XML 34 R14.htm IDEA: XBRL DOCUMENT v3.20.2
Capitalization And Short-Term Borrowings
 12 Months Ended
Sep. 30, 2020
Capitalization And Short-Term Borrowings [Abstract]  
Capitalization And Short-Term Borrowings Capitalization and Short-Term Borrowings
Summary of Changes in Common Stock Equity
 Common StockPaid In
Capital		Earnings
Reinvested
in the
Business		Accumulated
Other
Comprehensive
Income (Loss)
SharesAmount
 (Thousands, except per share amounts)
Balance at September 30, 201785,543 $85,543 $796,646 $851,669 $(30,123)
Net Income Available for Common Stock
391,521 
Dividends Declared on Common Stock ($1.68 Per Share)
(144,290)
Other Comprehensive Loss, Net of Tax(37,627)
Share-Based Payment Expense(1)14,235 
Common Stock Issued Under Stock and Benefit Plans
414 414 9,342 
Balance at September 30, 201885,957 85,957 820,223 1,098,900 (67,750)
Net Income Available for Common Stock
304,290 
Dividends Declared on Common Stock ($1.72 Per Share)
(148,432)
Cumulative Effect of Adoption of Authoritative Guidance for Financial Assets and Liabilities
7,437 
Cumulative Effect of Adoption of Authoritative Guidance for Reclassification of Stranded Tax Effects
10,406 
Other Comprehensive Income, Net of Tax15,595 
Share-Based Payment Expense(1)
19,613 
Common Stock Issued (Repurchased) Under Stock and Benefit Plans
358 358 (7,572)
Balance at September 30, 201986,315 86,315 832,264 1,272,601 (52,155)
Net Loss Available for Common Stock(123,772)
Dividends Declared on Common Stock ($1.76 Per Share)(156,249)
Cumulative Effect of Adoption of Authoritative Guidance for Hedging
(950)
Other Comprehensive Loss, Net of Tax(62,602)
Share-Based Payment Expense(1)13,180 
Common Stock Issued from Sale of Common Stock
4,370 4,370 161,399 
Common Stock Issued (Repurchased) Under Stock and Benefit Plans
270 270 (2,685)
Balance at September 30, 202090,955 $90,955 $1,004,158 $991,630 (2)$(114,757)
(1)Paid in Capital includes compensation costs associated with performance shares and/or restricted stock awards. The expense is included within Net Income Available for Common Stock, net of tax benefits.
(2)The availability of consolidated earnings reinvested in the business for dividends payable in cash is limited under terms of the indentures covering long-term debt. At September 30, 2020, $848.4 million of accumulated earnings was free of such limitations.
Common Stock
On June 2, 2020, the Company completed a public offering and sale of 4,370,000 shares of the Company's common stock, par value $1.00 per share, at a price of $39.50 per share. After deducting fees, commissions and other issuance costs, the net proceeds to the Company amounted to $165.8 million. The proceeds of this issuance were used to fund a portion of the purchase price of the acquisition of Shell's upstream assets and midstream gathering assets in Pennsylvania that closed on July 31, 2020. Refer to Note B – Asset Acquisitions and Divestitures for further discussion.
The Company has various plans which allow shareholders, employees and others to purchase shares of the Company common stock. The National Fuel Gas Company Direct Stock Purchase and Dividend Reinvestment Plan allows shareholders to reinvest cash dividends and make cash investments in the Company’s common stock and provides investors the opportunity to acquire shares of the Company common stock without the payment of any brokerage commissions in connection with such acquisitions. The 401(k) Plans allow employees the opportunity to invest in the Company common stock, in addition to a variety of other investment alternatives. Generally, at the discretion of the Company, shares purchased under these plans are either original issue shares purchased directly from the Company or shares purchased on the open market by an independent agent. During 2020, the Company did not issue any original issue shares of common stock for the Direct Stock Purchase and Dividend Reinvestment Plan or the Company's 401(k) plans.
During 2020, the Company issued 87,835 original issue shares of common stock for restricted stock units that vested and 231,246 original issue shares of common stock for performance shares that vested. Holders of stock-based compensation awards will often tender shares of common stock to the Company for payment of applicable withholding taxes. During 2020, 91,545 shares of common stock were tendered to the Company for such purposes. The Company considers all shares tendered as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law.
The Company also has a director stock program under which it issues shares of Company common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, as partial consideration for the directors’ services during the fiscal year. Under this program, the Company issued 41,873 original issue shares of common stock during 2020.
Stock Award Plans
The Company has various stock award plans which provide or provided for the issuance of one or more of the following to key employees: SARs, incentive stock options, nonqualified stock options, restricted stock, restricted stock units, performance units or performance shares.
Stock-based compensation expense for the years ended September 30, 2020, 2019 and 2018 was approximately $13.1 million, $19.5 million and $14.2 million, respectively. Stock-based compensation expense is included in operation and maintenance expense on the Consolidated Statements of Income. The total income tax benefit related to stock-based compensation expense during the years ended September 30, 2020, 2019 and 2018 was approximately $2.1 million, $3.8 million and $3.4 million, respectively. A portion of stock-based compensation expense is subject to capitalization under IRS uniform capitalization rules. Stock-based compensation of $0.1 million was capitalized under these rules during each of the years ended September 30, 2020, 2019 and 2018. The tax expense related to stock-based compensation exercises and vestings was $3.2 million for the year ended September 30, 2020.
SARs
Transactions for 2020 involving SARs for all plans are summarized as follows:
Number of
Shares Subject
To Option		Weighted
Average
Exercise Price		Weighted
Average
Remaining
Contractual
Life (Years)		Aggregate
Intrinsic
Value
(In thousands)
Outstanding at September 30, 2019733,132 $54.90 
Granted in 2020— $— 
Exercised in 2020— $— 
Forfeited in 2020— $— 
Expired in 2020(219,952)$52.18 
Outstanding at September 30, 2020513,180 $56.07 1.28$— 
SARs exercisable at September 30, 2020513,180 $56.07 1.28$— 
Shares available for future grant at September 30, 2020(1)3,220,528 
(1)Includes shares available for options, SARs, restricted stock and performance share grants.
The Company did not grant any SARs during the years ended September 30, 2019 and 2018. The Company’s SARs include both performance based and nonperformance-based SARs, but the performance conditions associated with the performance based SARs at the time of grant have all been subsequently met. The SARs are considered equity awards under the current authoritative guidance for stock-based compensation. The accounting for SARs is the same as the accounting for stock options.
The total intrinsic value of SARs exercised during the years ended September 30, 2019 and 2018 totaled approximately $7.2 million, and $4.4 million, respectively. There were no SARs that became fully vested during the years ended September 30, 2020, 2019 and 2018, and all SARs outstanding have been fully vested since fiscal 2017.
Restricted Share Awards
Transactions for 2020 involving restricted share awards for all plans are summarized as follows: 
Number of
Restricted
Share Awards		Weighted Average
Fair Value per
Award
Outstanding at September 30, 201920,000 $47.46 
Granted in 2020— $— 
Vested in 2020— $— 
Forfeited in 2020— $— 
Outstanding at September 30, 202020,000 $47.46 
The Company did not grant any restricted share awards (non-vested stock as defined by the current accounting literature) during the years ended September 30, 2019 and 2018. As of September 30, 2020, unrecognized compensation expense related to restricted share awards totaled less than $0.1 million, which will be recognized over a weighted average period of 0.1 years.
Vesting restrictions for the 20,000 outstanding shares of non-vested restricted stock at September 30, 2020 will lapse in 2021.
Restricted Stock Units
Transactions for 2020 involving nonperformance-based restricted stock units for all plans are summarized as follows:
Number of
Restricted
Stock Units		Weighted Average
Fair Value per
Award
Outstanding at September 30, 2019281,607 $48.88 
Granted in 2020150,839 $40.38 
Vested in 2020(87,835)$50.26 
Forfeited in 2020(8,838)$46.72 
Outstanding at September 30, 2020335,773 $44.76 
The Company also granted 123,939 and 89,672 nonperformance-based restricted stock units during the years ended September 30, 2019 and 2018, respectively. The weighted average fair value of such nonperformance-based restricted stock units granted in 2019 and 2018 was $49.40 per share and $51.23 per share, respectively. As of September 30, 2020, unrecognized compensation expense related to nonperformance-based restricted stock units totaled approximately $6.3 million, which will be recognized over a weighted average period of 2.1 years.
Vesting restrictions for the nonperformance-based restricted stock units outstanding at September 30, 2020 will lapse as follows: 2021 — 105,960 units; 2022 — 97,870 units; 2023 — 82,373 units; 2024 - 32,570 units; and 2025 - 17,000 units.
Performance Shares
Transactions for 2020 involving performance shares for all plans are summarized as follows:
Number of
Performance
Shares		Weighted Average
Fair Value per
Award
Outstanding at September 30, 2019522,514 $54.37 
Granted in 2020254,608 $43.32 
Vested in 2020(231,246)$55.33 
Forfeited in 2020(11,040)$46.40 
Change in Units Based on Performance Achieved57,792 $52.13 
Outstanding at September 30, 2020592,628 $49.18 
The Company also granted 244,734 and 208,588 performance shares during the years ended September 30, 2019 and 2018, respectively. The weighted average grant date fair value of such performance shares granted in 2019 and 2018 was $55.67 per share and $50.95 per share, respectively. As of September 30, 2020, unrecognized compensation expense related to performance shares totaled approximately $10.6 million, which will be recognized over a weighted average period of 1.7 years. Vesting restrictions for the outstanding performance shares at September 30, 2020 will lapse as follows: 2021 — 169,912 shares; 2022 — 176,160 shares; and 2023 — 246,556 shares.
Half of the performance shares granted during the years ended September 30, 2020, 2019 and 2018 must meet a performance goal related to relative return on capital over a three-year performance cycle. The performance goal over the respective performance cycles for the performance shares granted during 2020, 2019 and 2018 is the Company’s total return on capital relative to the total return on capital of other companies in a group selected by the Compensation Committee (“Report Group”).  Total return on capital for a given company means the average of the Report Group companies’ returns on capital for each twelve month period
corresponding to each of the Company’s fiscal years during the performance cycle, based on data reported for the Report Group companies in the Bloomberg database.  The number of these performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value of these performance shares is calculated by multiplying the expected number of shares that will be issued by the average market price of Company common stock on the date of grant reduced by the present value of forgone dividends over the vesting term of the award.  The fair value is recorded as compensation expense over the vesting term of the award.  
The other half of the performance shares granted during the years ended September 30, 2020, 2019 and 2018 must meet a performance goal related to relative total shareholder return over a three-year performance cycle.  The performance goal over the respective performance cycles for the total shareholder return performance shares ("TSR performance shares") granted during 2020, 2019 and 2018 is the Company’s three-year total shareholder return relative to the three-year total shareholder return of the other companies in the Report Group.  Three-year shareholder return for a given company will be based on the data reported for that company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg database.  The number of these TSR performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value price at the date of grant for the TSR performance shares is determined using a Monte Carlo simulation technique, which includes a reduction in value for the present value of forgone dividends over the vesting term of the award.  This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award. In calculating the fair value of the award, the risk-free interest rate is based on the yield of a Treasury Note with a term commensurate with the remaining term of the TSR performance shares. The remaining term is based on the remainder of the performance cycle as of the date of grant. The expected volatility is based on historical daily stock price returns. For the TSR performance shares, it was assumed that there would be no forfeitures, based on the vesting term and the number of grantees. The following assumptions were used in estimating the fair value of the TSR performance shares at the date of grant:
 Year Ended September 30
 202020192018
Risk-Free Interest Rate1.63 %2.61 %1.96 %
Remaining Term at Date of Grant (Years)2.812.782.78
Expected Volatility19.3 %20.2 %22.0 %
Expected Dividend Yield (Quarterly)N/AN/AN/A
Redeemable Preferred Stock
As of September 30, 2020, there were 10,000,000 shares of $1 par value Preferred Stock authorized but unissued.
Long-Term Debt
The outstanding long-term debt is as follows:
 At September 30
 20202019
 (Thousands)
Medium-Term Notes(1):
7.4% due March 2023 to June 2025
$99,000 $99,000 
Notes(1)(2)(3):
3.75% to 5.50% due December 2021 to September 2028
2,550,000 2,050,000 
Total Long-Term Debt2,649,000 2,149,000 
Less Unamortized Discount and Debt Issuance Costs19,424 15,282 
Less Current Portion(4)— — 
$2,629,576 $2,133,718 
(1)The Medium-Term Notes and Notes are unsecured.
(2)The holders of these notes may require the Company to repurchase their notes at a price equal to 101% of the principal amount in the event of both a change in control and a ratings downgrade to a rating below investment grade.
(3)The interest rate payable on $300.0 million of 4.75% notes and $300.0 million of 3.95% notes will be subject to adjustment from time to time, with a maximum of 2.00%, if certain change of control events involving a material subsidiary result in a downgrade of the credit rating assigned to the notes to below investment grade (or if the credit rating assigned to the notes is subsequently upgraded). The interest rate payable on $500.0 million of 5.50% notes will be subject to a maximum adjustment of 2.00% such that the coupon will not exceed 7.5% if there is a downgrade of the credit rating assigned to the notes. A downgrade with a resulting increase to the coupon does not preclude the coupon from returning to its original rate if the Company's credit rating is subsequently upgraded.
(4)None of the Company's long-term debt at September 30, 2020 and 2019 will mature within the following twelve-month period.
On June 3, 2020, the Company issued $500.0 million of 5.50% notes due January 15, 2026. After deducting underwriting discounts, commissions and other debt issuance costs, the net proceeds to the Company amounted to $493.0 million. The proceeds of this debt issuance were used for general corporate purposes, which included the payment of a portion of the purchase price of the acquisition of Shell's upstream assets and midstream gathering assets in Pennsylvania that closed on July 31, 2020 and the repayment and refinancing of short-term debt.
On August 17, 2018, the Company issued $300.0 million of 4.75% notes due September 1, 2028. After deducting underwriting discounts, commissions and other debt issuance costs, the net proceeds to the Company amounted to $295.0 million. The proceeds of this debt issuance were used for general corporate purposes, including the redemption of $250.0 million of 8.75% notes on September 7, 2018 that were scheduled to mature in May 2019. The Company redeemed those notes for $259.5 million, plus accrued interest. In the Utility and Pipeline and Storage segments, the call premium of $8.5 million was recorded to Unamortized Debt Expense on the Consolidated Balance Sheet as of September 30, 2018, and in the Exploration and Production segment, the call premium of $1.0 million was recorded to Interest Expense on Long-Term Debt on the Consolidated Income Statement during the year ended September 30, 2018.
The Company redeemed $300.0 million of 6.50% notes in October 2017 that were scheduled to mature in April 2018. The Company redeemed these notes for $307.0 million, plus accrued interest. The early redemption
premium was recorded to Unamortized Debt Expense on the Consolidated Balance Sheet in October 2017. The Company financed this redemption with proceeds from its September 27, 2017 issuance of $300.0 million of 3.95% notes due September 15, 2027.
As of September 30, 2020, the aggregate principal amounts of long-term debt maturing during the next five years and thereafter are as follows: zero in 2021, $500.0 million in 2022, $549.0 million in 2023, zero in 2024, $500.0 million in 2025, and $1,100.0 million thereafter.
Short-Term Borrowings
The Company historically has obtained short-term funds either through bank loans or the issuance of commercial paper. Due to the impacts from COVID-19 on availability of commercial paper, the Company also
utilized its revolving committed credit facilities to meet funding needs. On October 25, 2018, the Company entered into a Fourth Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of 12 banks. This Credit Agreement provides a $750.0 million multi-year unsecured committed revolving credit facility through October 25, 2023. On May 4, 2020, the Company entered into a 364-Day Credit Agreement with a syndicate of 10 banks, all of which are also lenders under the Credit Agreement. The 364-Day Credit Agreement provides an additional $200.0 million unsecured committed revolving credit facility. The Company also has uncommitted lines of credit with financial institutions for general corporate purposes. Borrowings under these uncommitted lines of credit would be made at competitive market rates. The uncommitted credit lines are revocable at the option of the financial institution and are reviewed on an annual basis. The Company anticipates that its uncommitted lines of credit generally will be renewed or substantially replaced by similar lines. Other financial institutions may also provide the Company with uncommitted or discretionary lines of credit in the future. The total amount available to be issued under the Company’s commercial paper program is $500.0 million. At September 30, 2020, the commercial paper program is backed by the Credit Agreement.
At September 30, 2020, the Company had outstanding short-term notes payable to banks of $15.0 million, all of which was issued under the Credit Agreement. The Company had outstanding commercial paper of $15.0 million at September 30, 2020. At September 30, 2020, the weighted average interest rate on the short-term notes payable to banks was 1.51% and the weighted average interest rate on the commercial paper was 0.25%. At September 30, 2019, the Company had outstanding commercial paper of $55.2 million with a weighted average interest rate on the commercial paper of 2.50%. The Company did not have any outstanding short-term notes payable to banks at September 30, 2019.
Debt Restrictions
The Credit Agreement provides that the Company's debt to capitalization ratio will not exceed .65 at the last day of any fiscal quarter. For purposes of calculating the debt to capitalization ratio, the Company's total capitalization will be increased by adding back 50% of the aggregate after-tax amount of non-cash charges directly arising from any ceiling test impairment occurring on or after July 1, 2018, not to exceed $250 million. This provision also applies to the Company's 364-Day Credit Agreement. Since July 1, 2018, the Company recorded after-tax ceiling test impairments totaling $326.3 million. As a result, at September 30, 2020, $163.1 million was added back to the Company's total capitalization for purposes of the facility, and the Company’s debt to capitalization ratio, as calculated under the facility, was .55. The constraints specified in both the Credit Agreement and 364-Day Credit Agreement would have permitted an additional $1.30 billion in short-term and/or long-term debt to be outstanding (further limited by the indenture covenants discussed below) before the Company’s debt to capitalization ratio exceeded .65.
On March 27, 2020, the Company was downgraded by S&P to a rating of BBB- with a negative outlook. S&P subsequently improved the Company's outlook to stable during the quarter ended June 30, 2020. Combined with current ratings from other credit rating agencies, the downgrade increased the Company's short-term borrowing costs under its Credit Agreement. A further downgrade in the Company’s credit ratings could increase borrowing costs, negatively impact the availability of capital from banks, commercial paper purchasers
and other sources, and require the Company's subsidiaries to post letters of credit, cash or other assets as collateral with certain counterparties. If the Company is not able to maintain investment-grade credit ratings, it may not be able to access commercial paper markets. However, the Company expects that it could borrow under its credit facilities or rely upon other liquidity sources.
The Credit Agreement and 364-Day Credit Agreement contain a cross-default provision whereby the failure by the Company or its significant subsidiaries to make payments under other borrowing arrangements, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement and the 364-Day Credit Agreement. In particular, a repayment obligation could be triggered if (i) the Company or any of its significant subsidiaries fails to make a payment when due of any principal or interest on any other indebtedness aggregating $40.0 million or more, or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $40.0 million or more to cause, such indebtedness to become due prior to its stated maturity.
The Company's present liquidity position is believed to be adequate to satisfy known demands. Under the Company’s existing indenture covenants at September 30, 2020, the Company is precluded from issuing incremental long-term unsecured indebtedness beginning in January 2021 as a result of impairments of its oil and gas properties recognized during the year ended September 30, 2020. The Company expects this restriction to extend for several quarters in fiscal 2021. Depending on the magnitude of any future impairments, it is possible that the Company's indenture covenants could restrict the Company's ability to issue additional long-term unsecured indebtedness beyond that period. The covenants would not preclude the Company from issuing long-term debt to replace maturing long-term debt, including the Company's 4.90% notes, in the principal amount of $500 million, maturing in December 2021. Please refer to Part II, Item 7, Critical Accounting Estimates section above for a sensitivity analysis concerning commodity price changes and their impact on the ceiling test.
The Company’s 1974 indenture pursuant to which $99.0 million (or 3.7%) of the Company’s long-term debt (as of September 30, 2020) was issued, contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to repay the debt outstanding under the indenture. In particular, a repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or interest on any debt under any other indenture or agreement, or (ii) to perform any other term in any other such indenture or agreement, and the effect of the failure causes, or would permit the holders of the debt to cause, the debt under such indenture or agreement to become due prior to its stated maturity, unless cured or waived.