the acquiring company
for accounting purposes. Accordingly, the purchase price was allocated to the
Trident assets acquired
20
and liabilities assumed based on their estimated fair values as of March 1,
1995, the effective date of the Combination for accounting purposes. The results
of operations presented in the consolidated financial statements contained
elsewhere herein include Trident's results from March 1, 1995, forward. The
December 31, 1994 and 1993 consolidated balance sheets and the consolidated
statements of operations and of cash flows for each of the years ended December
31, 1994 and 1993 reflect the financial position and operating results of
Clearinghouse. The following table reflects certain operating and financial data
for the Company's business segments and subsegments for the years ended December
31, 1995, 1994 and 1993.
For the Year ended December 31,
------------------------------------------
1995 1994 1993
---------- -------- --------
($ in Millions)
Natural Gas and Electric Power Marketing Segment:
Operating margin ............................................... $ 63.8 $ 78.4 $ 68.5
Natural Gas Marketing -
Average sales volume per day (Bcf/d):
U.S.(1) ............................................. 3.5 3.5 2.9
Canada (2) .......................................... 2.3 0.5 --
U.K. (3) ............................................ 0.3 -- --
Electric Power Marketing -
Gross sales volumes (Gigawatt Hours) .................... 3.5 -- --
Average megawatts per hour .............................. 402 -- --
Natural Gas Liquids, Crude Oil and Gas Transmission Segment:
Operating margin ............................................... $ 130.9 $ 20.7 $ 23.4
Natural Gas Processing -
Operating margin ........................................ $ 75.8 $ 13.5 $ 19.8
Gross gallons processed (MMGals) ........................ 1,115.9 252.4 224.3
Net gallons processed (MMGals) .......................... 889.3 167.2 152.4
Fractionation (4) -
Operating margin ........................................ $ 15.2 -- --
Gallons received for fractionation (MMGals) ............. 1,756.5 -- --
Liquids and Crude Oil Marketing and Other -
Operating margin ........................................ $ 39.9 $ 7.2 $ 3.6
NGL marketing - sales volumes (MMGals) .................. 1,849.0 363.1 319.9
Crude oil marketing - sales volumes (MBbls) ............. 60.9 47.4 26.6
- --------------
(1) Includes 0.1 Bcf/d in intercompany gas sales for the year ended
December 31, 1995.
(2) Represents volumes marketed through NGC's Canadian affiliate, NCL.
(3) Represents volumes marketed through NGC's U.K. affiliate, Accord.
(4) Information excludes the Company's proportionate share of GCF's margin
and fractionation volumes.
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
NGC's net income for the year ended December 31, 1995, increased to
$92.7 million, or $0.82 per share, compared with $42.1 million for Clearinghouse
for the comparable 1994 period. Net income for the 1995 period includes a
non-recurring income tax benefit of $45.7 million, or $0.40 per share, related
to the Combination and an after-tax charge of $1.1 million, or $0.01 per share,
related to tornado damage at a gas processing plant. Income before income taxes
totaled $65.2 million for the year ended December 31, 1995, a $21.1 million
increase over the comparable 1994 period. Cash flows from operating activities
increased to $90.6 million in 1995 compared with $17.2 million reported in 1994.
The increase in both net income and operating cash flow is largely a result of
the positive financial effect of the Combination, including the synergies
realized therefrom, and the earnings contributed by the Company's international
joint ventures, NCL and Accord.
Operating margin was $194.7 million in 1995 compared with $99.1 million
in 1994, an increase of $95.6 million. The increase reflects improvement in the
Liquids operating margin of $110.2 million offset by a $14.6 million decline in
Marketing's operating margin. Operating income was $81.7 million in 1995
compared with $42.9 million for the equivalent 1994 period, an increase of $38.8
million. Increases in both operating margin and operating income are generally
attributable to the Combination.
21
The Company's equity in the earnings of its unconsolidated affiliates
totaled $21.1 million for the year ended December 31, 1995, more than five times
the earnings recognized in the comparable 1994 period. NCL and Accord, which
both began significant operations during the latter half of 1994, contributed an
aggregate $19.2 million to pretax earnings in 1995 as compared with $3.2 million
in 1994. Aggregate sales volumes for NCL and Accord, which averaged 2.6 Bcf/d
for the year and 3.6 Bcf/d for the quarter ended December 31, 1995,
respectively, reflect NGC's growing international market share. The remaining
$1.9 million of equity earnings for the year ended December 31, 1995, was
primarily attributable to the Company's 38.75 percent ownership interest in Gulf
Coast Fractionators ("GCF").
Interest expense increased to $32.4 million in 1995 as compared with
$2.4 million in the comparable 1994 period. The increase is reflective of higher
outstanding debt balances resulting primarily from debt assumed in conjunction
with the Combination and long-term borrowings for capital expenditures and
investments in unconsolidated affiliates made during 1995.
Other expenses of $8.2 million reported for the year ended December 31,
1995, include a $1.8 million pretax charge for tornado damage at a gas
processing plant, $2.4 million in minority interests in certain majority owned
subsidiaries and other miscellaneous non-recurring costs and expenses.
The Company reported an income tax benefit of $27.5 million on pretax
income of $65.2 million for the year ended December 31, 1995, which compares
with an income tax provision of $2.0 million on pretax income of $44.1 million
for the comparable 1994 period. Reported results for 1994 do not include a
provision for federal income tax, other than minimal amounts on taxable income
of Clearinghouse's corporate subsidiaries, as the majority of Clearinghouse's
earnings for the period were taxed as partnership income. During the first
quarter of 1995, the Company recognized a $45.7 million income tax benefit in
connection with the Combination. The income tax benefit, that can be used to
reduce NGC's future income tax liabilities, was a result of the recognition of
the excess tax basis held by certain Clearinghouse partners. After giving effect
to the one-time benefit, the 1995 income tax provision totaled $18.2 million, an
effective rate of 28 percent. The difference between the effective rate and the
statutory rate is primarily attributed to pre-combination earnings of
Clearinghouse that were predominantly taxed as partnership income and permanent
differences associated with certain foreign equity investments.
NATURAL GAS AND ELECTRIC POWER MARKETING
Marketing reported operating margin of $63.8 million for the year ended
December 31, 1995, compared with $78.4 million for the comparable 1994 period.
Although domestic natural gas marketing volumes were essentially constant
between the two periods, gas marketing margins were lower in 1995 as compared
with 1994, principally due to strong risk management margins and exceptionally
strong physical gas marketing margins achieved in the first quarter of 1994 as a
result of strong demand created by significantly colder weather in that period.
Also, physical gas marketing margins were lower during the first half of 1995
resulting from decreased demand due to moderate temperatures and increased
competition. Marketing's strong fourth quarter 1995 operating margin of $27.4
million, which was $9.7 million higher than the comparable 1994 period, was not
enough to offset the lower operating margin realized in the first half of 1995.
Included in 1995's operating margin is $6.8 million related to a service
agreement between NGC Futures, Inc. ("NGCF"), a wholly owned subsidiary of NGC,
and NCL whereby NGCF provides NCL and its affiliates natural gas marketing and
risk management services. As a result of this service agreement, NGC and its
subsidiaries share disproportionately in NCL's economic returns resulting from
the services provided.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids reported operating margin of $130.9 million for the year ended
December 31, 1995, compared with $20.7 million for the equivalent 1994 period.
Financial results for 1995 were positively impacted by the Combination and the
synergies realized from that acquisition, the acquisition and efficient
operation of the Ozark Gas Transmission System and improved liquids processing
margins. Natural gas processing volumes and NGL marketing sales volumes
increased substantially in 1995, compared with 1994, principally as a result of
the Combination. The Company also acquired all of its fractionation capacity in
the Combination.
22
PRO FORMA FOR THE YEARS ENDED DECEMBER 31, 1995, AND 1994
The pro forma information provided below gives effect to the Combination
as if it had occurred on January 1, 1994, and, accordingly, combines the
activities of both Clearinghouse and Trident for each period. These pro forma
results do not give effect to any cost savings expected as a result of the
Combination. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of what the actual results of operations
would have been had the Combination occurred at the beginning of the periods
presented nor does it purport to indicate the future results of the Company.
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------------
1995 1994
-------- ------
($ IN MILLIONS)
Natural Gas and Electric Power Marketing Segment:
Operating margin $63.8 $78.4
Natural Gas Marketing -
Average sales volume per day (Bcf/d):
U.S. (1) 3.5 3.5
Canada (2) 2.3 0.5
U.K. (3) 0.3 ---
Electric Power Marketing -
Gross sales volumes (Gigawatt Hours) 3.5 ---
Average megawatts per hour 402 ---
Natural Gas Liquids, Crude Oil and Gas Transmission Segment:
Operating margin $144.6 $109.0
Natural Gas Processing -
Operating margin $86.2 $73.9
Gross gallons processed (MMGals) 1,287.0 1,255.3
Net gallons processed (MMGals) 1,028.4 1,072.1
Fractionation (4) -
Operating margin $17.0 $19.5
Gallons received for fractionation (MMGals) 2,061.7 2,071.1
Liquids and Crude Oil Marketing and Other -
Operating margin $41.4 $15.6
NGL marketing - sales volumes (MMGals) 2,086.0 1,829.6
Crude oil marketing - sales volumes (MMBbls) 60.9 47.4
- --------------
(1) Includes 0.1 Bcf/d in intercompany gas sales for the year ended
December 31, 1995.
(2) Represents volumes marketed through NGC's Canadian affiliate, NCL.
(3) Represents volumes marketed through NGC's U.K. affiliate, Accord.
(4) Information excludes the Company's proportionate share of GCF's margin
and fractionation volumes.
On a pro forma basis, net income for the year ended December 31, 1995,
was $46.1 million, or $0.39 per share, compared with $25.1 million, or $0.21 per
share, for the same period in 1994. Pro forma 1995 net income excludes the
aforementioned non-recurring income tax benefit of $45.7 million. Pro forma
operating margin increased $21.0 million to $208.4 million as compared with
$187.4 million in the equivalent 1994 period. The increase in pro forma
operating margin reflects a higher Liquids operating margin as a result of
increased volumes in natural gas processing and NGL and crude oil marketing and
improved Liquids' margins in 1995 as compared with 1994. The improved Liquids'
operating margin was offset by a lower Marketing operating margin due
principally to lower physical gas marketing margins in 1995 as compared with
1994 generally as a result of the same factors that affected the actual results
for the years ended December 31, 1995 and 1994, discussed previously.
YEAR ENDED DECEMBER 31, 1994, COMPARED WITH YEAR ENDED DECEMBER 31, 1993
Net income for the year ended December 31, 1994, was $42.1 million as
compared with $46.0 million for the year ended December 31, 1993. The decrease
in net income was primarily attributable to a decline in the performance of
Liquids and an increase in general and administrative expense that was partially
offset by the improved profitability of Marketing. Cash flow
23
from operating activities decreased $3.1 million to $17.2 million in 1994 as
compared with the $20.3 million reported in 1993. The decrease in operating cash
flows was principally a result of lower net income in 1994 as compared with 1993
and changes in working capital.
Operating margin totaled $99.1 million in 1994 as compared with $91.9
million in 1993. The $7.2 million increase was mainly due to increased Marketing
earnings, which were partially offset by the decreased profitability of Liquids
as a result of lower NGL prices. Operating income totaled $42.9 million for the
year ended December 31, 1994, as compared with $47.7 million for the comparable
1993 period. The $4.8 million decline in operating income was generally
attributed to an $11.2 million increase in general and administrative expenses,
resulting principally from higher personnel costs required to support
Clearinghouse's natural gas and electric power marketing businesses, partially
offset by the aforementioned increase in operating margin. Depreciation and
amortization expense was $0.8 million higher in 1994 as compared with 1993 as a
result of a higher average investment in property, plant and equipment in 1994
as compared with 1993.
Interest expense increased to $2.4 million in 1994, as compared with
$1.8 million in the comparable 1993 period. The increase is reflective of higher
outstanding debt balances resulting primarily from higher average long-term
borrowings for capital expenditures.
As discussed previously, prior to the Combination, Clearinghouse's
income was not subject to federal income tax, other than minimal amounts on the
taxable income of Clearinghouse's corporate subsidiaries. The income tax
provisions in 1994 and 1993 were not material to Clearinghouse's reported net
income in either period.
NATURAL GAS AND ELECTRIC POWER MARKETING
Marketing reported operating margin of $78.4 million for the year ended
December 31, 1994, compared with $68.5 million for the comparable 1993 period,
an increase of $9.9 million. This increase was primarily attributable to
increased natural gas sales volumes of more than 0.6 Bcf/d. The increase in
natural gas sales volumes was primarily attributable to Clearinghouse's
successful long-term contracting efforts resulting from the implementation of
Order 636, as well as the continued growth in Clearinghouse's gas marketing
business in general.
NATURAL GAS LIQUIDS, CRUDE OIL AND GAS TRANSMISSION
Liquids reported operating margin of $20.7 million for the year ended
December 31, 1994, compared with $23.4 million for the equivalent 1993 period, a
decrease of $2.7 million. The decrease was primarily attributed to lower NGL
prices; the suspension, from August 1993 to early December 1994, of NGL recovery
activities at Clearinghouse's Stingray gas processing facility due to a change
in the NGL content of its gas supply; and the March 1993 sale of Clearinghouse's
50 percent interest in NGC Anadarko Gathering Systems, Inc. These factors more
than offset the increases in NGL and crude oil sales volumes.
LIQUIDITY AND CAPITAL RESOURCES
NGC has historically relied upon operating cash flow and borrowings
under its credit facilities for its liquidity and capital resource requirements.
As a result of the Company's continued positive operating results, combined with
the liquidity and flexibility provided by available funds under its credit
facilities, the Company believes it will be able to meet all foreseeable cash
requirements, including working capital, capital expenditures, debt service and
costs associated with the proposed Chevron transaction.
OPERATING CASH FLOW
The Company's cash flow from operating activities differs from reported
net income primarily as a result of depreciation and amortization, undistributed
earnings of its unconsolidated affiliates, deferred income taxes, timing
differences associated with risk management activities and net changes in
working capital components. The following describes generally the impact working
capital changes may have on the Company's operating cash flow from period to
period.
24
ACCOUNTS RECEIVABLE. Generally, the level of NGC's accounts receivable
is impacted primarily by sales volumes and prices. Given the impact of seasonal
demand factors on the Company's sales volumes and the prices of natural gas,
NGLs and crude oil, NGC's accounts receivable are typically higher in the winter
months than during the balance of the year.
INVENTORIES. Historically, the Company has maintained varying levels of
natural gas, NGL and crude oil inventories. Due to seasonal demand factors,
natural gas and NGL inventories are typically purchased during the summer months
and sold during the winter months. Inventory volumes include product in
pipelines, referred to as "line fill", which represents perpetual inventory
volumes. Otherwise, a large part of the Company's product inventories held as of
a year-end are expected to be sold during the first quarter of the following
year. Inventory purchases are generally discretionary and not a prerequisite to
maintaining deliveries or sales due to the availability of supplies through term
contracts and spot market purchasing activities. However, periodic inventory
accumulations allow the Company to capture peak deliverability opportunities and
to take advantage of expected seasonal price differentials. Material and
supplies inventory, used primarily at the Company's processing plants and
fractionation facilities, typically turnover more slowly than product inventory
volumes.
ACCOUNTS PAYABLE. The level of the Company's trade accounts payable will
generally follow in tandem with the level of trade accounts receivable because
purchased volumes and product prices will typically fluctuate directionally with
sales volumes and prices.
OTHER WORKING CAPITAL ACCOUNTS. Other working capital accounts, which
include prepayments, other current assets and accrued liabilities, reflect
expenditures or recognition of liabilities for insurance costs, certain
deposits, salaries, taxes other than on income, certain deferred revenue
accounts and other similar items. Fluctuations in these accounts from period to
period reflect changes in facts or changes in the timing of payments or
recognition of liabilities and are not directly impacted by seasonal factors.
THE COMBINATION
Approximately $166.9 million, exclusive of transaction related costs,
was required to consummate the tender offer related to the Combination. These
funds were provided by British Gas, NOVA and Clearinghouse. Specifically,
British Gas and NOVA each contributed $67.5 million to their respective
subsidiaries that participated in the Combination and Clearinghouse provided
$31.9 million to fund the balance. Clearinghouse funded the $31.9 million and
certain other costs associated with the Combination through a combination of
cash on hand and $25.0 million in borrowings under its then existing credit
agreement.
REVOLVING CREDIT FACILITY
On March 14, 1995, the Company entered into the Credit Agreement, which
established a five-year $550 million revolving credit facility. The revolving
credit facility provides for letters of credit (up to $150 million) and
borrowings for working capital, capital expenditures and general corporate
purposes of up to $550 million in the aggregate. The $550 million commitment
under the revolving credit facility reduces by $22.5 million each quarter
beginning in March 1998 and continuing through maturity. Generally, borrowings
under the Credit Agreement bear interest at a Eurodollar rate plus a margin that
is determined based on the Company's debt to capitalization ratio. The margin at
December 31, 1995, was 0.5 percent and the average interest rate applicable to
borrowings under the Credit Agreement approximated 6.3 percent. During the first
quarter of 1995, NGC entered into arrangements with financial institutions that
effectively capped the base Eurodollar rate on $100 million of borrowings at
rates between 8.5 percent and 9.1 percent through January 1998. The Credit
Agreement contains certain financial covenants which require the Company to meet
certain financial position and performance tests. At December 31, 1995, letters
of credit and borrowings outstanding under the Credit Agreement aggregated $199
million and unused borrowing capacity under the revolving credit facility
approximated $351 million.
SHELF REGISTRATION OF $250 MILLION OF SENIOR NOTES
During 1995, NGC filed with the Securities and Exchange Commission a
shelf registration that provides for the issuance of $250 million of debt
securities pursuant to Rule 415 of the Securities Act of 1933. On December 15,
1995, under this shelf registration, the Company sold $150 million of 6.75%
Senior Notes due December 15, 2005. The Notes were issued at a price of 99.984
percent, which, after deducting underwriting discounts and commissions, resulted
in net proceeds to the Company
25
of approximately $149 million. Proceeds from the sale of these Notes were used
to retire outstanding indebtedness under the Credit Agreement. Interest on the
Notes is payable semiannually on June 15 and December 15 of each year, beginning
June 15, 1996. The Notes represent general unsecured obligations of the Company
and are fully and unconditionally guaranteed on a joint and several basis by the
following subsidiaries of the Company: Natural Gas Clearinghouse; Trident NGL,
Inc.; NGC Energy Resources, Limited Partnership; NGC Liquids Marketing, Inc.;
NGC Oil Trading and Transportation, Inc.; NGC Futures, Inc.; HUB Services, Inc.;
NGC Storage, Inc.; NGC Anadarko Gathering System, Inc.; Trident Gas Marketing,
Inc.; Trident NGL Pipeline Company; Kansas Gas Supply Corporation; Trident
Acquisition Corp.; NGC U.K. Ltd.; and NGC Canada, Inc. (collectively "Subsidiary
Guarantors"). Upon issuance, the Notes were priced based on the then existing
yield for 10-year U.S. Treasury Notes ("Base Treasury Rate") plus a spread based
principally on the Company's credit rating. Prior to issuing the Notes, the
Company entered into two separate transactions with two separate financial
institutions, the effect of which was to lock in the Base Treasury Rate at
approximately 6.2 percent on the full $150 million face value of the Notes.
Separate financial statements of each Subsidiary Guarantor have not been
provided herein because management has determined that such information would
not be material to investors as the aggregate assets, liabilities, earnings and
equity of the Subsidiary Guarantors is substantially equivalent to the Company's
consolidated assets, liabilities, earnings and equity. The Company also has
direct and indirect subsidiaries that are not Subsidiary Guarantors
(collectively "Non-guarantor Subsidiaries").These Non-guarantor Subsidiaries,
both individually and in the aggregate, are inconsequential to NGC (and its
accounting predecessor - Clearinghouse) as of and for each of the three years in
the period ended December 31, 1995.
TRIDENT NOTES
At December 31, 1995, Trident had outstanding $105 million principal
amount of 10.25% Subordinated Notes due 2003 (interest payable semi-annually in
arrears each April and October) and $65 million principal amount of 14% Senior
Subordinated Notes due 2001 (interest payable semi-annually in arrears each
February and August). Beginning in 1998, corresponding with the first call
dates, the Company may repurchase the Subordinated Notes and Senior Subordinated
Notes at 104.5 percent and 107 percent of the principal amount, respectively,
with such reacquisition prices reducing as the notes mature. The indentures
covering the Subordinated Notes and Senior Subordinated Notes contain covenants
that, among other things, require Trident to meet certain financial tests; limit
the amount of investments, dividends and asset sales that can be made by
Trident; and restrict the ability of Trident and its subsidiaries to incur
additional indebtedness, create or permit liens and engage in certain
transactions. Although Trident's net assets at December 31, 1995, approximated
$350 million, management does not believe that the terms of the indentures
materially restrict the ability of Trident to transfer funds to the Company
given that Trident is a Subsidiary Guarantor combined with the level of advances
made by NGC to Trident. The unamortized premium balance associated with each of
the Subordinated Notes and Senior Subordinated Notes represents a fair value
adjustment to the aggregate principal balance of the notes recognized as part of
the Combination. The unamortized premium balance of $18.9 million at December
31, 1995, is being amortized using the interest method.
CAPITAL EXPENDITURES, COMMITMENTS AND DIVIDEND REQUIREMENTS
The Company's business strategy has been to grow horizontally across all
sectors of the midstream energy business segment through strategic acquisitions
or construction of core operating facilities in order to capture the significant
synergies which management believes exist among these types of assets and NGC's
natural gas and NGL marketing businesses. For 1996, the Company has budgeted to
spend approximately $175 million in connection with these efforts. Such
expenditures do not contemplate planned expenditures associated with the Chevron
acquisition discussed previously. Actual capital expenditures may vary from
budgeted amounts due to many factors.
During 1995, the Company spent approximately $310 million in acquisition
and asset maintenance activities. The most significant component of cash used in
investing activities during the 1995 period relates to the acquisition cost and
related expenses associated with the Combination. The Company expended an
additional $145 million for the acquisition of other assets, the most
significant of which were Ozark, the Kerr-McGee pipeline and Pan Alberta Gas,
through a contribution to NCL, as well as capital improvements at existing
facilities and investments in other unconsolidated affiliates.
26
During 1994 and 1993, the Company spent $38.4 million and $7.9 million,
respectively, on investing activities. Such capital expenditures were used to
maintain existing assets and to acquire additional midstream natural gas assets,
namely gas processing plants and gathering systems.
A wholly owned subsidiary of NGC is committed to expend its respective
share of the construction costs related to the Avoca Natural Gas Storage
construction project. Current cost estimates commit the Company to approximately
$10 million of expenditures from 1996 through 1999. NGC and NGC Holding, Inc.
have guaranteed the commitment by the wholly owned subsidiary.
A subsidiary of the Company is committed to contribute approximately $10
million to Indeck, two partnerships which are engaged in the acquisition of
electric power generating facilities. The contribution represents the Company's
pro rata share of funds to be used for selected acquisitions. At December 31,
1995, the Company had paid $3.7 million of this commitment.
Trident has guaranteed its pro rata share of the unfunded debt service
reserve account of GCF. Trident's obligation under the guarantee at December 31,
1995, assuming Trident had to fund such obligation as of that date, approximated
$3 million.
At December 31, 1995, GCF was in full compliance with its debt agreement.
NGC currently declares an annual dividend of $0.05 per common share
payable in quarterly installments. During 1995, NGC paid $9.3 million in
dividends and distributions, principally to the Clearinghouse Owners and holders
of record of the Company's outstanding shares of common stock. Prior to the
Combination, Clearinghouse made distributions primarily to enable
Clearinghouse's partners to pay tax liabilities incurred as a result of
Clearinghouse generated income which was taken into account by the Clearinghouse
partners in computing their personal income tax liabilities. Amounts distributed
in 1994 and 1993 totaled $14.0 and $14.1 million, respectively.
ENVIRONMENTAL MATTERS
NGC's operations are subject to extensive federal, state and local
statutes, rules and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Compliance with
these statutes, rules and regulations requires capital and operating
expenditures including those related to monitoring and permitting at various
operating facilities and the cost of remediation obligations. The Company's
environmental expenditures have not been prohibitive in the past, but are
anticipated to increase in the future with the trend toward stricter standards,
greater regulation, more extensive permitting requirements and an increase in
the number of assets operated by the Company subject to environmental
regulation.
To the Company's knowledge, it is in substantial compliance with, and is
expected to continue to comply in all material respects with, applicable
environmental laws, regulations, orders and rules. Further, to the best of the
Company's knowledge, there are no existing, pending or threatened actions,
suits, investigations, inquiries, proceedings or clean-up obligations by any
governmental authority or third party relating to any violations of any
environmental laws with respect to the Company's assets that would have a
material adverse effect on the Company's operations and financial condition.
NGC's aggregate expenditures for compliance with laws and regulations related to
the discharge of materials into the environment or otherwise related to the
protection of the environment totaled $2.2 million in 1995. Total environmental
expenditures for both capital and operating maintenance and administrative costs
are not expected to exceed $4 million in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, the financial statement schedule and
supplementary data of the Company are set forth at pages F-1 through F-27
inclusive, found at the end of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain of the information required by this Item 10 will be contained
in the definitive Proxy Statement of the Company for its 1996 annual Meeting of
Stockholders (the "Proxy Statement") under the heading "Proposal 1 -- Election
of Directors" and is incorporated herein by reference. The Proxy Statement will
be filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1995. Reference is also made to the information appearing in
Part I of this Annual Report on Form 10-K under the caption "Item 1A. Executive
Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be contained in
the Proxy Statement under the heading "Executive Compensation" and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding ownership of certain of the Company's outstanding
securities will be contained in the Proxy Statement under the heading "Principal
Stockholders" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related party transactions will be contained in
the Proxy Statement under the headings "Principal Stockholders", "Proposal 1 --
Election of Directors" and "Executive Compensation -- Stock Option Grants" and
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K
The following documents, which have been filed by the Company with the
Securities and Exchange Commission pursuant to the Securities and Exchange Act
of 1934, as amended, are by this reference incorporated in and made a part of
this statement:
a. Financial Statements and Supplemental Data.
Consolidated financial statements of the Company and its subsidiaries are
incorporated under Item 8. of this Form 10-K.
b. Financial Statement Schedule.
The condensed financial statements of the registrant is incorporated under
Item 8 of this Form 10-K.
c. Exhibits.
The following instruments and documents are included as exhibits to this
Form 10-K.
EXHIBIT
NUMBER DESCRIPTION
2.1 -- Letter of Intent, dated August 4, 1994, between Trident NGL
Holding, Inc. and Natural Gas Clearinghouse.(10)
2.2 -- Combination Agreement and Plan of Merger, dated October 21, 1994,
among Trident NGL Holding, Inc., Natural Gas Clearinghouse,
British Gas General Partner Inc., British Gas Limited Partner
Inc., British Gas NGC L.P., NOVA NGC, Inc., Participating
Employee Partners, C. L. Watson, Inc., Stephen W. Bergstrom,
Inc., Gilbert Burciaga, Inc., A. R. Cipriani, Jr., Inc., David C.
Feldman, Inc., James T. Hackett, Inc., H. Keith Kaelber, Inc.,
Kenneth E. Randolph, Inc., Donald R. Sinclair, Inc. and Jacob S.
Ulrich, Inc.(11)
28
EXHIBIT
NUMBER DESCRIPTION
3.1 -- Certificate of Incorporation of NGC Corporation.(5)
3.2 -- Amended and Restated By-Laws of NGC Corporation.(17)
4.1 -- Indenture, dated as of September 9, 1993, between Trident NGL,
Inc. and Ameritrust Texas National Association, as Trustee.(6)
4.2 -- Form of Senior Subordinated Note (included in Exhibit 4.1).
4.3 -- Indenture, dated as of August 30, 1991, between Trident NGL, Inc.
and Ameritrust Texas National Association, as Trustee.(1)
4.4 -- Form of Senior Subordinated Note (included in Exhibit 4.3).
4.5 -- Note Purchase Agreement, dated as of August 30, 1991, by and
among Trident NGL, Inc. and the Purchasers named therein.(2)
4.6 -- Indenture, dated as of April 15, 1993, between Trident NGL, Inc.
and The First National Bank of Boston, as Trustee.(4)
4.7 -- Form of Subordinated Note (included in Exhibit 4.6).
4.8 -- First Supplemental Indenture, dated as of April 15, 1993, between
Trident NGL, Inc. and Ameritrust Texas National Association, as
Trustee.(4)
4.9 -- Second Supplemental Indenture, dated as of September 9, 1993,
between Trident NGL, Inc. and Ameritrust Texas National
Association, as Trustee.(6)
4.10 -- Waiver and Agreement, dated as of October 31, 1993, by and among
Trident NGL Holding, Inc. and the other parties signatory
thereto.(5)
4.11 -- Lock-up Agreement, dated November 9, 1993, by and among
Donaldson, Lufkin & Jenrette Securities Corporation, Kidder,
Peabody & Co. Incorporated, Morgan Stanley & Co., Incorporated,
S. G. Warburg & Co., Inc., as Representatives of the U.S.
Underwriters; Donaldson, Lufkin & Jenrette Securities
Corporation, S. G. Warburg Securities, Kidder, Peabody
International Limited and Morgan, Stanley International as
Representatives of the International Managers; and the other
parties signatory thereto.(5)
4.12 -- Warrant exercisable for 6,228 shares of Common Stock of NGC
Corporation registered in the name of J. Otis Winters.(5)
4.13 -- Terms of the Contingent Right of Certain Trident stockholders to
receive the Contingent Shares.(12) (See Appendix IV to the Proxy
Statement/Prospectus.)
4.14 -- Terms of the NGC Partners Right to receive the Contingent
Shares.(12) (See Appendix V to the Proxy Statement/Prospectus.)
4.15 -- Credit Agreement dated as of March 14, 1995, among NGC
Corporation and The First National Bank of Chicago, individually
and as agent, The Chase Manhattan Bank National Association and
Nations Bank of Texas N.A., individually and as co-agent, and
certain other lenders named therein. (14)
29
EXHIBIT
NUMBER DESCRIPTION
4.16 -- Indenture, dated as of December 11, 1995, between NGC
Corporation, the Subsidiary Guarantors named therein and The
First National Bank of Chicago, as Trustee. (13)
4.17 -- Form of Senior Notes (included in Exhibit 4.16).
10.1 -- Stock Purchase Agreement, dated as of August 30, 1991, among
Trident NGL Holding, Inc., Trident NGL Holding Subsidiary, Inc.,
HM/Trident, L.P., OXY NGL Inc. and the other purchasers listed on
Schedule I thereto.(1)
10.2 -- Amended and Restated Stockholders Agreement, dated as of April
15, 1993, among Trident NGL Holding, Inc., HM/Trident, L.P. and
the other parties listed on Schedule I thereto.(9)
10.3 -- Stock Purchase Agreement, dated as of April 15, 1993, among
Trident NGL Holding, Inc., HM/Trident, L.P. and the other
purchasers listed on Schedule I thereto.(9)
10.4 -- Letter Agreement, dated as of February 5, 1993, between OXY NGL
Inc. and Trident NGL Holding, Inc. regarding purchase of
preferred stock of Trident NGL Holding, Inc. and Trident NGL
Holding Subsidiary, Inc.(3)
10.5 -- Agreement of Sale and Purchase of Assets, dated as of May 5,
1991, as amended on June 6, 1991 and August 30, 1991, by and
between OXY USA Inc. and Trident Energy, Inc.(1)
10.6 -- Master Agreement on Gas Processing, dated as of May 5, 1991, by
and between OXY USA Inc. and Trident NGL, Inc.(1)
10.7 -- Agreement on Employment, Employee Benefits and Wages, dated as of
August 30, 1991, by and between OXY USA Inc. and Trident NGL,
Inc.(1)
10.8 -- Product Sale and Delivery Agreement between Trident NGL, Inc.,
OXY NGL Pipeline Company and OXY Petrochemicals, Inc. dated as of
August 30, 1991.(1)
10.9 -- Right of First Refusal Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc. (Lake Charles
facilities and Trident NGL Pipeline).(1)
10.10 -- Right of First Refusal Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc. (Hackberry storage
facilities and terminal).(1)
10.11 -- Amended and Restated Gulf Coast Fractionators Partnership
Agreement.(7)
10.12 -- Employment Agreement, dated as of July 9, 1991, by and between
Bruce M. Withers, Jr. and Trident NGL, Inc.(1)
10.13 -- Amendment to Employment Agreement, dated as of April 28, 1994, by
and between Bruce M. Withers, Jr., Trident NGL Holding, Inc. and
Trident NGL, Inc.(8)
10.14 -- Second Amendment, dated as of October 21, 1994, to Employment
Agreement, dated as of July 9, 1991, as amended, by and between
Bruce M. Withers, Jr. and Trident NGL, Inc.
10.15 -- Trident NGL, Inc. Savings Plan.(1)
30
EXHIBIT
NUMBER DESCRIPTION
10.16 -- Amendment No. 1 to Trident NGL, Inc. Savings Plan.(8)
10.17 -- Amendment No. 2 to Trident NGL, Inc. Savings Plan.(9)
10.18 -- Amendment No. 3 to Trident NGL, Inc. Savings Plan.(16)
10.19 -- Trident NGL Holding, Inc. Amended and Restated 1991 Stock Option
Plan.(5)
10.20 -- Letter Agreement dated January 14, 1993 between Trident NGL, Inc.
and The First National Bank of Boston, regarding interest rate
swap transaction.(3)
10.21 -- Letter Agreement dated January 14, 1993 between Trident NGL, Inc.
and Chemical Bank, regarding interest rate exchange
transaction.(3)
10.22 -- Proprietary Software Agreement, dated as of August 30, 1991, by
and between OXY USA Inc. and Trident NGL, Inc.(1)
10.23 -- Stock Purchase Agreement between Trident NGL Holding, Inc. and J.
Otis Winters.(6)
10.24 -- Underwriting Agreement dated November 9, 1993, by and among
Trident NGL Holding, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Kidder Peabody & Co. Incorporated, Morgan
Stanley & Co. Incorporated and S. G. Warburg & Co. Inc., as
Representatives of the U. S. Underwriters, and Donaldson, Lufkin
& Jenrette Securities Corporation, Kidder, Peabody International
Limited, Morgan Stanley International and S. G. Warburg
Securities, as Representatives of the International Managers.(5)
10.25 -- Agreement for the Construction, Ownership and Operation of the
Mont Belvieu I Fractionation Facility between Trident NGL, Inc.
and Union Pacific Fuels, Inc. dated November 17, 1993.(7)
10.26 -- Lock-up Agreement, dated as of October 21, 1994, executed by BG
Holdings, Inc. in favor of Trident NGL Holding, Inc.(12)
10.27 -- Lock-up Agreement, dated as of October 21, 1994, executed by NOVA
Gas Services (U.S.) Inc. in favor of Trident NGL Holding,
Inc.(12)
10.28 -- Lock-up Agreement, dated as of October 21, 1994, executed by C.
L. Watson, Stephen W. Bergstrom, Gilbert Burciaga, A. R.
Cipriani, Jr., David C. Feldman, Inc., James T. Hackett, H. Keith
Kaelber, Kenneth E. Randolph, Donald R. Sinclair, and Jacob S.
Ulrich in favor of Trident NGL Holding, Inc.(12)
10.29 -- Agreement, dated as of October 21, 1994, between Hicks, Muse,
Tate & Furst Incorporated ("HMTF") and Natural Gas
Clearinghouse.(12)
10.30 -- Agreement, dated as of October 21, 1994, among DLJ Capital
Corporation, DLJ First ESC, L.L.C., and Natural Gas
Clearinghouse.(12)
10.31 -- Support Agreement, dated as of October 21, 1994, among DLJ
Capital Corporation, DLJ First ESC, L.L.C., HMTF and Natural Gas
Clearinghouse.(12)
31
EXHIBIT
NUMBER DESCRIPTION
10.32 -- Indemnification Agreements dated as of October 21, 1994, between
Trident NGL Holding, Inc. and BG Holdings, Inc.(12)
10.33 -- Indemnification Agreement, dated as of October 21, 1994, among
Trident NGL Holding, Inc., NOVA Gas Services (U.S.) Inc. and NOVA
Investments (U.S.) Inc.(12)
10.34 -- Indemnification Agreements, dated as of October 21, 1994, between
Trident NGL Holding, Inc. and each of C. L. Watson, Stephen W.
Bergstrom, Gilbert Burciaga, A. R. Cipriani, Jr., James T.
Hackett, H. Keith Kaelber, Kenneth E. Randolph, Donald R.
Sinclair, and Jacob S. Ulrich, respectively.(12)
10.35 -- Indemnification Agreement, dated as of October 21, 1994, among
Trident NGL Holding, Inc. David C. Feldman, Inc. and David C.
Feldman.(12)
10.36 -- Administrative Services Agreement, dated as of October 21, 1994,
between Trident NGL Holding, Inc. and NOVAGAS Clearinghouse
Limited Partnership.(12)
10.37 -- Master Services Contract, dated as of October 21, 1994, between
Accord Energy Limited and Trident NGL Holding, Inc.(12)
10.38 -- Stockholders Agreement, dated as October 21, 1994, among Trident
NGL Holding, Inc. and certain of its Stockholders.(12)
10.39 -- Stockholders Agreement, dated as of October 21, 1994, among
Trident NGL Holding, Inc., HMTF, BG Holdings, Inc., NOVA Gas
Services (U.S.) Inc. and certain other stockholders named
therein.(12)
10.40 -- Registration Rights Agreement, dated as of October 21, 1994,
among Trident NGL Holding, Inc., BG Holdings, Inc., NOVA Gas
Services (U.S.) Inc. and each of C. L. Watson, Stephen W.
Bergstrom, Gilbert Burciaga, A. R. Cipriani, Jr., David C.
Feldman, Inc., James T. Hackett, H. Keith Kaelber, Kenneth E.
Randolph, Donald R. Sinclair, and Jacob S. Ulrich.(12)
10.41 -- Investment Agreements dated as of October 21, 1994 by each of
Gilbert Burciaga, Stephen W. Bergstrom, James T. Hackett, C. L.
Watson, BG Holdings, Inc., Kenneth E. Randolph, Jacob S. Ulrich,
David C. Feldman, NOVA Gas Services (U.S.), Inc., Donald R.
Sinclair, H. Keith Kaelber and A. R. Cipriani, Jr. in favor of
Trident NGL Holding, Inc. and each of the other parties to the
Combination Agreement.(12)
10.42 -- Release and Termination Agreement, dated as of October 21, 1994,
among Trident NGL Holding, Inc., Trident NGL, Inc., HMTF and
Natural Gas Clearinghouse.(12)
10.43 -- Release and Termination Agreement, dated as of October 21, 1994,
among Trident NGL Holding, Inc., Trident NGL, Inc., Donaldson
Lufkin & Jenrette Securities Corporation and Natural Gas
Clearinghouse.(12)
10.44 -- Letter Agreement, dated as of October 21, 1994, by Apollo
Investment Fund, L.P. in favor of Trident NGL Holding, Inc. and
Natural Gas Clearinghouse.(12)
10.45 -- Form of Investment Agreement, dated as of October 21, 1994, made
by certain non-accredited investors who will receive shares of
common stock in connection with the Combination and Trident NGL
Holding, Inc.(12)
32
EXHIBIT
NUMBER DESCRIPTION
10.46 -- Employment Agreement, dated as of May 19, 1992, between C.L.
Watson and Natural Gas Clearinghouse.(12)
10.47 -- Employment Agreement, dated as of May 19, 1992, between Stephen
W. Bergstrom and Natural Gas Clearinghouse.(12)
10.48 -- NGC Corporation Employee Equity Option Plan.(12) (See Appendix
III to the Proxy Statement/Prospectus).
10.49 -- The Amended and Restated Natural Gas Clearinghouse Deferred
Compensation Plan, dated February 28, 1992.(12)
10.50 -- Natural Gas Clearinghouse Above Base Incentive Compensation Plan,
as amended and restated, effective as of January 1, 1994.(12)
10.51 -- Unanimous Shareholder Agreement dated February 25, 1994, among
Novacorp International, Inc. (formerly NOVA Gas Services Ltd.),
NGC Canada Inc. and Novagas Clearinghouse Ltd.(12)
10.52 -- First Amendment to Unanimous Shareholders Agreement, dated May
20, 1994, among Novacorp International, Inc. (formerly NOVA Gas
Services Ltd.), NGC Canada Inc. and Novagas Clearinghouse
Ltd.(12)
10.53 -- Limited Partnership Agreement, dated February 25, 1994, among
Novacorp International, Inc. (formerly NOVA Gas Services Ltd.),
NGC Canada Inc. and Novagas Clearinghouse Ltd.(12)
10.54 -- Amended and Restated Lease Agreement entered into June 3, 1992,
between Cypress Crossing Venture, as Landlord, and Natural Gas
Clearinghouse, as Tenant.(12)
10.55 -- First Amendment to Amended and Restated Lease Agreement dated
effective as of November 1, 1992, between Cypress Crossing
Venture and Natural Gas Clearinghouse.(12)
10.56 -- Second Amendment to Amended and Restated Lease Agreement dated
effective as of May 1, 1994, between Cypress Crossing Venture and
Natural Gas Clearinghouse.(12)
10.57 -- Amended Contract for Processing Gas, dated January 1, 1995, by
and between Amoco Production Company and Trident NGL, Inc.(15)
10.58 -- Exclusivity Agreement dated January 21, 1996, among NGC
Corporation and Chevron Corporation.(16)
22.1 -- Subsidiaries of the Registrant.(17)
+23.1 -- Consent of Arthur Andersen LLP.
- ----------------
+ Filed herewith.
(1) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-43871.
33
(2) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-46416.
(3) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL, Inc. on Form S-1, Registration No. 33-59200.
(4) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1993 of Trident NGL, Inc.
Commission File No. 1-11156.
(5) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended September 30, 1993 of Trident NGL Holding,
Inc., Commission File No. 1-11156.
(6) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-1, Registration No. 33-68842.
(7) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1993 of Trident NGL Holding, Inc.,
Commission File No. 1-11156.
(8) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 1994 of Trident NGL Holding, Inc.,
Commission File No. 1-11156.
(9) Incorporated by reference to exhibits to the Quarterly Report on Form 10-Q
for the Quarterly Period Ended June 30, 1994 of Trident NGL Holding, Inc.,
Commission File No. 1-11156.
(10) Incorporated by reference to exhibits to the Current Report on Form 8-K of
Trident NGL Holding, Inc., Commission File No. 1-11156, dated August 4,
1994.
(11) Incorporated by reference to exhibits to the Current Report on Form 8-K of
Trident NGL Holding, Inc., Commission File No. 1-11156, dated October 21,
1994.
(12) Incorporated by reference to exhibits to the Registration Statement of
Trident NGL Holding, Inc. on Form S-4, Registration No. 33-88907.
(13) Incorporated by reference to the Registration Statement of NGC Corporation
on Form S-3, Registration No. 33- 97368.
(14) Incorporated by reference to exhibits to the current report on Form 8-K of
NGC Corporation, Commission File 1-11156, dated March 14, 1995.
(15) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1994, of NGC Corporation, Commission
File No. 1-11156.
(16) Incorporated by reference to exhibits to the current report on Form 8-K of
NGC Corporation, Commission File 1-11156, dated January 21, 1996.
(17) Incorporated by reference to exhibits to the Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1995, of NGC Corporation, Commission
File No. 1-11156.
(b) Reports on Form 8-K of NGC Corporation.
Current Report on Form 8-K of NGC Corporation, Commission File No.
1-11156, dated December 20, 1995 (On December 20, 1995, the Company
sold $150 million of its 6 3/4% Senior Notes due December 15, 2005
pursuant to an underwritten public offering).
Current Report on Form 8-K of NGC Corporation, Commission File No.
1-11156, dated December 28, 1995 (Resignation of James T. Hackett,
Senior Vice President of the Company and President of Trident NGL,
Inc.).
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC CORPORATION
Date: March 29,1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board, Chief
Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board, Chief
Executive Officer, President and Director
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, Senior Vice President
and Director
Date: March 29, 1996 By: /s/ Stuart David Anderson
Stuart David Anderson, Director
Date: March 29, 1996 By: /s/ Dennis W. Cottrell
Dennis W. Cottrell, Director
Date: March 29, 1996 By: /s/ Roy Alan Gardner
Roy Alan Gardner, Director
Date: March 29, 1996 By: /s/ C. Kent Jespersen
C. Kent Jespersen, Director
35
Date: March 29, 1996 By: /s/ Jeffrey M. Lipton
Jeffrey M. Lipton, Director
Date: March 29, 1996 By: /s/ Albert Terence Poole
Albert Terence Poole, Director
Date: March 29, 1996 By: /s/ Daniel L. Dienstbier
Daniel L. Dienstbier, Director
Date: March 29, 1996 By: /s/ J. Otis Winters
J. Otis Winters, Director
The Annual Report to Stockholders of the Company for the year ended
December 31, 1995, and the proxy statement relating to the annual meeting of
stockholders will be furnished to stockholders subsequent to the filing of this
Annual Report on Form 10-K. Such documents have not been mailed to stockholders
as of the date of this report.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATURAL GAS CLEARINGHOUSE
By: NGC Corporation, its general partner
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board, Chief
Executive Officer, President and Director of
NGC Corporation
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board, Chief
Executive Officer, President and Director
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer of NGC Corporation
(Principal Financial and Accounting Officer)
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, Senior Vice President
and Director of NGC Corporation
Date: March 29, 1996 By: /s/ Stuart David Anderson
Stuart David Anderson, Director of NGC
Corporation
Date: March 29, 1996 By: /s/ Dennis W. Cottrell
Dennis W. Cottrell, Director of NGC
Corporation
Date: March 29, 1996 By: /s/ Roy Alan Gardner
Roy Alan Gardner, Director of NGC Corporation
37
Date: March 29, 1996 By: /s/ C. Kent Jespersen
C. Kent Jespersen, Director of NGC
Corporation
Date: March 29, 1996 By: /s/ Jeffrey M. Lipton
Jeffrey M. Lipton, Director of NGC
Corporation
Date: March 29, 1996 By: /s/ Albert Terence Poole
Albert Terence Poole, Director of NGC
Corporation
Date: March 29, 1996 By: /s/ Daniel L. Dienstbier
Daniel L. Dienstbier, Director of NGC
Corporation
Date: March 29, 1996 By: /s/ J. Otis Winters
J. Otis Winters, Director of NGC Corporation
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TRIDENT NGL, INC.
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Senior Vice President
and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Director
Date: March 29, 1996 By: /s/ Bruce M. Withers, Jr.
Bruce M. Withers, Jr., Director
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Senior Vice President
and Director
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC ENERGY RESOURCES, LIMITED PARTNERSHIP
By: NGC Energy, Inc., its general partner
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer of NGC Energy, Inc.
(Principal Financial and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Senior Vice President
and Director of NGC Energy, Inc.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC LIQUIDS MARKETING, INC.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ William A. Zartler
William A. Zartler, Vice President and
Director
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Senior Vice President
and Director
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC OIL TRADING AND TRANSPORTATION, INC.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Senior Vice President
and Director
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC UK LIMITED
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board and
Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board and
Director (Principal Executive Officer)
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Jacob S. Ulrich
Jacob S. Ulrich, Director
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Senior Vice President
and Director
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC CANADA
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board and
Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ C.L. Watson
C.L. Watson, Chairman of the Board and
Director (Principal Executive Officer)
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Michael J. Cyrus
Michael J. Cyrus, Director
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC FUTURES, INC.
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, President and Director
(Principal Executive Officer)
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
Date: March 29, 1996 By: /s/ Joel M. Staib
Joel M. Staib, Director
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HUB SERVICES, INC.
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, President and Director
(Principal Executive Officer)
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC STORAGE, INC.
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, President and Director
(Principal Executive Officer)
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NGC ANADARKO GATHERING SYSTEMS, INC.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
Date: March 29, 1996 By: /s/ Stephen W. Bergstrom
Stephen W. Bergstrom, Director
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TRIDENT GAS MARKETING, INC.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TRIDENT NGL PIPELINE COMPANY
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
KANSAS GAS SUPPLY CORPORATION
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
TRIDENT ACQUISITION CORP.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) (Principal Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 1996 By: /s/ H. Keith Kaelber
H. Keith Kaelber, Senior Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
Date: March 29, 1996 By: /s/ Kenneth E. Randolph
Kenneth E. Randolph, Director
52
NGC CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS .................................... PAGE
Report of Independent Public Accountants ........................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 .... F-3
Consolidated Statements of Operations for the years ended ....... F-4
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended ....... F-5
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity ...... F-6
for the years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements ...................... F-7
FINANCIAL STATEMENT SCHEDULE
Condensed Financial Statements of the Registrant ................ F-23
FINANCIAL STATEMENTS OF UNCONSOLIDATED AFFILIATE
Accord Energy Limited Annual Report for the year
ended December 31, 1995 ....................................... 1 - 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of NGC Corporation:
We have audited the accompanying consolidated balance sheets of NGC
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1995, 1994 and 1993.
These financial statements and schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NGC Corporation and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years ended December 31, 1995, 1994 and
1993, in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for fixed-price
natural gas transactions to the mark-to-market method of accounting.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information included in Schedule I is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statments.
This schedule has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1996
NGC CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31, DECEMBER 31,
1995 1994
----------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 16,266 $ 15,219
Accounts receivable, net ....................... 562,278 330,979
Accounts receivable, affiliates ................ 1,624 2,008
Inventories .................................... 74,263 25,359
Assets from risk management activities ......... 88,093 68,133
Prepayments and other assets ................... 20,415 4,084
----------- ---------
762,939 445,782
----------- ---------
PROPERTY, PLANT AND EQUIPMENT .................. 1,013,354 134,593
Less: accumulated depreciation ................. (64,843) (20,531)
----------- ---------
948,511 114,062
----------- ---------
OTHER ASSETS
Investments in unconsolidated affiliates ....... 62,370 14,365
Assets from risk management activities ......... 26,380 43,772
Other assets ................................... 75,052 27,490
----------- ---------
$ 1,875,252 $ 645,471
=========== =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable ............................... $ 543,108 $ 300,946
Accounts payable, affiliates ................... 22,547 21,086
Accrued liabilities ............................ 58,736 13,709
Liabilities from risk management activities .... 81,283 68,403
----------- ---------
705,674 404,144
LONG-TERM DEBT ................................. 522,764 33,000
OTHER LIABILITIES
Liabilities from risk management activities .... 22,570 35,833
Deferred income taxes .......................... 43,227 3,058
Other long-term liabilities .................... 28,637 17,223
----------- ---------
1,322,872 493,258
----------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
EQUITY
Partners' capital and undistributed earnings ... -- 152,213
Preferred stock, $.01 par value, 50,000,000
shares authorized ......................... -- --
Common stock, $.01 par value, 300,000,000 shares
authorized; 110,493,411 shares issued and
105,031,874 shares outstanding at December
31, 1995 .................................. 1,105 --
Additional paid-in capital ..................... 515,785 --
Retained earnings .............................. 35,490 --
----------- ---------
552,380 152,213
----------- ---------
$ 1,875,252 $ 645,471
=========== =========
See Notes to Consolidated Financial Statements.
F-3
NGC CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
Revenues ...................................... $ 3,665,946 $ 3,237,843 $ 2,790,977
Cost of sales ................................. 3,471,286 3,138,717 2,699,127
----------- ----------- -----------
Operating margin ......................... 194,660 99,126 91,850
Depreciation and amortization ................. 44,913 8,378 7,594
General and administrative expenses ........... 68,057 47,817 36,585
----------- ----------- -----------
Operating income ......................... 81,690 42,931 47,671
Equity in earnings of unconsolidated affiliates 21,060 3,803 --
Other income .................................. 3,096 2,604 2,288
Interest expense .............................. (32,391) (2,381) (1,772)
Other expenses ................................ (8,221) (2,852) (1,411)
----------- ----------- -----------
Income before income taxes .................... 65,234 44,105 46,776
Income tax provision (benefit) ................ (27,471) 2,004 779
----------- ----------- -----------
NET INCOME .................................... $ 92,705 $ 42,101 $ 45,997
=========== =========== ===========
PRO FORMA NET INCOME PER SHARE:
Income before income taxes .................... $ 65,234 $ 44,105 $ 46,776
Pro forma provision for income taxes .......... 20,438 16,319 17,307
----------- ----------- -----------
Pro forma net income .......................... $ 44,796 $ 27,786 $ 29,469
=========== =========== ===========
Pro forma net income per common and common
equivalent share ........................... $ 0.40 $ 0.28 $ 0.30
=========== =========== ===========
Weighted average number of common
and common equivalent shares ................ 113,176 97,804 97,804
=========== =========== ===========
See Notes to Consolidated Financial Statements.
F-4
NGC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 92,705 $ 42,101 $ 45,997
Items not affecting cash flows from operating activities:
Depreciation and amortization ....................................... 44,913 8,378 7,594
Equity in earnings of affiliates, net of cash distributions ......... (9,169) (3,803) --
Risk management activities .......................................... (2,951) (6,529) --
Deferred income taxes ............................................... (28,281) 1,014 (679)
Amortization of bond premium ........................................ (3,214) -- --
Other ............................................................... 3,484 1,528 374
Change in assets and liabilities resulting from operating activities:
Accounts receivable ................................................. (152,557) 28,440 (54,758)
Inventories ......................................................... (23,403) (20,693) (2,734)
Prepayments and other assets ........................................ (16,518) 5,660 (2,070)
Accounts payable .................................................... 185,215 (37,831) 26,068
Accrued liabilities ................................................. 11,611 (154) 1,613
Other, net .......................................................... (11,187) (941) (1,113)
----------- -------- --------
Net cash provided by operating activities ........................... 90,648 17,170 20,292
----------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................ (128,871) (36,452) (16,464)
Acquisition of Trident NGL, Inc., net of cash acquired .............. (165,267) -- --
Investment in unconsolidated affiliates ............................. (15,457) (10,562) --
Investment in marketable securities, net ............................ -- 8,100 (7,915)
Other ............................................................... (1,028) 538 16,468
----------- -------- --------
Net cash used in investing activities ............................... (310,623) (38,376) (7,911)
----------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings .................................. 1,237,589 33,000 --
Repayments of long-term borrowings .................................. (1,143,039) -- (32,300)
Proceeds from sale of capital stock, options and warrants ........... 725 -- --
Capital contributions ............................................... 135,000 -- --
Dividends and other distributions ................................... (9,253) (14,041) (14,118)
----------- -------- --------
Net cash provided by (used in) financing activities ................. 221,022 18,959 (46,418)
----------- -------- --------
Net increase (decrease) in cash and cash equivalents ................ 1,047 (2,247) (34,037)
Cash and cash equivalents, beginning of year ........................ 15,219 17,466 51,503
----------- -------- --------
Cash and cash equivalents, end of year .............................. $ 16,266 $ 15,219 $ 17,466
=========== ======== ========
See Notes to Consolidated Financial Statements.
F-5
NGC CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
CLEARINGHOUSE NGC CORPORATION
---------------------- ----------------------------------------
Additional
Contributed Undistributed Paid-In Retained
Capital Earnings Shares Amount Capital Earnings
--------- --------- ------- ------ --------- --------
BALANCE AT DECEMBER 31, 1992 ........... $ 24,824 $ 63,921 -- $ -- $ -- $ --
Net income ............................. -- 45,997 -- -- -- --
Options granted ........................ -- 374 -- -- -- --
Partnership distributions .............. -- (14,427) -- -- -- --
--------- --------- ------- ------ --------- -------
BALANCE AT DECEMBER 31, 1993 ........... 24,824 95,865 -- -- --
Net income ............................. -- 42,101 -- -- --
Options granted ........................ -- 1,528 -- -- --
Partnership distributions .............. -- (12,105) -- -- --
--------- --------- ------- ------ --------- -------
BALANCE AT DECEMBER 31, 1994 ........... 24,824 127,389 -- -- --
Net income ............................. -- 52,930 -- -- 39,775
Capital contribution ................... 135,000 -- -- -- --
Partnership distributions .............. -- (5,227) -- -- --
Options granted ........................ -- 323 -- 1,692 --
Acquisition of Trident NGL Holding, Inc. (159,824) (175,415) 109,886 1,098 510,918 --
Dividends and other distributions ...... -- -- -- -- (4,285)
401(k) plan stock issuances ............ -- -- 199 3 1,873 --
Stock options exercised ................ -- -- 408 4 1,302 --
--------- --------- ------- ------ --------- -------
BALANCE AT DECEMBER 31, 1995 ........... $ -- $ -- 110,493 1,105 515,785 35,490
========= ========= ======= ====== ========= =======
See Notes to Consolidated Financial Statements.
F-6
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
NGC Corporation ("NGC" or the "Company") is a leading gatherer, processor,
transporter and marketer of energy products and services in North America. The
Company also markets natural gas and crude oil in the United Kingdom. NGC is a
holding company that operates principally through two subsidiaries, Natural Gas
Clearinghouse ("Clearinghouse") and Trident NGL, Inc. ("Trident"), and is the
result of a strategic business combination (the "Combination") between
Clearinghouse and Trident NGL Holding, Inc. ("Holding"), under which Holding was
renamed NGC Corporation.
The accounting policies of NGC reflect industry practices and conform to
generally accepted accounting principles. The more significant of such
accounting policies are described below. The preparation of the consolidated
financial statements in conformity with generally accepted accounting principles
requires management to develop estimates and make assumptions that affect
reported financial position and results of operations and that impact the nature
and extent of disclosure, if any, of contingent assets and liabilities. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its majority-owned
subsidiaries after elimination of intercompany accounts and transactions.
Investments in affiliates in which the Company has a significant ownership
interest, generally 20 percent to 50 percent, are accounted for by the equity
method. Other investments are carried at cost. Certain reclassifications have
been made to prior period amounts to conform with current period financial
statement classifications.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of all demand
deposits and funds invested in short-term investments with original maturities
of three months or less.
CONCENTRATION OF CREDIT RISK. NGC provides multiple energy commodity needs
principally to customers in the electric and gas distribution industries and to
entities engaged in industrial and petrochemical businesses. These industry
concentrations have the potential to impact the Company's overall exposure to
credit risk, either positively or negatively, in that the customer base may be
similarly affected by changes in economic, industry or other conditions.
Receivables are generally not collateralized; however, NGC believes the credit
risk posed by industry concentration is offset by the diversification and
creditworthiness of the Company's customer base.
INVENTORIES. Inventories consisting primarily of natural gas in storage of
$15.3 million and $6.6 million, natural gas liquids of $37.0 million and $16.6
million, and crude oil of $9.5 million and $1.4 million at December 31, 1995 and
1994, respectively, are valued at the lower of weighted average cost or market.
Materials and supplies inventory of $12.5 million and $0.8 million at December
31, 1995 and 1994, respectively, is carried at the lower of cost or market using
the specific identification method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment consisting
principally of gas gathering, processing and fractionation facilities, natural
gas transmission lines, pipelines and supporting infrastructure is recorded at
cost. Expenditures for major replacements and renewals are capitalized while
expenditures for maintenance, repairs and minor renewals to maintain facilities
in operating condition are expensed. Depreciation is provided using the
straight-line method over the estimated economic service lives of the assets,
ranging from three to 25 years. Composite depreciation rates are applied to
functional groups of property having similar economic characteristics. Gains and
losses are not recognized for retirements of property, plant and equipment
subject to composite depreciation rates ("composite rate") until the asset group
subject to the composite rate is retired.
ENVIRONMENTAL COSTS. Environmental costs relating to current operations are
expensed or capitalized, as appropriate, depending on whether such costs provide
future economic benefit. Liabilities are recorded when environmental assessment
indicates that remedial efforts are probable and the costs can be reasonably
estimated. Measurement of liabilities is based on currently enacted laws and
regulations, existing technology and undiscounted, site-specific costs.
Environmental liabilities in connection with assets that are sold or closed are
realized upon such sale or closure, to the extent they are probable, can be
estimated and have not previously been reserved. In assessing environmental
liabilities, no offset is made for potential insurance recoveries. Recognition
of any joint and several liability is based upon the Company's best estimate of
its final pro rata share of such liability. At December 31, 1995, reserves for
environmental matters were not material.
F-7
INTANGIBLE ASSETS. Intangible assets are generally amortized by the
straight-line method over an estimated useful life of 20 years.
REVENUE RECOGNITION. Revenues for product sales and gas processing and
marketing services are recognized when title passes to the customer or when the
service is performed. Fractionation and transportation revenues are recognized
based on volumes received in accordance with contractual terms.
Effective January 1, 1994, the Company adopted the mark-to-market method of
accounting for its fixed-price natural gas activities. Under such method, all
fixed-price natural gas contracts are recorded at fair value, net of future
servicing costs and reserves. Changes in the market value of these contracts are
recognized as gain or loss in the period of change. The resulting unrealized
gains and losses are recorded as assets and liabilities from risk management
activities.
The Company enters into financial instrument contracts to hedge purchase
and sale commitments and inventories of natural gas liquids and crude oil in
order to minimize the risk of market fluctuations. NGC also monitors its
exposure to fluctuations in interest rates and foreign currency exchange rates
and may execute swaps, forward-exchange contracts or other financial instruments
to manage these exposures. Gains and losses from hedging transactions are
recognized in income and are reflected as cash flows from operating activities
in the periods for which the underlying commodity, interest rate or foreign
currency transaction was hedged. If the necessary correlation to the commodity,
interest rate or foreign currency transaction being hedged ceases to exist, the
gain or loss associated with such contract(s) is no longer deferred and is
recognized in the period correlation is lost.
INCOME TAXES. The Company files a consolidated United States federal income
tax return and, for financial reporting purposes, provides income taxes for the
difference in the tax and financial reporting bases of its assets and
liabilities in accordance with Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Prior to the effective date of
the Combination, the operations of Clearinghouse, a Colorado partnership, were
generally not subject to corporate federal income tax and Clearinghouse's
earnings were generally allocated to and taken into account in computing the
taxable income of its partners.
EARNINGS PER SHARE. Net income per share is based on the weighted average
number of shares of common stock outstanding plus the common stock equivalents
that would arise from the exercise of outstanding options or warrants, when
dilutive. For the years ended December 31, 1994 and 1993, a pro forma amount of
97.8 million shares outstanding was used to compute the pro forma earnings per
share. Such amount represents the equivalent number of shares obtained in the
Combination by the owners of the partners of Clearinghouse plus the equivalent
number of shares that would arise from the exercise of outstanding options
existing as of the effective date of the Combination, assuming a market value of
$12 per share. Primary and fully diluted earnings per share are the same for all
periods presented.
Pro forma net income used to compute pro forma earnings per share for each
of the three years in the period ended December 31, 1995, reflect incremental
statutory federal and state income tax provisions applied to Clearinghouse's
partnership income for the periods prior to the effective date of the
Combination. The incremental tax provision represents an estimate of the
aggregate federal and state income taxes that would have been provided had
Clearinghouse been a taxpaying entity during the respective accounting periods.
FOREIGN CURRENCY TRANSLATIONS. For subsidiaries whose functional currency
is other than U.S. dollar, assets and liabilities are translated at year-end
rates of exchange and revenue and expenses are translated at average exchange
rates prevailing during the year. The cumulative translation adjustment is
included as a separate component of Equity, if material.
NOTE 2 -- BUSINESS COMBINATION WITH TRIDENT NGL HOLDING, INC.
F-8
On March 14, 1995, Clearinghouse consummated the Combination with Holding,
a fully integrated natural gas liquids company. Pursuant to the terms of the
Combination, Holding, the legally surviving corporation, was renamed NGC
Corporation and (i) acquired through a tender offer 14.2 million shares of its
common stock (representing approximately 50 percent of Holding's common stock
outstanding immediately prior to consummation of the Combination) for $11.75 per
share, net to the seller in cash; (ii) acquired, directly and indirectly, all of
the outstanding general partnership interests in Clearinghouse; (iii) the former
owners of the partners of Clearinghouse (the "Clearinghouse Owners") acquired 82
percent of the outstanding shares of NGC common stock (giving effect to the
issuance, but not the allocation, of the Contingent Shares, as defined); and
(iv) the stockholders of Holding prior to consummation of the Combination
retained shares of stock representing approximately 13 percent of the
outstanding shares of NGC common stock (giving effect to the tender offer and
the issuance, but not the allocation, of the Contingent Shares). In addition,
5,461,538 shares of NGC common stock (the "Contingent Shares"), representing
approximately 5 percent of the outstanding shares of NGC common stock after
giving effect to the issuance of such shares, will be allocated in March 1996 in
a ratio of 17 percent to the former stockholders of Holding and 83 percent to
the Clearinghouse Owners.
The Combination was accounted for under the purchase method of accounting.
Because the Clearinghouse Owners acquired approximately 82 percent of NGC,
Clearinghouse was the acquiring company for accounting purposes. Accordingly,
the purchase price of approximately $350 million was allocated to the Holding
assets acquired and liabilities assumed based on their estimated fair values as
of March 1, 1995, the effective date of the Combination for accounting purposes.
The following table reflects certain unaudited pro forma information for
the periods presented as if the Combination had occurred on January 1, 1994 (in
thousands, except per share amounts):
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
Pro forma revenues ........... $ 3,744,870 $ 3,804,213
============ ============
Pro forma net income ......... $ 46,067 $ 25,085
============ ============
Pro forma net income per share $ 0.39 $ 0.21
============ ============
NOTE 3 -- PRICE RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
PRICE RISK MANAGEMENT ACTIVITIES. NGC utilizes fixed-price forward purchase
and sales contracts, futures and option contracts traded on the NYMEX and swaps
and options traded in the over-the-counter financial markets to manage and hedge
its fixed-price purchase and sales commitments, to provide fixed-price
commitments as a service to its customers and suppliers, to reduce its exposure
relative to the volatility of cash market prices and to protect its investment
in storage inventories. The Company may, at times, have a bias in the market,
within established guidelines, resulting from the management of its portfolio.
In addition, by utilizing exchange for physical transactions allowed by the
NYMEX, which enable entities to take delivery of, or sell, a physical quantity
of natural gas in exchange for a futures position, NGC is able to secure
additional sources of physical natural gas supply, or create additional markets
for existing supply, through the use of natural gas futures contracts. These
fixed-price activities are referred to herein as risk management activities.
ACCOUNTING FOR PRICE RISK MANAGEMENT ACTIVITIES -- NATURAL GAS. Effective
January 1, 1994, the Company changed its method of accounting for fixed-price
natural gas transactions to the mark-to-market method of accounting in order to
accurately portray its price risk management and trading activities. Previously,
these financial instruments were accounted for on an accrual basis. The
cumulative effect of the accounting change on periods prior to January 1, 1994,
was immaterial.
F-9
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under mark-to-market accounting, fixed-price forwards, swaps, options,
futures and other financial instruments with third parties are reflected at
market value, net of future servicing costs and reserves, with resulting
unrealized gains and losses recorded as assets and liabilities from risk
management activities in the consolidated balance sheets. These assets and
liabilities are affected by the actual timing of settlements related to these
contracts and current-period changes resulting primarily from newly originated
transactions and the impact of price movements. These changes are recognized as
revenues in the consolidated statements of operations in the period in which the
change occurs. Market prices used to value outstanding financial instruments
reflect management's consideration of, among other things, closing exchange and
over-the-counter quotations, the time value of money and volatility factors
underlying the commitments. These market prices are adjusted to reflect the
potential impact of liquidating NGC's position in an orderly manner over a
reasonable period of time under present market conditions.
MARKET RISK. NGC generally attempts to balance its fixed-price physical and
financial purchase and sales contracts in terms of contract volumes and the
timing of performance and delivery obligations. However, net open positions
often exist or are established due to the origination of new transactions and
the Company's assessment of, and response to, changing market conditions. NGC
will take advantage of its bias in the market when it believes, based upon
competitive information gained from its energy marketing activities, that future
price movements will be consistent with its net open position. To the extent a
net open position exists, NGC is exposed to the risk that fluctuating market
prices may adversely impact its financial position or results of operations. The
net open position is actively managed, and the impact of a change in price on
the Company's financial condition at a point in time is not necessarily
indicative of the impact of price movements throughout the year. At December 31,
1995, a $0.10 increase or decrease in the price of natural gas would have
impacted net income by approximately $4 million either favorable or unfavorably.
The impact of the $0.10 price movements referred to above are before application
of market reserves which would likely reduce the after-tax earnings impact of
these price movements.
MARKET RESERVES. In connection with the market valuation of its fixed-price
contracts, the Company maintains certain reserves for a number of risks and
costs associated with these future commitments. Among others, these include
reserves for credit risks based on the financial condition of counterparties,
reserves for product location ("basis") differentials and consideration of the
time value of money for long-term contracts. Counterparties in its trading
portfolio consist principally of financial institutions, major oil and gas
companies and local distribution companies. The creditworthiness of these
counterparties may impact its overall exposure to credit risk, either positively
or negatively; however, with regard to its counterparties NGC maintains credit
policies that management believes minimizes overall credit risk. Determination
of the credit quality of its counterparties is based upon a number of factors,
including credit ratings, financial condition, project economics and collateral
requirements. When applicable, the Company employs standardized agreements that
allow for the netting of positive and negative exposures associated with a
single counterparty. Based on these policies, its current exposures and its
credit reserves, NGC does not anticipate a material adverse effect on the
financial position or results of operations as a result of counterparty
nonperformance. The following table displays the mark-to-market results of NGC's
natural gas fixed-price transactions at December 31, 1995:
BELOW
INVESTMENT INVESTMENT
GRADE CREDIT GRADE CREDIT
QUALITY QUALITY TOTAL
-------- ------- --------
($ IN THOUSANDS)
Utilities and power generators .......... $ 32,087 $ 1,621 $ 33,708
Financial institutions .................. 12,834 1,842 14,676
Oil and gas producers ................... 232 7,961 8,193
Industrial companies .................... (1,061) (3,332) (4,393)
Other ................................... (14,226) (5,262) (19,488)
-------- ------- --------
Value of fixed-price transactions
before reserves .................... $ 29,866 $ 2,830 $ 32,696
======== ======= ========
Reserves ................................ (16,380)
--------
$ 16,316
========
At December 31, 1995, the term of NGC's portfolio extends to 2004, and the
average remaining life of an individual transaction was five months.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The following disclosure of the
estimated fair value of financial instruments is made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." The estimated fair-value amounts have been determined by the
Company using available market information and selected valuation methodologies.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. The use of different market assumptions or valuation
methodologies could have a material effect on the estimated fair-value amounts.
The carrying values of current assets and liabilities approximate fair
values due to the short-term maturities of these instruments. The carrying
amounts and fair values of the Company's other financial instruments were:
F-10
NGC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31,
------------------------------------------
1995 1994
-------------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- ------- -------
($ IN THOUSANDS)
Credit Agreement ................. 183,000 183,000 33,000 33,000
6.75% Senior Notes ............... 150,000 151,500 -- --
Senior Subordinated Notes ........ 65,000 78,000 -- --
Subordinated Notes ............... 105,000 116,000 -- --
Risk management contracts ........ -- (7,700) -- (21,900)
The carrying amount of the Credit Agreement in the consolidated
financial statements was assumed to approximate fair value. The fair values of
the Senior Notes, Senior Subordinated Notes and Subordinated Notes were based on
quoted market prices by financial institutions that actively trade these debt
securities. The fair value of the Company's cost basis investments was not
estimated as the investments were considered immaterial.
The fair value of commodity price and basis swaps and options was
based upon the estimated consideration that would be received to terminate those
swaps or options in a gain position and the estimated cost that would be
incurred to terminate those swaps or options in a loss position. Such
transactions are referred to in the above table as "Risk management contracts."
The commodity swap and option agreements extend for a period of up to eight
years. At December 31, 1995, 1994 and 1993, financial instruments related to
natural gas had an absolute notional contract quantity of 881 billion cubic
feet, 914 billion cubic feet and 768 billion cubic feet, respectively. In
addition, financial instruments related to crude oil and natural gas liquids had
absolute notional contract quantities of 0.2 million and 2.5 million barrels at
December 31, 1995, respectively. The estimated fair value and cash-flow
requirements for these commodity swaps and options were based upon the market
prices in effect at the financial statement date and do not necessarily reflect
NGC's entire trading portfolio. Cash-flow requirements related to these
commodity price swaps and options at December 31, 1995, were as follows:
DECEMBER 31,
1995
--------
($ IN THOUSANDS)
Net premiums paid to date ................................ $ 12,718
Net future inflows ....................................... (5,018)
--------
Net cash outflow ......................................... $ 7,700
========
F-11
NOTE 4 -- CASH FLOW INFORMATION
Detail of supplemental disclosures of cash flow and non-cash investing and
financing information for each of the three years in the period ended December
31, 1995, was:
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
--------- ------ ------
($ IN THOUSANDS)
Interest paid (net of amount capitalized) .... $ 32,909 $3,575 $1,644
========= ====== ======
Taxes paid (net of refunds) .................. $ (150) $1,068 $1,456
========= ====== ======
Detail of business acquired:
Current assets and other ................... 87,416
Fair value of non-current assets ........... 832,384
Liabilities assumed, including deferred
taxes ................................... (572,680)
Capital stock issued and options
exercised .................................... (180,220)
Cash balance acquired ...................... (1,633)
---------
Cash paid, net of cash acquired ............ 165,267
=========
In 1995, the Company recognized a one-time tax benefit of $45.7 million
which occurred in conjunction with the Combination. The deferred income tax
benefit, which can be used to reduce NGC's future income tax liabilities,
resulted from the recognition of the excess tax basis held by certain
Clearinghouse partners . Also in 1995, the Company assumed a liability of $2.5
million related to the purchase of a crude oil pipeline.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
Investments in property, plant and equipment by segment and sub-segment
consisted of:
DECEMBER 31,
--------------------------
1995 1994
----------- ---------
($ IN THOUSANDS)
Natural gas and electric power marketing ....... $ 15,128 $ 14,652
Natural gas liquids, crude oil and gas
transmission:
Natural gas processing ....................... 663,971 119,941
Fractionation ................................ 188,199 --
Liquids marketing ............................ 25,000 --
Natural gas gathering and transmission ....... 107,627 --
Crude oil .................................... 11,719 --
Other .......................................... 1,710 --
----------- ---------
1,013,354 134,593
Accumulated depreciation ....................... (64,843) (20,531)
----------- ---------
$ 948,511 $ 114,062
=========== =========
During 1995, the Company capitalized $1.0 million of interest related to
costs of projects in process of development. No interest was capitalized during
the years ended December 31, 1994 and 1993.
During 1995, the Company consummated several strategic asset acquisitions,
each of which expanded core business operations or enhanced the economic
viability of non-core businesses. Each of these transactions was accounted for
as a purchase of assets with the results of operations of the acquired asset(s)
included in the Company's consolidated results of operations from the effective
date of the transaction forward.
Effective May 1, 1995, NGC acquired the Ozark Gas Transmission System
("Ozark") for $44.8 million. Ozark consists of an extensive gas gathering system
and interstate pipeline that gathers and transports gas from eastern Oklahoma to
central Arkansas, where the system interconnects with interstate pipelines that
serve the midwest and northeast markets.
In August 1995, the Company purchased the Oklahoma crude oil and truck
gathering assets of Kerr-McGee Refining and Marketing Corporation for
approximately $8 million. The 1,300-mile system gathers crude in 25 central and
southern Oklahoma counties, accessing more than half of the state's crude
production, and serves the U.S. crude oil trading hub in Cushing, Oklahoma, and
the Wynnewood, Oklahoma refinery.
In October 1995, NGC purchased various gathering and processing assets
located in Kansas and Oklahoma from Sheffield Exploration Company, Inc., for
$5.5 million. The Kansas-based assets include 284 miles of gathering lines
having throughput capacity of 7 MMcf/d and a storage reservoir having 1.2
billion cubic feet of capacity. The assets located in Oklahoma include 10 miles
of gathering lines and a gas processing facility capable of processing 4.5
MMcf/d.
In December 1995, NGC acquired the 180-mile Okeene gas gathering system
from ONG Gas Gathering Company, a subsidiary of ONEOK, Inc., for $2.4 million.
The gathering system extends through several central Oklahoma counties and
gathers approximately 18.5 million cubic feet per day of natural gas.
NOTE 6 -- UNCONSOLIDATED AFFILIATES
The equity method of accounting is used for investments in certain
partnerships and for investments in companies in which NGC has a voting interest
between 20 percent and 50 percent. Such investments include:
Novagas Clearinghouse Ltd. ("NCL") -- NCL is an Alberta, Canada limited
partnership formed in 1994 and based in Calgary, Canada. NGC owns an
aggregate 49.9 percent interest in the partnership. Effective June 1, 1995,
NCL acquired Pan-Alberta Gas Ltd. ("Pan-Alberta"), from NOVA Corporation.
NGC contributed $13.7 million to NCL, representing its proportionate share
of the acquisition value of Pan-Alberta. The combined NCL/Pan- Alberta
entity offers natural gas supply services to consumers across Canada and
provides gas gathering, processing, storage and marketing services to
Canadian natural gas producers. The Company shares disproportionately in
the economic returns of NCL, as compared with its ownership interest,
resulting primarily from stipulations contained in the Pan-Alberta purchase
agreement and a service agreement entered into by a subsidiary of NGC with
NCL in 1995.
Accord Energy Limited. ("Accord") -- Accord is a limited partnership based
in London, England. It was formed in 1994 to market energy resources in the
United Kingdom and Europe. NGC owns 49 percent of the limited partnership.
Gulf Coast Fractionators ("GCF") -- GCF is a Texas limited partnership that
owns and operates a natural gas liquids fractionation facility located in
Mont Belvieu, Texas. NGC acquired its 38.75 percent limited partner
interest in GCF through the Combination and is operator of the facility. At
December 31, 1995, the unamortized excess of the Company's investment in
GCF over its equity in the underlying net assets of the affiliate
approximated $18 million. This amount is being amortized on the
straight-line method over the economic service life of the GCF assets.
Avoca Natural Gas Storage ("Avoca") -- Avoca is a New York general
partnership engaged in the construction and operation of an underground,
salt-bed gas storage facility in Avoca, New York. The Company owns an
approximate 28 percent interest in the partnership.
NATGAS Joint Venture ("NATGAS") -- NATGAS was a joint venture with
Pan-Alberta, based in Alberta, Canada, engaged in the natural gas marketing
business. The joint venture ceased operations in July 1994.
Aggregate equity method investment at December 31, 1995, and 1994, was
$58.7 million and $14.4 million, respectively. There was no investment in
unconsolidated affiliates at December 31, 1993. Dividends received on these
investments in 1995 totaled $11.9 million. There were no dividends received in
1994. NCL and Accord both utilize the accrual method of accounting
F-13
for their risk management activities. Summarized aggregate financial information
for these investments and NGC's equity share thereof was:
1995 1994 1993
--------------- -------------- ------------
Equity Equity Equity
TOTAL SHARE TOTAL SHARE TOTAL SHARE
------ ------ ------ ----- ----- -----
($US IN MILLIONS)
Current assets ............. $276.7 $135.4 $124.2 $61.7 $-- $--
Non-current assets ......... 179.1 75.7 20.2 10.1 -- --
Current liabilities ........ 280.0 135.3 106.1 52.7 -- --
Non-current liabilities .... 86.5 36.2 9.8 4.9 -- --
Operating margin ........... 85.8 41.0 13.9 6.9 -- --
Net income ................. 34.2 21.1 7.7 3.8 -- --
The cost method of accounting is used to account for investment in
partnerships or companies in which NGC has a voting interest of less than 20
percent. At December 31, 1995, the Company had two cost basis investments:
Indeck North American Power Fund, L.P. and Indeck North American Power Partners,
L.P. (collectively "Indeck"). Indeck was formed in 1995 and is engaged in the
acquisition and operation of electric power generating facilities. NGC's
aggregate investment in these entities totaled $3.7 million at December 31,
1995, and NGC received an aggregate $0.5 million of dividends from Indeck during
the year.
NOTE 7 -- LONG-TERM DEBT
Long-term debt consisted of:
DECEMBER 31,
----------------------
1995 1994
-------- -------
($ IN THOUSANDS)
Credit Agreement .................................. $183,000 $33,000
6.75% Senior Notes, due 2005 ...................... 150,000 --
14% Senior Subordinated Notes, due 2001 ........... 65,000 --
10.25% Subordinated Notes, due 2003 ............... 105,000 --
Other, non-interest bearing ....................... 1,125 --
Unamortized premium ............................... 18,939 --
-------- -------
523,064 33,000
Less: long-term debt due within one year .......... 300 --
-------- -------
$522,764 $33,000
======== =======
CREDIT AGREEMENT. On March 14, 1995, the Company entered into the NGC
Corporation Credit Agreement ("Credit Agreement"), which established a five-year
$550 million revolving credit facility. The revolving credit facility provides
for letters of credit (up to $150 million) and borrowings for working capital,
capital expenditures and general corporate purposes of up to $550 million in the
aggregate. The $550 million commitment under the Credit Agreement reduces by
$22.5 million each quarter beginning in March 1998 and continuing through
maturity. Generally, borrowings under the Credit Agreement bear interest at a
Eurodollar rate plus a margin that is determined based on the Company's debt to
capitalization ratio. The margin at December 31, 1995, was 0.5 percent and the
average interest rate applicable to borrowings under the Credit Agreement
approximated 6.3 percent. During the first quarter of 1995, NGC entered into
arrangements with financial institutions that effectively capped the base
Eurodollar rate on $100 million of borrowings at rates between 8.5 percent and
9.1 percent through January 1998. The Credit Agreement contains certain
financial covenants that require the Company to meet certain financial position
and performance tests. At December 31, 1995, letters of credit and borrowings
under the Credit Agreement aggregated approximately $199 million and unused
borrowing capacity under the revolving credit facility approximated $351
million.
6.75% SENIOR NOTES DUE 2005. During 1995, NGC filed with the Securities and
Exchange Commission a shelf registration that provides for the issuance of $250
million of debt securities pursuant to Rule 415 of the Securities Act of 1933.
On December
F-14
15, 1995, under this shelf registration, the Company sold $150 million of 6.75%
Senior Notes due December 15, 2005 ("Notes"). The Notes were issued at a price
of 99.984 percent, which, after deducting underwriting discounts and
commissions, resulted in net proceeds to the Company of approximately $149
million. Proceeds from the sale of these Notes were used to repay a portion of
the outstanding indebtedness under the Credit Agreement. Interest on the Notes
is payable semiannually on June 15 and December 15 of each year, beginning June
15, 1996. The Notes represent general unsecured obligations of the Company and
are fully and unconditionally guaranteed on a joint and several basis by the
following subsidiaries of the Company: Natural Gas Clearinghouse; Trident NGL,
Inc.; NGC Energy Resources, Limited Partnership; NGC Liquids Marketing, Inc.;
NGC Oil Trading and Transportation, Inc.; NGC Futures, Inc.; HUB Services, Inc.;
NGC Storage, Inc.; NGC Anadarko Gathering Systems, Inc.; Trident Gas Marketing,
Inc.; Trident NGL Pipeline Company; Kansas Gas Supply Corporation; Trident
Acquisition Corp.; NGC U.K. Ltd.; and NGC Canada, Inc. (collectively "Subsidiary
Guarantors"). Upon issuance, the Notes were priced based on the then existing
yield for 10-year U.S. Treasury Notes ("Base Treasury Rate") plus a spread based
principally on the Company's credit rating. Prior to issuing the Notes, the
Company entered into two separate transactions with two separate financial
institutions, the effect of which was to lock in the Base Treasury Rate at
approximately 6.2 percent on the full $150 million face value of the Notes.
Separate financial statements of each Subsidiary Guarantor have not been
provided because management has determined that such information would not be
material to investors as the aggregate assets, liabilities, earnings and equity
of the subsidiary guarantors is substantially equivalent to the Company's
consolidated assets, liabilities, earnings and equity. The Company also has
certain direct and indirect subsidiaries that are not Subsidiary Guarantors
(collectively "Non-guarantor Subsidiaries"). These Non-guarantor Subsidiaries,
both individually and in the aggregate, are inconsequential to NGC (and its
accounting predecessor, Clearinghouse) as of and for each of the three years in
the period ended December 31, 1995.
SENIOR SUBORDINATED NOTES. The Senior Subordinated Notes represent
Trident's unsecured general obligations that mature on August 30, 2001, and bear
interest at 14% per annum, payable semiannually in arrears each February and
August. The indenture governing the Senior Subordinated Notes contains certain
covenants that, among other things, require Trident to meet certain financial
tests; limit the amount of investments, dividends and asset sales that can be
made by Trident; and restrict the ability of Trident and its subsidiaries to
incur additional indebtedness, create or permit liens and engage in certain
transactions. Although Trident's net assets at December 31,1995, approximated
$350 million, management does not believe that the terms of the indenture
materially restrict the ability of trident to transfer funds to the Company
given that Trident is a Subsidiary Guarantor combined with the level of advances
made by NGC to Trident. Beginning in 1998, corresponding with the first call
date, the Senior Subordinated Notes may be repurchased by the Company at an
initial price of 107 percent of the principal amount, with such reacquisition
price reducing as the notes mature.
SUBORDINATED NOTES. The Subordinated Notes represent Trident's unsecured
general obligations that mature on April 15, 2003, and bear interest at the rate
of 10.25% per annum, payable semiannually in arrears each April and October. The
Subordinated Notes' indenture contains similar restrictive covenants to those
contained in the Senior Subordinated Notes' indenture. Beginning in 1998,
corresponding with the first call date, the Subordinated Notes may be
repurchased by the Company at an initial price of 104.5 percent of the principal
amount, with such reacquisition price reducing as the notes mature.
Aggregate maturities of all long-term indebtedness are: 1996 - $0.3
million; 1997 - $0.3 million; 1998 - $0.3 million; 1999 - $0.3 million; and 2000
and beyond - $521.9 million.
F-15
NOTE 8 -- INCOME TAXES
The Company is subject to U.S. federal, foreign and state income taxes on
its operations. Components of income tax expense (benefit) were:
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- ------ -------
($ IN THOUSANDS)
Current tax expense ................... $ -- $ 990 $ 1,458
Deferred tax expense (benefit) ........ (27,471) 1,014 (679)
-------- ------ -------
$(27,471) $2,004 $ 779
======== ====== =======
Included in the above table is a $45.7 million deferred tax benefit in
1995, resulting from book and tax bases differences associated with the
technical termination of the Clearinghouse partnership resulting from the
Combination.
Deferred income taxes are provided for the temporary differences between
the tax basis of NGC's assets and liabilities and their reported financial
statement amounts. Significant components of deferred tax liabilities and assets
were:
DECEMBER 31,
--------------------
1995 1994
-------- ------
($ IN THOUSANDS)
Deferred tax assets:
Clearinghouse partnership basis differential ........ $ 38,747 $ --
Loss carryforward ................................... 87,690 --
Tax credits ......................................... 5,400 --
Other ............................................... 4,450 --
-------- ------
136,287 --
Valuation allowance ................................. -- --
-------- ------
136,287 --
-------- ------
Deferred tax liabilities:
Items associated with capitalized costs ............. 179,514 3,058
-------- ------
Net deferred tax liability ........................... $ 43,227 $3,058
======== ======
Realization of the aggregate deferred tax asset is dependent on the
Company's ability to generate taxable earnings in the future. No valuation
allowance has been established at December 31, 1995, as management believes the
aggregate deferred asset will be fully realized in the future.
Income tax provision (benefit) for the years ended December 31, 1995, 1994
and 1993, was equivalent to effective rates of (42%), 5% and 2%, respectively.
Differences between taxes computed at the U.S. federal statutory rate and the
Company's reported income tax provision (benefit) were:
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
($ IN THOUSANDS)
Expected tax at U.S. statutory rate ..... $ 22,832 $ 15,437 $ 16,372
State taxes ............................. 1,305 -- --
Foreign tax benefit ..................... (3,846) -- --
Clearinghouse partnership basis
differential ............................ (45,736) -- --
Partnership income ...................... (2,174) (13,433) (15,593)
Other ................................... 148 -- --
-------- -------- --------
$(27,471) $ 2,004 $ 779
======== ======== ========
At December 31, 1995, the Company had approximately $15 million of
alternative minimum tax ("AMT") net operating loss carryforwards available as a
reduction of future AMT income and $237 million of regular tax net operating
loss carryforwards. The net operating loss carryforwards expire from 2006
through 2010. Certain provisions of the Internal Revenue Code place an
F-16
annual limitation on the Company's ability to utilize tax carryforwards existing
as of the date of the Combination. Management believes such carryforwards will
be fully realized prior to expiration.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
On July 24, 1995, definitive settlement documentation was entered into
relating to two separate purported class-action lawsuits that were filed in
connection with the Combination and alleged, among other things, that members of
the Trident Board of Directors breached their fiduciary duties to Trident's
stockholders by approving the Combination. The suits, Joshua Teitlebaum v.
Thomas O. Hicks, et.al., which was filed on August 9, 1994, and Errol Rudman v.
Thomas O. Hicks, et.al., which was filed on September 16, 1994, sought certain
injunctive relief and recovery of unspecified monetary damages. The definitive
settlement documentation provides for the dismissal with prejudice of the
lawsuits and for the payment by Trident of the fees and expenses of the
plaintiff stockholders' attorneys in an aggregate amount not to exceed $350,000.
The definitive settlement documentation also provides that the members of the
Trident Board of Directors deny that they have committed any violations of law,
and that the settlement was agreed to solely to eliminate the burden, risk and
expense of further litigation. At a settlement hearing held on October 13, 1995,
Vice Chancellor Jacobs of the Delaware Chancery Court entered an order
certifying the lawsuits as a class action, dismissing the action with prejudice
and awarding plaintiffs' counsel $300,000 in legal fees and $49,835 in costs and
expenses. The order was not appealed and the fees and expenses awarded were paid
in 1995.
In connection with the acquisition of certain gas processing and gathering
facilities from Mesa Operating Limited Partnership ("Mesa"), the Company assumed
liability for various claims and litigation, the significant items of which are
discussed below. NGC believes, based on its review of these matters and
consultation with outside legal counsel, that the ultimate resolution of such
items, individually or in the aggregate, will not have a material adverse impact
on the Company's financial position or results of operations.
PRICING PROVISIONS IN GAS PURCHASE CONTRACTS. In connection with certain
gas purchase contracts assigned to NGC that provide for fixed-pricing
obligations, the Company assumed liability for four cases involving alleged
breach of contractual pricing provisions, in addition to several unasserted
claims of a similar nature. The amount of such claims pending against the
Company approximates $6 million plus interest. Such claims include certain
claims for punitive damages and claims on behalf of working interest owners who
are not parties to the pending cases. The Company successfully defended one such
claim in January 1996; however, there is no guarantee that other similar claims
which are pending in different courts will be resolved the same way. Management
believes that in the event any payments are eventually made in connection with
these cases or in connection with any additional such claims and litigation,
they will be substantially less than the amount claimed.
MINERALS MANAGEMENT SERVICE. On November 22, 1988, Mesa received an audit
letter from the Minerals Management Service ("MMS") alleging underpayments of
royalties on certain Indian leases in an amount of less than $10,000. Mesa
appealed that order, prompting the MMS to request an appeal bond from Mesa of
$5.4 million, the amount of which Mesa also appealed. On December 31, 1992, the
Interior Board of Land Appeals ("IBLA") ruled that the MMS could not lawfully
hold Mesa (and subsequently NGC) liable for any royalty underpayments on the oil
and gas produced from the Indian leases related to the claim in the MMS audit
letter dated November 22, 1988. The MMS asked the IBLA to reconsider its
position and in February 1994, the IBLA affirmed part of its earlier decision,
reversed part of its earlier decision and remanded the case for further
proceedings. NGC moved for reconsideration of the IBLA's decision but the motion
was denied. The Company is now considering further appellate and/or
administrative actions; however, notwithstanding the February 1994 decision, NGC
believes that any liability for underpayment shall be borne by the applicable
lessees and that any liability to the Company would not be material.
COMMITMENTS. A wholly owned subsidiary of NGC is committed to expend its
respective share of the construction costs related to the Avoca storage project.
Current cost estimates commit the Company to approximately $10 million of
expenditures from 1996 through 1999. NGC and NGC Holding, Inc. have guaranteed
the commitment by the wholly owned subsidiary.
A subsidiary of the Company is committed to contribute a total of $10
million to Indeck as its respective share of funds to be used for the
acquisition of selected electric power generating facilities. At December 31,
1995, the Company had paid $3.7 million of this commitment.
F-17
Trident has guaranteed its pro rata share of the unfunded debt service
reserve account of GCF. Trident's obligation under the guarantee at December 31,
1995, assuming Trident had to fund such obligation as of that date, approximated
$3 million. Currently, GCF is in full compliance with its debt agreement.
OTHER COMMITMENTS. Minimum commitments in connection with office space,
equipment, reservation charges under gas purchase and firm transportation
contracts and other leased assets by the Company are: 1996 - $17.5 million; 1997
- - $9.1 million; 1998 - $8.7 million; 1999 - $8.3 million; and 2000 and beyond -
$19.7 million. Rental payments made under the terms of these arrangements
totaled $24.9 million in 1995, $11.1 million in 1994 and $6.5 million in 1993.
NOTE 10 -- CAPITAL STOCK
The Company has authorized capital stock consisting of 300,000,000 shares
of common stock, $0.01 par value, and 50,000,000 shares of preferred stock,
$0.01 par value. No preferred shares were issued and outstanding at December 31,
1995.
COMMON STOCK. Pursuant to the terms of the Combination, Holding, the
legally surviving corporation, was renamed NGC Corporation and (i) acquired
through a tender offer 14.2 million shares of its common stock (representing
approximately 50 percent of Holding's common stock outstanding immediately prior
to consummation of the Combination) for $11.75 per share, net to the seller in
cash; (ii) acquired, directly and indirectly, all of the outstanding general
partnership interests in Clearinghouse; (iii) the Clearinghouse Owners acquired
82 percent of the outstanding shares of NGC common stock (giving effect to the
issuance, but not the allocation, of the Contingent Shares); and (iv) the
stockholders of Holding prior to consummation of the Combination retained shares
of stock representing approximately 13 percent of the outstanding shares of NGC
common stock (giving effect to the tender offer and the issuance, but not the
allocation, of the Contingent Shares). In addition, the 5,461,538 Contingent
Shares, representing approximately 5 percent of the outstanding shares of NGC
common stock after giving effect to the issuance of such shares, will be
allocated in March 1996 in a ratio of 17 percent to the former stockholders of
Holding and 83 percent to the Clearinghouse Owners. At December 31, 1995, there
were 110,493,411 shares of common stock issued and 105,031,874 shares of common
stock outstanding. NGC Corporation pays quarterly cash dividends on common stock
of $0.0125 per share, or $0.05 per share on an annual basis.
STOCK WARRANTS. At December 31, 1995, the Company had warrants outstanding
that entitle the holder thereof to purchase an aggregate 5,859 shares of common
stock at an exercise price of $8.64 per share. The warrants expire in October
2003.
STOCK OPTIONS. Each option granted is valued at an option price which
ranges from $5.95 per share to the fair market value per share at date of grant.
The difference between the option price and the fair market value, if any, of
each option on the date of grant is recorded as compensation expense over a
vesting period. Options granted at prices below fair market vest and become
immediately exercisable on the fifth anniversary date of the date of grant.
Options granted at market value vest ratably over a three year period.
Compensation expense related to options granted totaled $1.6 million, $1.5
million and $0.4 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Stock option transactions for 1995 and 1994 were:
1995 1994
---------------------------- ----------------------------
OPTION OPTION
SHARES PRICE SHARES PRICE
----------- ------------- ----------- -------------
Outstanding at beginning of year 11,918,090 $2.13 - $5.95 5,889,139 $ 2.13
Options arising from Combination 1,467,500 $6.40 - $8.64 -- --
Granted ........................ 1,644,578 $5.95 - $9.38 6,111,904 $2.13 - $5.95
Exercised ...................... (1,451,633) $2.13 - $8.64 -- --
Canceled or expired ............ (964,020) $2.13 - $5.95 (82,953) $2.13 - $5.95
----------- ------------- ----------- -------------
Outstanding at end of year ..... 12,614,515 $2.13 - $9.38 11,918,090 $2.13 - $5.95
=========== ============= =========== =============
Excercisable at end of year .... 271,969 $6.40 - $8.81 -- --
=========== ============= =========== =============
NOTE 11 -- EMPLOYEE COMPENSATION, SAVINGS AND PENSION PLANS
F-18
ABOVE BASE INCENTIVE COMPENSATION PLAN. NGC has an Above Base Incentive
Compensation Plan ("ABICP") to reward employees based on NGC's annual operating
income, as defined in the ABICP. Specific awards are at the discretion of the
Compensation Committee of the Board of Directors ("Compensation Committee"). The
ABICP was amended January 1, 1994, to provide for payment of no less than 10
percent but not greater than 15 percent of operating income, as defined.
PROFIT SHARING/401(K) SAVINGS PLAN. Effective May 1, 1989, the Company
established the NGC Profit Sharing/401(k) Savings Plan ("Plan"). The Plan meets
the requirements of Section 401(k) of the Internal Revenue Code, and is a
defined contribution plan subject to the provisions of the Employee Retirement
Income Security Act of 1974. The Plan and related trust fund are established and
maintained for the exclusive benefit of participating employees of NGC. The
Company makes periodic contributions to the Plan as determined by resolution of
the Compensation Committee. During the years ended December 31, 1995, 1994 and
1993, NGC (or its accounting predecessor, Clearinghouse) recognized costs
related to the Plan of $2.4 million, $2.4 million, and $1.9 million,
respectively.
PENSION PLAN. Prior to the Combination, Holding had adopted a
noncontributory defined benefit pension plan and such plan remains in existence
at December 31, 1995. The Trident NGL, Inc. Retirement Plan ("Retirement Plan")
is a qualified plan under the Internal Revenue Service regulations, and all
full-time hourly employees of Trident were eligible for participation in the
Retirement Plan. Benefits are based on years of service and final average pay,
as defined in the Retirement Plan document. Contributions to the Retirement Plan
in 1995 totaled $1.1 million, representing the minimum amount required by
federal law and regulation. The Retirement Plan's funded status and amount
recognized in NGC's balance sheet at December 31, 1995, were:
DECEMBER 31,
1995
---------------
($ IN THOUSANDS)
Accumulated benefit obligation, including
vested benefits of $3.9 million ............................... $ 4,381
=======
Projected benefit obligation .................................. $ 7,773
Plan assets ................................................... (4,395)
-------
Projected benefit obligation in excess of plan assets ......... 3,378
Unrecognized net gain from past experience
different from that assumed ................................ 2,825
-------
Pension liability ............................................. $ 6,203
=======
Current year pension expense is based on measurements of the projected
benefit obligation and the market related value of the Retirement Plan assets as
of the end of the year. The projected benefit obligation at December 31, 1995,
was based on a discount rate of 7.75 percent and an average long-term rate of
compensation growth of 3.5 percent. The expected long-term rate of return on the
Retirement Plan assets was estimated at 8 percent.
The components of net pension expense for the Retirement Plan were:
YEAR ENDED
DECEMBER 31,
1995
-------
($ IN THOUSANDS)
Service cost - benefits earned during period $ 712
Interest cost on projected benefit obligation 523
Expected return on plan assets .............. (144)
Termination benefits ........................ 433
Amortization of unrecognized gain ........... (55)
-------
Net periodic pension cost ................... $ 1,469
=======
F-19
NOTE 12 -- RELATED PARTY TRANSACTIONS
The Company is a leading North American marketer of natural gas, natural
gas liquids, crude oil and electric power. NGC is also engaged in natural gas
gathering, processing and transportation activities and has joint ventures in
Canada and the United Kingdom which expand NGC's operations geographically. The
Company has partnered with two of its significant shareholders in the
aforementioned joint ventures. Accord is a natural gas and crude oil marketing
operation in the United Kingdom and a wholly owned subsidiary of British Gas plc
("British Gas"), a United Kingdom company, owns 51 percent of this venture. NCL
markets, exchanges, gathers, processes, purchases, sells, transports and stores
natural gas and natural gas liquids in Canada. NCL is a joint venture between
the Company and a wholly owned subsidiary of NOVA Corporation ("NOVA"), an
Alberta, Canada company, which owns 50.1 percent of the venture. British Gas and
NOVA each indirectly own approximately 33 percent of the outstanding shares of
common stock of the Company.
NGC, through one or more of its subsidiaries, routinely acquires natural
gas and natural gas liquids from subsidiaries of NOVA. In addition, NGC or its
affiliates routinely enter into transactions with NCL for the purchase and sale
of natural gas and natural gas liquids. Accord routinely enters into
transactions with subsidiaries of British Gas for the purchase and sale of
natural gas and crude oil. In management's opinion, such transactions are
executed at prevailing market rates.
Effective June 1, 1995, NGC entered into a service agreement with NCL
whereby NGC Futures, Inc. ("NGCF") a wholly owned subsidiary of NGC, provides
NCL and its affiliates natural gas marketing and risk management services. As a
result, NGC shares disproportionately in NCL's economic returns resulting from
the services provided. For the year ended December 31, 1995, NGC, in addition to
its share of equity in the earnings of NCL, recognized $6.8 million of pretax
earnings related to services rendered NCL by NGCF.
During 1994, Clearinghouse received notes from several employees totaling
$1.5 million. At December 31, 1994, $0.3 million of the original notes issued
remained outstanding. The notes were paid in full during 1995.
NOTE 13 -- SEGMENT INFORMATION
Operating segment information for 1995, 1994 and 1993 is presented below.
NGC's activities outside the United States include the operations of NCL and
Accord, which are discussed in Note 6 -- UNCONSOLIDATED AFFILIATES:
NATURAL NATURAL
GAS AND GAS LIQUIDS,
ELECTRIC CRUDE OIL CORPORATE
POWER AND GAS AND
MARKETING TRANSMISSION ELIMINATION TOTAL
---------- ---------- --------- ----------
($ IN THOUSANDS)
1995 SUMMARY DATA:
Unaffiliated revenues .... $2,423,136 $1,242,810 $ -- $3,665,946
Intersegment revenues .... 36,629 81,472 (118,101) --
---------- ---------- --------- ----------
Total revenues ......... 2,459,765 1,324,282 (118,101) 3,665,946
---------- ---------- --------- ----------
Operating margin ......... 63,746 130,914 -- 194,660
---------- ---------- --------- ----------
Depreciation and
amortization ........... 2,092 42,625 196 44,913
---------- ---------- --------- ----------
Equity in earnings of
unconsolidated
affiliates ............. 19,164 1,896 -- 21,060
---------- ---------- --------- ----------
Identifiable assets ...... 915,972 1,460,204 (500,924) 1,875,252
---------- ---------- --------- ----------
Capital expenditures ..... 18,664 123,726 168,233 310,623
---------- ---------- --------- ----------
F-20
NATURAL NATURAL
GAS AND GAS LIQUIDS,
ELECTRIC CRUDE OIL CORPORATE
POWER AND GAS AND
MARKETING TRANSMISSION ELIMINATION TOTAL
---------- -------- --------- ---------
($ IN THOUSANDS)
1994 SUMMARY DATA:
Unaffiliated revenues ....... $3,231,343 $ 6,500 $ -- $3,237,843
Intersegment revenues ....... 3,502 80,284 (83,786) --
---------- -------- -------- ----------
Total revenues ............ 3,234,845 86,784 (83,786) 3,237,843
---------- -------- -------- ----------
Operating margin ............ 78,410 20,716 -- 99,126
---------- -------- -------- ----------
Depreciation and amortization 2,570 5,808 -- 8,378
---------- -------- -------- ----------
Equity in earnings of
unconsolidated
affiliates ................ 3,803 -- -- 3,803
---------- -------- -------- ----------
Identifiable assets ......... 527,353 118,118 -- 645,471
---------- -------- -------- ----------
Capital expenditures ........ 4,055 32,397 -- 36,452
---------- -------- -------- ----------
NATURAL NATURAL
GAS AND GAS LIQUIDS,
ELECTRIC CRUDE OIL CORPORATE
POWER AND GAS AND
MARKETING TRANSMISSION ELIMINATION TOTAL
---------- ------- -------- ----------
($ IN THOUSANDS)
1993 SUMMARY DATA:
Unaffiliated revenues ........ $2,784,524 $ 6,453 $ -- $2,790,977
Intersegment revenues ........ -- 79,172 (79,172) --
---------- ------- -------- ----------
Total revenues ............. 2,784,524 85,625 (79,172) 2,790,977
---------- ------- -------- ----------
Operating margin ............. 68,494 23,356 -- 91,850
---------- ------- -------- ----------
Depreciation and amortization 2,565 5,029 -- 7,594
---------- ------- -------- ----------
Equity in earnings of
unconsolidated
affiliates ................. -- -- -- --
---------- ------- -------- ----------
Identifiable assets .......... 421,254 91,280 -- 512,534
---------- ------- -------- ----------
Capital expenditures ......... 2,544 13,920 -- 16,464
---------- ------- -------- ----------
NOTE 14 -- SUBSEQUENT EVENTS
On January 22, 1996, NGC and Chevron Corporation ("Chevron") jointly
announced they had entered into exclusive negotiations to merge substantially
all of Chevron's gas gathering, processing and marketing operations with NGC.
The combined company, which may retain the name NGC Corporation, will include
all of NGC and most of two Chevron business units: the Houston-based Natural Gas
Business Unit and Tulsa-based Warren Petroleum Company. As part of the proposed
transaction, NGC will market virtually all of Chevron's North American natural
gas production, NGLs and electricity as well as supply energy and feedstock to
virtually all of Chevron's refineries, chemical plants and other North American
facilities. For its contribution, Chevron will receive a total of 45.8 million
shares in the new company, in a combination of common and preferred stock, and
F-21
$300 million in cash and notes. Following consummation of the transaction,
Chevron, British Gas and NOVA will each own approximately 25 percent of the
outstanding common stock of the new company. The proposed transaction is
expected to be finalized in the second quarter of 1996.
In February 1996, the Company consummated the acquisition of LPG Services
Group, Inc. ("LPG"), a Kansas City-based propane gas marketing and distribution
company for $2 million in cash and up to an additional $6.25 million in
conditional payments based primarily on LPG's financial performance. The
acquisition of LPG provides the Company with a developed wholesale propane
marketing infrastructure.
NOTE 15 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's unaudited quarterly financial
information for the years ended December 31, 1995, and 1994.
Quarter Ended
-------------------------------------------
March June September December
1995 1995 1995 1995
-------- -------- -------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues ......................... $802,944 $841,028 $944,229 $1,077,745
Operating margin ................. 31,486 43,399 56,963 62,812
Income before income taxes ....... 11,747 6,162 22,386 24,939
Net income ....................... 55,274 4,873 14,608 17,950
Pro forma net income per share (a) 0.07 0.04 0.13 0.16
Quarter Ended
-------------------------------------------
March June September December
1994 1994 1994 1994
-------- -------- -------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues ......................... $890,412 $746,452 $765,067 $ 835,912
Operating margin ................. 32,153 14,688 26,086 26,199
Income before income taxes ....... 19,601 4,039 10,441 10,024
Net income ....................... 19,268 3,885 9,768 9,180
Pro forma net income per share (a) 0.13 0.03 0.07 0.05
- --------------------
(a) Quarterly net income per share is based on the weighted average number of
shares of common stock outstanding plus the common stock equivalents that
would arise from the exercise of outstanding options or warrants, when
dilutive. For the year ended December 31, 1994, a pro forma amount of 97.8
million shares outstanding was used to compute the pro forma earnings per
share for all quarters. Such amount represents the equivalent number of
shares obtained in the Combination by the Clearinghouse Owners plus the
equivalent number of shares that would arise from the exercise of
outstanding options existing as of the effective date of the Combination
assuming a market value of $12 per share.
Pro forma net income used to compute pro forma earnings per share for the
first quarter of 1995 and for each of the four quarters in the year ended
December 31, 1994, reflect incremental statutory federal and state income
tax provisions applied to Clearinghouse's partnership income. The
incremental tax provision represents an estimate of the aggregate federal
and state income taxes that would have been provided had Clearinghouse been
a taxpaying entity during the respective accounting periods.
F-22
SCHEDULE I
NGC CORPORATION
CONDENSED BALANCE SHEET OF REGISTRANT
(in thousands, except share data)
DECEMBER 31,
1995
---------
ASSETS
CURRENT ASSETS
Cash .......................................................... $ 6
INTERCOMPANY ACOUNTS RECEIVABLE ............................... 450,631
Prepayments and other assets .................................. 5,053
---------
455,690
---------
PROPERTY, PLANT AND EQUIPMENT ................................. 1,287
Less: accumulated depreciation ................................ (196)
---------
1,091
---------
OTHER ASSETS
Investments in affiliates ..................................... 547,866
Intercompany note receivable .................................. 237,000
Deferred income taxes and other assets ........................ 36,393
---------
$1,278,040
=========
LIABILITIES AND EQUITY
CURRENT ACCRUED LIABILITIES ................................... $ 2,427
INTERCOMPANY ACCOUNTS PAYABLE ................................. 390,233
LONG-TERM DEBT ................................................ 333,000
---------
725,660
---------
COMMITMENTS AND CONTINGENCIES
EQUITY:
Preferred stock, $0.01 par value, 50,000,000 shares
authorized ............................................... --
Common stock, $0.01 par value, 300,000,000 shares
authorized; 110,493,411 shares issued and
105,031,874 shares outstanding at December
31, 1995 ................................................. 1,105
Additional paid-in capital .................................... 515,785
Retained earnings ............................................. 35,490
----------
552,380
----------
$1,278,040
==========
See Note to Registrant's Financial Statements.
F-23
SCHEDULE I
NGC CORPORATION
STATEMENTS OF OPERATIONS OF THE REGISTRANT
For the Ten Months Ended From Inception (March 1, 1995)
Through December 31, 1995
(in thousands)
1995
--------
Depreciation and amortization .............................. $ (196)
General and administrative expenses ........................ --
--------
Operating loss ........................................ (196)
Equity in earnings of affiliates ........................... 60,744
Interest and other income .................................. 13,570
Interest expense ........................................... (18,152)
Other expenses ............................................. (135)
--------
Income before income taxes ................................. 55,831
Income tax provision ....................................... 16,056
--------
NET INCOME ................................................. $ 39,775
========
See Note to Registrant's Financial Statements.
F-24
SCHEDULE I
NGC CORPORATION
STATEMENT OF CASH FLOWS OF THE REGISTRANT
For the Ten Month Period From Inception (March 1, 1995)
Through December 31, 1995
(in thousands)
1995
-----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 39,775
Items not affecting cash flows from operating activities:
Depreciation and amortization ...................................... 196
Equity in earnings of affiliates, net of cash distributions ........ (60,744)
Deferred income taxes .............................................. 17,303
Other .............................................................. 1,475
Change in assets and liabilities resulting from operating activities:
Intercompany transactions .......................................... (60,398)
Prepayments and other assets ....................................... (5,053)
Accrued liabilities ................................................ 2,427
Other, net .......................................................... 4,150
-----------
Net cash used in operating activities ............................... (60,869)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Trident NGL, Inc. .................................... (166,900)
Other ............................................................... (1,333)
-----------
Net cash (used in) provided by investing activities ................. (168,233)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings .................................. 1,224,039
Repayments of long-term borrowings .................................. (891,039)
Intercompany advances ............................................... (237,000)
Proceeds from sale of capital stock, options and warrants ........... 725
Capital contributions ............................................... 135,000
Dividends and other distributions ................................... (2,617)
-----------
Net cash provided by (used in) financing activities ................. 229,108
-----------
Net increase in cash and cash equivalents ........................... 6
Cash and cash equivalents, beginning of year ........................ --
-----------
Cash and cash equivalents, end of year .............................. $ 6
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash dividends paid to parent by consolidated or
unconsolidated subsidiaries ...................................... $ --
===========
Interest paid (net of amount capitalized) $ 16, 339
===========
Taxes paid (net of refunds) $ --
===========
See Note to Registrant's Financial Statements.
F-25
Schedule I
NGC CORPORATION
NOTE TO REGISTRANT'S FINANCIAL STATMENTS
NOTE 1 -- BASIS OF PRESENTATION
NGC Corporation ("NGC" or the "Company") is a holding company that operates
principally through two subsidiaries, Natural Gas Clearinghouse
("Clearinghouse") and Trident NGL, Inc. The Company is the result of a strategic
business combination ("Combination") between Clearinghouse and Trident NGL
Holding, Inc. ("Holding"), under which Holding was renamed NGC Corporation.
Pursuant to the terms of the Combination, Holding was the legally surviving
corporation and Clearinghouse was considered the acquiring company for
accounting purposes resulting in a new historical cost basis for Holding
beginning March 1, 1995, the effective date of the Combination for accounting
purposes. The accompanying condensed Registrant Financial Statements were
prepared pursuant to rules promulgated by the Securities and Exchange
Commission. In accordance with these rules, the accompanying statements reflect
the financial position, results of operations and cash flows of NGC, the holding
company of NGC Corporation, for the period from the effective date of the
Combination through December 31, 1995. These statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto of NGC
Corporation contained elsewhere in this Form 10-K.
F-26
ACCORD ENERGY LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 1995
PAGES
------
Director's Report ...................................................... 1-4
Statement of Directors'
Responsibilities ....................................................... 5
Report of the Auditors ................................................. 6
Consolidated Profit and Loss Account ................................... 7
Balance Sheet .......................................................... 8
Consolidated Cash Flow Statement ....................................... 9
Notes to the Financial Statements ...................................... 10-18
ACCORD ENERGY LIMITED
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 1995
REGISTERED NO: 2877398
ACCORD ENERGY LIMITED
DIRECTORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 1995
The Directors present their report and audited financial statements for the year
ended 31 December 1995.
PRINCIPAL ACTIVITIES
The principal activity of the Group was wholesale energy trading comprising the
purchase and sale of natural gas, crude oil packages and electricity.
REVIEW OF BUSINESS
The year to 31 December 1995 was the Group's first full financial year of
operations. During the year Accord Energy has successfully established itself as
a major player in the energy trading markets. Its performance in terms of
physical volumes of gas and oil traded and overall financial results achieved
represents a significant improvement on the 1994 six month's results. The 1995
results have been achieved in the face of fierce competition from the increasing
number of entrants into the market and during a period which experienced the
collapse of gas prices in the UK. The Directors are pleased to announce that
despite these factors, the company has exceeded the targets set by the Board.
Since the completion of the contract to supply electricity over the period April
1994 to March 1995 to customers in the non-franchise market, no electricity was
traded for the rest of the year. The Company sees electricity trading as an
integral part of the company's trading activities and therefore will continue to
pursue opportunities in this area.
Sustaining the current level of performance in the future will become
increasingly difficult on account of the development of competition, uncertainty
and volatility in the gas trading market, and the major changes taking place
within the UK gas industry. However, the Directors envisage that the company
will continue to maintain its position as a major player in the markets, that
the company will continue to exploit new opportunities and products within and
outside the UK and endeavor to optimize performance and returns within the
constraints of prevailing market conditions.
FINANCIAL RESULTS AND DIVIDENDS
The financial results are set out on pages 7 to 18. Three interim dividends
totalling L 15.4 million were approved by the Board and paid during the year.
The Directors do not recommend the payment of a final dividend and retained
profits have been transferred to reserves.
1
DIRECTORS
The Directors who served during the period covered by this report are:
NAME DATE APPOINTED DATE RESIGNED
- ------------------------------------- ------------------- ------------------
N Blacker (Chairman) 10 November 1995
AW Burgess
MS Clare
DH Ebdon (Alternate to Mr N Blacker) 28 March 1995
CD Friedlander 12 February 1996
RA Gardner (Chairman) 01 December 1995
JT Hackett 21 June 1995
P Jungels 12 February 1996
HK Kaelber 21 June 1995
PJ Lehmann (Alternate to Mr N
Blacker) 28 March 1995 10 November 1995
KE Randolph
JS Ulrich (Managing Director) 21 June 1995
CL Watson
Mr N Blacker resigned as a Director and Chairman on 10 November 1995 and Mr P
Lehmann's appointment as alternate Director to Mr N Blacker was revoked on the
same date. Mr R A Gardner was appointed Director and Chairman on 1 December
1995.
DIRECTORS' INTERESTS
At no time during the year did any Director still holding office on 31 December
1995 have any beneficial interest in the shares of the Company or any other
company within the Group except for the interests in the shares of the ultimate
parent company, British Gas plc, as stated below:
BENEFICIAL HOLDINGS
1 JANUARY 1995 31 DECEMBER 1995
--------------- -----------------
AW Burgess ............................... 10,052 13,052
CD Friedlander ........................... 1,010 1,842
Mr Gardner is also a Director of the ultimate parent company, British Gas plc.
His interests in the shares of British Gas plc and its subsidiary undertaking
are shown in the accounts of that company.
Details of options to purchase fully paid ordinary shares that were granted
under the parent company's Savings Related and Executive Share Option Schemes
and the awards of notional allocations of restricted shares under the parent
company's Long Term Incentive Scheme for Directors and other senior executives
are as follows:
SAVINGS RELATED OPTION SCHEME
AT 1 JANUARY 1995 GRANTED EXERCISED AT 31 DECEMBER 1995
----------------- -------- ---------- --------------------
AW Burgess................................. 6,712 3,531 2,168 8,075
MS Clare................................... -- -- -- --
CD Friedlander............................. 9,469 -- -- 9,469
The options were exercised at L 1.66 per ordinary share.
EXECUTIVE OPTION SCHEME
AT 1 JANUARY 1995 GRANTED EXERCISED AT 31 DECEMBER 1995
----------------- ------- --------- -------------------
AW Burgess ............ 108,962 -- -- 108,962
MS Clare .............. 49,063 -- -- 49,063
CD Friedlander ........ 77,735 -- -- 77,735
LONG TERM INCENTIVE PLAN
AWARDS
AT JANUARY 1995 IN YEAR AT 31 DECEMBER 1995
--------------- ------- -------------------
AW Burgess ............... 10,936 10,936
MS Clare ................. -- 12,833 12,833
CD Friedlander ........... -- 12,543 12,543
The awards represent the maximum award possible if performance criteria are met
at the end of the performance and retention period of five or six years.
All options and awards were granted under the terms of the parent company's
Savings Related Share Option Scheme, Executive Share Option Scheme or Long Term
Incentive Scheme, details of which are given in that company's report and
accounts for the year ended 31 December 1995.
3
DIRECTORS' INSURANCE
The Company has through its ultimate parent company, British Gas plc, maintained
insurance for the Directors in respect of their duties as Directors of the
Company.
DONATIONS
Provision has been made in the accounts for a net contribution of L 75,000 for
charitable purposes, which will be paid in 1996. No donations to political
organisations were provided for or made during the period.
SHARE CAPITAL
The issued share capital is owned 51% by British Gas plc and 49% by NGC UK
Limited. The share capital is divided into 51 "A" shares and 49 "B" shares
which were allotted to British Gas plc and NGC UK Limited respectively on 18
July 1994.
TAXATION STATUS
The close company provisions of the Income and Corporation Taxes Act 1988 do not
apply to the Company.
AUDITORS
Price Waterhouse have expressed their willingness to be re-appointed as Auditors
of the Company.
A resolution proposing the re-appointment of Price Waterhouse as Auditors to the
Company and to authorise the Directors to fix their remuneration will be put to
the Annual General Meeting.
BY ORDER OF THE BOARD Registered Office:
Rivermill House
152 Grosvenor Road
London SW1V 3JL
SANDRA SCOTT Registered in England
COMPANY SECRETARY No 2877398
DATE: 14 March 1996
4
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are required by the Companies Act 1985 to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company and of the Group as at the end of the financial year
and of the profit or loss for that period.
The Directors consider that in preparing the financial statements,
appropriate accounting policies have been used and applied consistently. The
Directors also consider that reasonable and prudent judgements and estimates
have been made and applicable accounting standards have been followed.
The Directors are responsible for maintaining adequate accounting records,
for safeguarding the assets of the Group and for preventing and detecting fraud
and other irregularities.
The Directors, having prepared the financial statements, have requested the
Auditors to take whatever steps and undertake whatever inspections they consider
to be appropriate for the purposes of enabling them to give their audit report.
5
REPORT OF THE AUDITORS TO THE MEMBERS OF ACCORD ENERGY LIMITED
We have audited the financial statements on pages 7 to 18 which have been
prepared under the historic cost principles and other accounting policies
described on page 10.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 5, the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes assessment of the significant estimates and judgements made by the
Directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary, in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company and of the Group as at 31 December 1995 and of
the profit and cash flows of the Group for the period then ended and have been
properly prepared in accordance with the Companies Act 1985.
Price Waterhouse
Chartered Accountants and Registered Auditors
Southwark Towers
32 London Bridge Street
London SE1 9SY
Date: 14 March 1996
6
ACCORD ENERGY LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1995
YEAR 02 DEC 93
TO 31 DEC TO 31 DEC
1995 1994
---------- ---------
Notes (Pounds Sterling 000)
Turnover............................. 2 289,619 69,766
Cost of sales........................ (270,710) (68,461)
---------- ---------
Gross profit......................... 27,909 1,305
Administration expenses.............. (5,689) (671)
---------- ---------
Operating profit..................... 3 22,220 634
Net interest......................... 5 1,063 89
---------- ---------
Profit on ordinary activities before
taxation............................. 23,283 723
Tax on profit on ordinary
activities........................... 6 (7,708) (229)
---------- ---------
Profit for the financial year........ 15,575 494
Dividends............................ 7 (15,400) --
---------- ---------
Retained profit...................... 175 494
========== =========
All gains or losses for the year have been derived from continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 1995
There are no recognised gains or losses for the period other than those stated
in the profit and loss account.
The accompanying notes on pages 10 to 18 from part of these accounts.
7
ACCORD ENERGY LIMITED
BALANCE SHEETS AS AT 31 DECEMBER 1995
GROUP COMPANY
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Notes (Pounds Sterling 000) (Pounds Sterling 000)
Fixed assets
Tangible fixed assets................ 8 100 -- 100 --
Investments.......................... 9 -- -- -- --
--------- --------- --------- ---------
100 -- 100 --
--------- --------- --------- ---------
Current assets
Stock................................ 10 3,838 887 3,838 887
Debtors.............................. 11 38,453 25,106 38,453 28,452
(amounts falling due within one year)
Cash at bank and in hand............. 10,184 1,249 10,184 1,249
--------- --------- --------- ---------
52,475 27,242 52,475 30,588
Creditors............................ 12 (51,941) (21,783) (51,941) (25,129)
(amounts falling due within one year)
--------- --------- --------- ---------
Net current assets................... 534 5,459 534 5,459
--------- --------- --------- ---------
Total assets less current
liabilities.......................... 634 5,459 634 5,459
Creditors............................ 12 -- (5,000) (414) (5,414)
(amounts falling due within one year)
--------- --------- --------- ---------
Net Assets........................... 634 459 220 45
========= ========= ========= =========
Capital and reserves
Called up share capital.............. 13 -- -- -- --
Profit and loss account.............. 14 634 459 220 45
--------- --------- --------- ---------
Shareholders' funds.................. 15 634 459 220 45
========= ========= ========= =========
The financial statements on pages 7 to 18 were approved by the Board of
Directors on 14 March 1996 and were signed on its behalf by:
MS Clare
Director
The accompanying notes on pages 10 to 18 form part of these accounts.
8
ACCORD ENERGY LIMITED
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1995
YEAR 02 DEC 93
TO 31 DEC TO 31 DEC
1995 1994
--------- ---------
Notes (Pounds Sterling 000)
Net cash inflow from operating
activities........................... 16 26,304 1,234
Returns on investments and servicing
of finance
Interest received.................... 1,105 89
Interest paid........................ (42) --
Dividends............................ (15,400) --
Taxation............................. (2,932) --
Investing activities
Additions to fixed assets............ (100) --
Purchase of subsidiary undertaking
(net of cash and cash equivalents
acquired).......................... -- (74)
--------- ---------
Net cash flow before financing
activities........................... 8,935 1,249
Financing activities
Issue of ordinary share capital...... 16 -- --
--------- ---------
Net increase in cash and cash
equivalents.......................... 8,935 1,249
========= =========
9
ACCORD ENERGY LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom. A summary of the more important
accounting policies which have been applied consistently is set out below.
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with the historical
cost convention.
BASIS OF CONSOLIDATION
The consolidated profit and loss account, balance sheet and cash flow
statement include the financial statements of the Company and its subsidiary
undertakings made up to 31 December 1995.
GOODWILL
On the acquisition of a subsidiary or associated undertaking, fair values
are attributed to the net assets acquired. Goodwill which represents the
difference between the purchase consideration and the fair values, is taken to
reserves.
TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at purchase cost together with any
incidental costs of acquisition less depreciation.
Depreciation, which is charged in the year following the year of
acquisition, is calculated on a straight-line basis sufficient to write off the
cost of individual assets over their estimated useful lives. The depreciation
periods for the principal categories of assets are:
Fixtures and fittings................ : 5 years
Computer and office equipment........ : 5 years
INVESTMENTS
Investments are stated at cost less any permanent diminutive in value.
STOCK
Stocks are valued at the lower of cost and net realisable value.
10
TURNOVER
Turnover, which excludes value added tax, represents the invoiced value of
sales of energy products including gas, oil and electricity to customers plus an
estimate of sales not yet invoiced.
FORWARD COMMITMENTS
There is an exposure to price movements on open contracts and an accrual is
made for any potential losses on these contracts. Matched gains on open
contracts are recognised at time of delivery.
DEFERRED TAXATION
Provision is made for deferred taxation on all material timing differences
to the extent that it is probable that a liability or asset will crystallise.
2. TURNOVER
Turnover of L298.6 million (1994 - L 69.8 million) comprises sales of
energy products.
3. OPERATING PROFIT
The operating profit is stated after charging:
1995 1994
---- ----
(Pounds Sterling 000)
Auditor's fees (statutory audit)..... 12 11
Auditor's fees (other non-audit
services)............................ 11 4
---- ----
23 15
---- ----
4. DIRECTORS AND EMPLOYEES
(a) DIRECTORS' REMUNERATION
The total emoluments of the highest paid director for the period of his
directorship were L482,588 (1994 - L199,525), which includes salary, allowances
and incentive payments relating to the Company's performance in the same period.
11
The emoluments of Directors, excluding pension contributions, were in the
following bands:
NUMBER
------------
1995 1994
---- ----
L195,001 to L200,000................. -- 1
L480,001 to L485,000................. 1 --
None of the other Directors, including the Chairman, received any
remuneration in respect of their services to the Company.
(b) EMPLOYEE INFORMATION
The average number of personnel employed by the Group, including executive
directors and secondees from the shareholder companies, during the period was 20
(1994 - 4(Direct)) who were all based in the United Kingdom. Staff costs for
these persons were as follows:
1995 1994
---- ----
(Pounds Sterling 000)
Salaries & wages..................... 853 26
Social Security...................... 69 3
Pensions............................. 43 1
---- ----
965 30
==== ====
In addition, provisions amounting to L3.9 million (1994 - L0.2 million)
were made in the year for incentive payments relating to company performance.
5. NET INTEREST
1995 1994
----- ----
(Pounds Sterling 000)
Interest receivable from Group
undertakings......................... 1,081 85
Interest receivable from third
parties.............................. 24 4
Interest payable to Group
undertakings......................... (31) --
Interest payable to third parties.... (11) --
----- ----
Net interest receivable.............. 1,063 89
===== ====
Interest payable is on loans and overdrafts wholly repayable within five years.
12
6. TAXATION
1995 1994
------ -----
(Pounds Sterling 000)
UK -corporation tax @ 33%........... 8,846 1,032
-deferred corporation tax....... (1,138) (787)
Group relief from parent
undertaking.......................... -- (16)
------ -----
Taxation charge...................... 7,708 229
------ -----
There is no unprovided deferred taxation.
7. DIVIDENDS
1995 1994
------ -----
(Pounds Sterling 000)
Interim dividends.................... 15,400 --
====== =====
Three interim dividends totalling L15.4 million (1994 - L nil) were paid in
July, September, and December 1995. No final dividend is proposed.
8. TANGIBLE FIXED ASSETS
GROUP COMPANY
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
(Pounds Sterling 000)
Cost and net book value
Balance at 1 January 1995............ -- -- -- --
Additions............................ 100 -- 100 --
Disposals............................ -- -- -- --
---- ---- ---- ----
Balance at 31 December 1995.......... 100 -- 100 --
==== ==== ==== ====
The additions to tangible fixed assets in the year are computer and office
equipment type assets.
In accordance with the Company's accounting policy, assets are depreciated
in the year following the year of acquisition and consequently no depreciation
has been charged in the year.
13
9. FIXED ASSET INVESTMENTS
Fixed assset investments represent shares in wholly owned subsidiaries and
are shown below at cost.
COMPANY
--------------------
1995 1994
(Pounds Sterling)
--------- ---------
Balance at 1 January 1995 5 --
Additions -- 5
--------- ---------
Balance at 31 December 1995 5 5
--------- ---------
SUBSIDIARY UNDERTAKINGS
COUNTRY OF COMPANY
REGISTRATION OR CLASS OF HOLDING
INCORPORATION SHARES HELD (%)
----------------- ------------- ---------
Accord Electric Limited England Ordinary 100
Accord Gas Limited England Ordinary 100
Accord Oil Limited England Ordinary 100
Accord Power Limited England Ordinary 100
Accord Power Limited has been a dormant company since its incorporation.
The other three subsidiary companies operated in the United Kingdom and were
engaged in the wholesale trading of electricity (Accord Electricity
Limited), natural gas (Accord Gas Limited), and crude oil packages (Accord
Oil Limited) up to 31 December 1994 at which date all trading activities of
these subsidiaries were transferred to Accord Energy Limited. Therefore, as
of 31 December 1995, these subsidiaries were declared dormant.
10. STOCK
GROUP COMPANY
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Pounds Sterling 000)(Pounds Sterling 000)
Gas in storage 3,838 887 3,838 887
--------- --------- --------- ---------
14
11. DEBTORS
GROUP COMPANY
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Pounds Sterling 000)(Pounds Sterling 000)
Trade debtors 56 118 56 118
Accrued income 36,240 19,979 36,240 19,979
Amounts owed by parent undertaking 246 2,291 246 2,291
Amounts owed by subsidiary
undertakings -- -- -- 3,346
Other debtors 12 1,915 12 1,915
Deferred corporation tax 1,899 803 1,899 803
--------- --------- --------- ---------
38,453 25,106 38,453 28,452
--------- --------- --------- ---------
12. CREDITORS
GROUP COMPANY
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Pounds Sterling 000)(Pounds Sterling 000)
Amounts falling due within one year:
- Trade creditors 247 134 247 134
- Amounts owed to parent
undertaking 16,843 -- 16,843 --
- Amounts owed to subsidiary
undertakings -- -- -- 3,346
- Taxation and social security 6,904 1,033 6,904 1,033
- Other creditors 1,826 743 1,826 743
- Accruals and deferred income 26,121 19,873 26,121 19,873
--------- --------- --------- ---------
51,941 21,783 51,941 25,129
--------- --------- --------- ---------
AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR:
- - Amounts owed to parent undertaking -- 2,500 -- 2,550
- - Amounts owed to subsidiary
undertakings -- -- 414 414
- - Other creditors -- 2,450 -- 2,450
--------- --------- --------- ---------
-- 5,000 414 5,414
--------- --------- --------- ---------
As part of its normal trading operations the company has entered into forward
purchase and sales contracts totalling L 634 million at 31 December 1995 (1994
- -- L 241 million). It is exposed to market risk of price movements in relation
to any unmatched element of the above commitments and included in the accrual
amounts shown above is an accrual of L 5.6 million (1994 - L 2.3 million)
against potential losses arising out of these contracts.
15
13. CALLED UP SHARE CAPITAL
1995 1994
---- ----
AUTHORISED (Pounds Sterling 000)
51 ordinary "A" shares of L1
each................................. 51 51
49 ordinary "B" shares of L1
each................................. 49 49
---- ----
100 100
==== ====
ALLOTTED AND FULLY PAID
51 ordinary "A" shares of L1
each................................. 51 51
49 ordinary "B" shares of L1
each................................. 49 49
---- ----
100 100
==== ====
With the exception of voting rights which on aggregate are shared equally
by the two categories of shares, the amounts payable on a winding up and the
rights to dividends are on the basis of the percentage interests in each
category of shares.
14. RESERVES
GROUP COMPANY
(Pounds Sterling 000)
PROFIT AND LOSS ACCOUNT:
Balance at 1 January 1995............ 459 45
Transfer from profit and loss account
during the period.................. 175 175
----- -------
Balance at 31 December 1995 634 220
===== =======
The Company's profit for the year was L15.575 million (1994 - L 0.045
million).
As permitted by Section 230(3) of the companies Act 1985, no profit and
loss account is presented for the Company.
16
15. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
GROUP COMPANY
--------------- ---------------
1995 1994 1995 1994
------- ---- ------- ----
(Pounds Sterling 000)(Pounds Sterling 000)
Profit for the period................ 15,575 494 15,575 45
Dividends............................ (15,400) -- (15,400) --
Share capital issued................. -- -- -- --
Goodwill on acquisition of a
subsidiary........................... -- (35 ) -- --
------- ---- ------- ----
Net addition to shareholders'
funds................................ 175 459 175 45
Shareholders' funds at 1 January
1995................................. 459 -- 45 --
------- ---- ------- ----
Shareholders' funds at 31 December
1995................................. 634 459 220 45
======= ==== ======= ====
16. CASH FLOW STATEMENT
(a) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW
1995 1994
------- -------
(Pounds Sterling 000)
Operating profit..................... 22,220 634
(Increase)/decrease in stock......... (2,951) (887)
(Increase)/decrease in debtors....... (12,254) (23,013)
(Increase)/decrease in creditors..... 19,289 24,500
------- -------
26,304 1,234
======= =======
(b) ANALYSIS OF CHANGES IN FINANCING DURING THE PERIOD
1995 1994
---- ----
(Pounds Sterling)
Balance at 1 January 1995............ 100 --
Issue of ordinary shares............. -- 100
---- ----
Balance at 31 December 1995.......... 100 100
==== ====
17
(c) ANALYSIS OF CASH AND CASH EQUIVALENTS
1995 1994
------ -----
Balance at 1 January 1995 1,249 --
Net increase in cash flow 8,935 1,249
------ -----
Balance at 31 December 1995 10,184 1,249
------ -----
Cash at bank and in hand 10,184 1,249
====== =====
17. PENSIONS
The company's own defined contribution pension scheme commenced on 1
December 1995. Under the scheme, defined contributions are made by the employer
to an independently administered fund and in the case of certain employees, who
are not members of the company scheme, to their personal pensions arrangements.
The assets of the schemes are held separately from those of the company and
managed by an external pension fund management organisation appointed by the
Trustees. The pension cost charge for the year includes contributions payable by
the company under this scheme amounting to L 31,000 (1994 - nil), of which L
26,000 was payable at year end and is included in creditors.
Prior to the commencement of the above scheme, the company made
contributions for those employees seconded from the parent company, British Gas
plc., in accordance with the pension scheme operated by that company. The
details of the scheme are given in that company's report and accounts for the
year ended 31 December 1995. The total contributions made by the company for the
year under these arrangements amounted to L 12,000 (1994 - L 1,000).
18. ULTIMATE PARENT COMPANY
The Directors regard British Gas plc, a company registered in England, as
the ultimate parent company and British Gas plc is the only company to
consolidate the accounts of this Company. Copies of the parent company's
consolidated financial statements may be obtained from British Gas plc,
Rivermill House, 152 Grosvenor Road, London SW1V 3JL.
18