DEF 14A 1 d458988ddef14a.htm DEF 14A DEF 14A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

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Definitive Proxy Statement

 

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Definitive Additional Materials

 

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Soliciting Material Pursuant to §240.14a-12

NATIONAL FUEL GAS COMPANY

 

(Name of Registrant as Specified in its Charter)

 

  

 

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NATIONAL FUEL GAS COMPANY

 

Notice of Annual Meeting

and

Proxy Statement

 

Annual Meeting of Stockholders

to be held on

March 7, 2013


2013 Proxy Statement Overview & Summary

This overview and summary includes certain business performance information and highlights information contained elsewhere in this proxy statement. This overview and summary does not contain all of the information that you should consider, and you should read the Company’s Summary Annual Report and Form 10-K and this entire proxy statement carefully before voting.

 

Annual Meeting Voting Matters

The table below summarizes the matters that will be subject to the vote of stockholders at the 2013 Annual Meeting of Stockholders of National Fuel Gas Company:

 

Management Proposals  

Board Vote

Recommendation

 

Page Number

(for additional details)

1.  Election of Directors

  FOR ALL NOMINEES   Page   4

2.  Ratification of Auditor

  FOR   Page 63

3.  Advisory Approval of Executive Compensation

  FOR   Page 64

 

Annual Meeting of Stockholders

 

Ø    Time and Date

   March 7, 2013 at 9:30 a.m. local time

Ø    Location

  

The Ritz-Carlton, Naples

280 Vanderbilt Beach Road

Naples, FL 34108

Ø    Record Date

   January 7, 2013

Ø    Voting Details

   Stockholders as of the record date are entitled to one vote for each share of common stock for each director nominee and each other proposal to be voted.

Ø    Voting Deadline

  

Votes must be received by March 6, 2013.

For employee benefit plans votes must be received by March 4, 2013.

 

Overview of Business Performance and Long-Term Strategic Initiatives

In 2012, the Company’s Board of Directors and executives continued to focus on long-term shareholder value. Fiscal year financial results were impacted by the twin headwinds of decades-low natural gas prices affecting several major subsidiaries and the warmest winter on record in the Company’s natural gas utility service territory. However, increased crude oil and natural gas production, along with improvement in the Company’s midstream businesses as a result of significant capital investments in prior years helped to mitigate the impact of these forces. Long-term planning across our diversified business model has been, and will continue to be, a key contributing factor to the Company’s ability to weather short-term trends and circumstances, while steadily capitalizing on opportunities for continued success.

2012 Financial and Operating Highlights:

 

   

Dividend: In June, the Company’s annual dividend rate was increased by 2.8% to $1.46 per share, marking the 42nd year of consecutive dividend increases and 110th year of uninterrupted dividend payments.

 

   

Production: Seneca Resources Corporation (“Seneca”), the Company’s exploration and production subsidiary, increased its total natural gas and crude oil production to 83.4 billion cubic feet equivalent (“Bcfe”) (of natural gas), or 23% compared to the prior year.

 

i


   

Natural Gas & Crude Oil Reserves: At the end of fiscal 2012, Seneca increased its proved reserves of natural gas and crude oil to 1.246 trillion cubic feet equivalent (“Tcfe”), an improvement of 33% from the prior year.

 

   

Pipeline Projects: In the Pipeline & Storage segment, net income increased by $29.0 million, or 92%, largely as a result of the completion of two major pipeline expansion projects, the Tioga County Extension Project (designed to move Marcellus Shale production to Canada and the Northeast United States) and the Line N 2011 expansion (designed to transport Marcellus Shale production to major domestic markets), as well as a new rate case settlement.

 

   

Performance: Total shareholder return (“TSR”) for the five-year period ended September 30, 2012 was 33% versus the 34% median of our 2012 Hay peer group, putting our performance in line with that of our selected peers.

 

LOGO

2012 Long-Term Strategic Results

National Fuel’s capital intensive operations require a focus on strategic initiatives and projects that may take several years from business planning through completion. The results of this focus include:

 

   

Pipeline Expansion: In the Pipeline & Storage segment, we commenced construction on two new major pipeline expansions, the Northern Access Expansion and the Line N 2012 Expansion. Both of these projects went into service in the first quarter of fiscal 2013. These projects, combined with the phase-in of previously completed projects, are expected to add more than $20 million in revenue to the Pipeline & Storage segment in fiscal 2013.

 

ii


   

Acreage Evaluation: Seneca continued to delineate its 775,000 net acres prospective for the Marcellus Shale, while also drilling its first two horizontal evaluation wells in areas that are prospective for the emerging Utica Shale.

 

   

New Crude Oil Opportunities: Seneca acquired a modest acreage position in the emerging Mississippian Lime field in Kansas and negotiated a farm-in agreement in an oil field near its existing California assets.

 

   

Developing New Pipeline Routes: National Fuel Gas Supply Corporation (“Supply”), Empire Pipeline, Inc. (“Empire”), and National Fuel Gas Midstream Corporation (“Midstream”) continue to aggressively pursue opportunities to expand their pipeline infrastructure to serve the rapid growth in volumes of natural gas and natural gas liquids being produced from the Marcellus and Utica shales in Appalachia.

 

Proposal 1 — Nominees for Election as Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR THE BOARD OF DIRECTORS

David C. Carroll — Age 56 — Independent Director since June 2012

Principal Occupation: President and CEO of Gas Technology Institute (GTI)

Expertise: Leadership, Industry

Committee Memberships: Nominating/Corporate Governance

As a highly respected, nationally recognized leader with a multi-faceted knowledge of the natural gas industry, Mr. Carroll brings both industry and leadership experience to the Board. His technical expertise on unconventional gas production, transmission and distribution pipeline integrity, and end-use technologies is directly relevant to the Company’s business operations. In addition, Mr. Carroll’s involvement in both the domestic and international natural gas communities provides the Board with a broad perspective on emerging issues.

Craig G. Matthews — Age 69 — Independent Director since 2005

Principal Occupation: Former President, Chief Executive Officer and Director of NUI Corporation and Former Vice Chairman, Chief Operating Officer and Director of Keyspan Corporation

Expertise: Leadership, Industry, Financial Expert

Committee Memberships: Audit (Chair), Executive

Mr. Matthews’ substantial background in the energy industry, having acquired executive, managerial and financial experience with KeySpan and NUI Corporation over 37 years, particularly in applying accounting principles and financial strategy to issues affecting energy companies, make him highly qualified to serve as Chairman of the Company’s Audit Committee. Mr. Matthews qualifies as an “audit committee financial expert” under the Securities and Exchange Commission Rules. During his career, Mr. Matthews has held responsibilities in the areas of marketing, information systems, engineering, finance, and strategic planning functions.

David F. Smith — Age 59 — Director since 2007

Principal Occupation: Chairman of the Board and Chief Executive Officer of National Fuel Gas Company Expertise: Leadership, Industry, Regional

Committee Memberships: Executive (Chair)

Mr. Smith has been employed by the Company since 1978 and during his tenure has served as President of the Company’s Pipeline & Storage and Utility subsidiaries, as well as Chairman of Seneca. He has a long history of active participation in industry groups that tackle many of the most important issues facing our industry. These experiences provide the strong foundation for his role as the strategic leader of the Company. Also, Mr. Smith has deep ties to Western New York, the location of the Company’s headquarters and a number of its significant business operations.

For full details, please see pages 4 to 6

 

iii


Proposal 2 — Ratification of Auditors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THIS APPOINTMENT

As a matter of good governance, it is important that stockholders vote to ratify the selection of PricewaterhouseCoopers LLP as the Company’s independent auditors for fiscal 2013.

For full details, please see page 63

 

Addressing the 2012 Advisory Approval of Executive Compensation and Stockholder Feedback

The 2012 Say-on-Pay advisory vote yielded a result of 73% of votes cast in support of the compensation of the Company’s named executive officers. To be proactive in our stockholder engagement, members of Company management held meetings during the summer of 2012 with some of the Company’s largest stockholders to obtain feedback on our compensation program, among other topics. This engagement, representing more than 20% of our shares outstanding as of September 30, 2012, facilitated important dialogue in which we gathered various viewpoints.

While 2012 compensation for executives was set prior to the 2012 advisory vote and stockholder engagement efforts, it is important to note that the Compensation Committee of the Company’s Board of Directors has incorporated stockholder feedback in its setting of fiscal 2013 compensation. Specifically, on December 19, 2012, the Compensation Committee granted restricted stock units subject to a performance condition under the Company’s 2010 Equity Compensation Plan to the named executive officers. The Committee’s action represents a change from its practice in prior fiscal years including fiscal 2012 where the Committee utilized a cash based program for a portion of long-term incentive compensation. The compensation program will be subject to further review and possible amendment in fiscal 2013.

Management and the Board consider it important to maintain a program of ongoing stockholder engagement, communication, and transparency, and as a result, the Company plans to continue to build upon these efforts in fiscal 2013.

 

iv


Peer Selection Continually Evolves

For the purpose of benchmarking 2012 performance and establishing 2013 compensation, the Compensation Committee exercised its business judgment, with the advice of independent compensation consultant The Hay Group to modify the peer group listed in the Compensation Discussion and Analysis (“CD&A”) of this Proxy as set forth below. Specifically, Ultra Petroleum Corporation was added in place of Southern Union Company due to Southern Union’s acquisition by another entity in 2012. The Committee believes that Ultra Petroleum Corporation is an appropriate addition to the peer group due to its exploration and production operations in the Marcellus Shale and the Company’s continuing focus on its own Marcellus Shale assets.

 

     Hay Group — 2012 Peer Companies    Exploration
&
Production
   Natural
Gas Utility
   Pipeline
&
Storage
1   AGL Resources Inc.         X    X
2   Atmos Energy Corporation         X    X
3   Cabot Oil & Gas Corporation    X          
4   Energen Corporation    X    X     
5   EQT Corporation    X    X    X
6   MDU Resources, Inc.    X    X    X
7   New Jersey Resources Corporation         X    X
8   Northwest Natural Gas Company         X    X
9   Questar Corporation    X    X    X
10   Quicksilver Resources, Inc.    X          
11   Range Resources Corporation    X          
12   Southern Union Company         X    X
12   Southwest Gas Corporation         X     
13   St. Mary Land & Exploration Company    X          
14   UGI Corporation         X     
15   Ultra Petroleum Corporation    X          
16     Whiting Petroleum Corporation    X          
    TOTAL    10    10    7

 

Compensation Summary and Overview

Objectives of the Compensation Committee

When setting compensation for the Company’s executives, the Compensation Committee’s primary goal is to provide balanced incentives for creating value for stockholders in both the near-term and long-term. In order for this to occur, the Committee awards a combination of cash and equity components that are designed to:

 

Ø

  

Focus management efforts on both near-term and long-term drivers of shareholder value

Ø

  

Tie a significant portion of executive compensation to long-term total shareholder returns by linking a significant portion of an executive officer’s potential compensation to the future price of the Company’s Common Stock

Ø

  

Attract, motivate, reward and retain management talent in the highly competitive energy industry in order to achieve the objectives that contribute to the overall success of the Company

 

v


Elements of Compensation

Executive compensation for fiscal 2012 was set early in the fiscal year, prior to the voting results at the 2012 Annual Meeting of Stockholders held in March of 2012. After meeting with many of our largest stockholders during the summer of 2012 and obtaining valuable feedback, the long-term incentive component of the compensation program has been amended to change the cash incentive to an equity incentive. The compensation program will be subject to further review and possible amendment in fiscal 2013. The Company intends to continue to maintain a dialogue with its stockholders on compensation.

The main elements of the 2012 executive compensation program are as follows:

 

Ø

  

Base Salary (Cash) — Provides a predictable base compensation for day-to-day job performance

Ø

  

Short-Term Performance Incentives (Cash) — Utilizes metrics specific to each executive in order to motivate them to deliver near-term results for stockholders, generally over a period that is no longer than two years

Ø

  

Long-Term Performance Incentives (Equity & Cash) — Intends to focus the attention of executives on delivering long-term shareholder value and maintaining a significant personal investment in the Company through stock ownership

Other Key Compensation Features

 

Ø

  

The Company does not provide tax “gross-ups”

Ø

  

Executive officers and other officers are required to meet stock ownership guidelines that range from one to four times base salary

Ø

  

Equity incentive plans prohibit the repricing or exchange of equity awards without stockholder approval

Ø

  

The Committee has engaged two independent compensation consultants to assist in setting compensation

Ø

  

All change-in-control agreements are double triggered

 

vi


2012 Named Executive Officer Compensation

Distinguishing “Awarded” Pay from “Reported” Pay

In reviewing our executive compensation, it is important to distinguish the reported compensation provided to our named executive officers in fiscal 2012 from the compensation that was actually paid or is expected to be paid to them for fiscal 2012 performance. We have provided an additional compensation table below in order to distinguish the annual short-term cash incentive from the 3-year long-term cash incentive and to remove the volatile, significant effects of changes in actuarial assumptions on the value of the named executive officers’ pension benefits disclosed in the 2012 Summary Compensation Table. This “Awarded” Pay table is not a substitute for the Summary Compensation Table, which can be found at page 41 in this proxy statement.

 

Name and Principal
Position
  Year     Salary
($)
    Short-Term
Cash
Incentive
($)
    Long-Term
Cash
Incentive *
($) 
    Stock
Awards
($)
    Equity
Awards
($)
    All Other
Compensation
($)
    Total
($)
 

David F. Smith

    2012        880,000        1,073,160        1,178,800        550,900        448,008        151,211        4,282,079   
Chairman and Chief Executive Officer of the Company     2011        835,000        1,457,075        1,091,232        598,734        574,838        171,440        4,728,319   
    2010        772,500        1,317,499        1,010,880        0        1,507,675        159,235        4,767,789   
               

David P. Bauer

    2012        293,750        215,000        67,360        68,863        56,001        23,728        724,702   
Treasurer and Principal Financial Officer of the Company     2011        268,750        200,000        50,520        79,831        76,645        20,039        695,785   
    2010        223,413        140,000        46,656        0        48,246        15,395        473,710   
               

Ronald J. Tanski

    2012        681,000        640,140        673,600        344,313        280,005        96,124        2,715,182   
President and Chief Operating Officer of the Company     2011        652,500        810,144        631,500        399,156        383,225        104,539        2,981,064   
    2010        601,250        877,104        604,800        0        844,298        105,304        3,032,756   
               

Matthew D. Cabell

    2012        573,750        445,402        505,200        309,881        252,005        58,412        2,144,650   

President of Seneca Resources

Corporation

    2011        547,789        676,060        404,160        359,241        344,903        55,962        2,388,115   
    2010        503,750        623,617        388,800        0        663,377        52,538        2,232,082   
               

Anna Marie Cellino

    2012        482,250        585,861        378,900        206,588        168,003        79,695        1,901,297   
President of National Fuel Gas Distribution Corporation     2011        458,750        551,853        336,800        239,494        229,935        76,204        1,893,036   
    2010        430,000        552,034        172,800        0        422,149        74,398        1,651,381   
               

 

*

For fiscal year 2012, Long-Term Cash Incentive represents an estimated payment for the three-year performance period ended September 30, 2012. See footnote 3 to the Summary Compensation Table for more information.

CEO Compensation in Alignment with Peers

The Compensation Committee understands the importance of using benchmark data that reflects information from companies with comparable business segments over similar time periods. Reflected in the chart below is The Hay Group’s comparison of fiscal 2011 total direct compensation for the Company’s CEO against that of CEOs in our 2012 Hay peer group. Like the Company’s five-year TSR performance, discussed above, the Company’s CEO total direct compensation, shown in the table below, is in line with that of our peers.

Fiscal 2011 is the most recent complete fiscal year for which proxy statement data is available. 2012 compensation may not yet be accurately compared to peers because 2012 proxy statement data for those peers is not yet available.

 

vii


    LOGO         

 

 

Chairman and CEO

 
 

Compared to CEO proxy data for fiscal year 2011

 

 

                 Total  Direct
Compensation
Company   Title   

Sales

($M)

  

 

Actual

  

 

Target

AGL Resources, Inc.

  Chairman, President & CEO    $2,338    $3,114,877    $4,078,477

Atmos Energy Corp.

  President & CEO    $4,348    $2,948,266    $2,953,602

Cabot Oil & Gas Corp.

  Chairman, President & CEO    $980    $6,266,435    $5,283,102

Energen Corp.

  Chairman, President & CEO    $1,483    $3,603,730    $3,379,766

EQT Corp.

  Chairman, President & CEO    $1,640    $6,167,343    $4,752,343

MDU Resources Group Inc

  President & CEO    $4,050    $2,789,068    $2,584,318

New Jersey Resources Corp.

  Chairman, President & CEO    $3,009    $2,929,082    $2,798,536

Northwest Natural Gas Co.

  President & CEO    $849    $1,404,063    $1,416,605

Questar Corp.

  President & CEO    $1,194    $2,998,629    $2,597,634

Quicksilver Resources Inc

  President & CEO    $944    $4,457,045    $4,692,507

Range Resources Corp.

  Chairman & CEO    $1,214    $7,836,123    $7,045,508

SM Energy Co

  President & CEO    $1,383    $5,192,950    $4,843,592

Southwest Gas Corp.

  CEO    $1,887    $2,076,763    $2,000,863

UGI Corp.

  Chairman & CEO    $6,091    $6,280,268    $6,416,941

Ultra Petroleum Corp.

  Chairman, President & CEO    $1,315    $5,731,250    $4,893,750

Whiting Petroleum Corp.

  Chairman & CEO    $1,883    $6,706,117    $5,612,291

Summary Statistics

                  

75th Percentile

     $2,506    $6,192,116    $4,991,088

Average

     $2,163    $4,406,376    $4,084,365

Median

     $1,562    $4,030,388    $4,385,492

25th Percentile

     $1,209    $2,943,470    $2,748,311

National Fuel Gas Company

  Chairman & CEO    $1,779    $4,230,647    $3,608,572

Percentile Rank

       57%    52%    42%

Total Direct Compensation = base salary + bonus + long-term incentives (target value for cash and grant date value for equity)

 

 

© 2012 Hay Group. All rights reserved

 

Changes to the 2013 Compensation Program Based on Stockholder Feedback

The following are changes that were implemented for 2013 based on comments received while engaging stockholders for feedback on the Company’s compensation program:

Ø    Shift of long term incentive from a combination of cash and equity to solely equity

Ø    Multiple types of equity awards

Ø    Performance conditions associated with certain types of equity awards

 

viii


Proposal 3 – Advisory Approval of Executive Compensation

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION

This proposal allows stockholders to take part in a non-binding, advisory vote to approve the compensation of the Company’s named executive officers.

From a near-term perspective, fiscal 2012 was a difficult year given decades-low natural gas prices and the warmest winter on record, which most significantly impacted the performance of our Exploration and Production segment. Our one-year TSR was 14.21% at the 38th percentile of our 2012 Hay peer group. Our CEO’s annual short-term cash incentive decreased by 26% from the prior fiscal year, reflecting the impact of these factors on his Consolidated Earnings Per Share goal, Production Volume goal, and Marcellus Shale Production goal. Similarly, the annual short-term cash incentive of our President and Chief Operating Officer and the President of our Exploration and Production subsidiary decreased by 21% and 34%, respectively, from the prior fiscal year. For all named executive officers the annual bonus amount decreased by approximately 20% in the aggregate. It is not possible to benchmark 2012 compensation against the peer group because 81% of the group maintains a fiscal year based on the calendar year, and will therefore not report 2012 compensation until months after this proxy statement is filed.

From a long-term perspective, fiscal 2012 was a year of continued focus on long-range planning and completion of capital intensive projects that we believe will pay dividends for years to come.

The Board recommends a vote FOR the advisory approval of executive compensation because it believes that the Company’s compensation policies and procedures encourage a culture of pay for performance and are strongly aligned with the interests of the Company’s stockholders.

See the summary above for additional detail. For complete information on this proposal, please refer to page 64 and following.

 

ix


NATIONAL FUEL GAS COMPANY

6363 MAIN STREET

WILLIAMSVILLE, NEW YORK 14221

January 18, 2013

Dear Stockholders of National Fuel Gas Company:

We are pleased to invite you to join us at the Annual Meeting of Stockholders of National Fuel Gas Company. The meeting will be held at 9:30 a.m. local time on March 7, 2013, at The Ritz-Carlton, Naples, 280 Vanderbilt Beach Road, Naples, Florida, 34108. The matters on the agenda for the meeting are outlined in the enclosed Notice of Annual Meeting and Proxy Statement.

So that you may elect Company directors and secure the representation of your interests at the Annual Meeting, we urge you to vote your shares. The preferred methods of voting are either by telephone or by Internet as described on the proxy card. These methods are both convenient for you and reduce the expense of soliciting proxies for the Company. If you prefer not to vote by telephone or the Internet, please complete, sign and date your proxy card and mail it in the envelope provided. The Proxies are committed by law to vote your shares as you instruct on the proxy card, by telephone or by Internet. The absence of voting instruction results in what is called a “broker non-vote” on those proposals. Your vote is important. Please make your voice heard by voting your shares on these important matters.

If you plan to be present at the Annual Meeting, you may so indicate when you vote by telephone or the Internet, or you can check the “WILL ATTEND MEETING” box on the proxy card. Even if you plan to be present, we encourage you to promptly vote your shares either by telephone or the Internet, or to complete, sign, date and return your proxy card in advance of the meeting. If you later wish to vote in person at the Annual Meeting, you can revoke your proxy by giving written notice to the Secretary of the Annual Meeting and/or the Trustee (as described on the first page of this proxy statement), and/or by casting your ballot at the Annual Meeting.

Coffee will be served at 9:00 a.m. and I look forward to meeting with you at that time.

Please review the proxy statement and take advantage of your right to vote.

Sincerely yours,

David F. Smith

Chairman of the Board of Directors and

Chief Executive Officer


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

to be held on March 7, 2013

To the Stockholders of National Fuel Gas Company:

Notice is hereby given that the Annual Meeting of Stockholders of National Fuel Gas Company (the “Company”) will be held at 9:30 a.m. local time on March 7, 2013 at The Ritz-Carlton, Naples, 280 Vanderbilt Beach Road, Naples, Florida, 34108. The doors to the meeting will open at 9:00 a.m. local time. At the meeting, action will be taken with respect to:

 

  (1)

the election of three directors to hold office for three-year terms as provided in the attached proxy statement and until their respective successors have been elected and qualified;

 

  (2)

ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal 2013;

 

  (3)

advisory approval of executive compensation;

and such other business as may properly come before the meeting or any adjournment or postponement thereof.

Stockholders of record at the close of business on January 7, 2013, will be entitled to vote at the meeting.

BY ORDER OF THE BOARD OF DIRECTORS

PAULA M. CIPRICH

General Counsel and Secretary

January 18, 2013

Important Notice Regarding The Availability Of Proxy Materials For The Stockholder

Meeting To Be Held On March 7, 2013

The proxy statement and summary annual report to security holders and financial statements are available at

proxy.nationalfuelgas.com

 

   
  

YOUR VOTE IS IMPORTANT

Please vote by telephone or Internet.

 

Whether or not you plan to attend the meeting, and whatever the number of shares you own, please vote your shares either by telephone or the Internet as described in the proxy/voting instruction card and reduce National Fuel Gas Company’s expense in soliciting proxies. Alternatively, you may complete, sign, date and promptly return the enclosed proxy/voting instruction card in the accompanying envelope, which requires no postage if mailed in the United States.

      


NATIONAL FUEL GAS COMPANY

6363 MAIN STREET

WILLIAMSVILLE, NEW YORK 14221

PROXY STATEMENT

GENERAL INFORMATION

Introduction

This proxy statement is furnished to the holders of National Fuel Gas Company (the “Company”) common stock (the “Common Stock”), in connection with the solicitation of proxies on behalf of the Board of Directors of the Company (the “Board of Directors” or the “Board”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on March 7, 2013, or any adjournment or postponement thereof. This proxy statement and the accompanying proxy/voting instruction card are first being mailed to stockholders on or about January 18, 2013.

Solicitation of Proxies

All costs of soliciting proxies will be borne by the Company. MacKenzie Partners, Inc., 105 Madison Avenue, New York, NY 10016, has been retained to assist in the solicitation of proxies by mail, telephone, and electronic communication and will be compensated in the estimated amount of $12,500 plus reasonable out-of-pocket expenses.

Record Date, Outstanding Voting Securities and Voting Rights

Only stockholders of record at the close of business on January 7, 2013, will be eligible to vote at the Annual Meeting or any adjournment or postponement thereof. As of that date, 83,488,654 shares of Common Stock were issued and outstanding. The holders of 41,744,328 shares will constitute a quorum at the meeting.

Each share of Common Stock entitles the holder thereof to one vote with respect to each matter that is subject to a vote at the Annual Meeting. Shares may not be voted unless the owner is present or represented by proxy. To be represented by proxy, a stockholder can return a signed proxy card or use the telephone or Internet voting procedures. All shares that are represented by effective proxies received by the Company in time to be voted shall be voted by the authorized Proxy at the Annual Meeting or any adjournment or postponement thereof.

If you hold your shares through a broker, bank or other nominee (in “street name”), you will receive instructions from them on how to vote your shares. If you do not give the broker specific instructions on how you would like your shares to be voted, your broker may nonetheless vote your shares on “routine” matters such as Proposal 2 — Ratification of Independent Auditor. However, your broker is prohibited from voting uninstructed shares on “non-routine” matters such as Proposal 1 — Election of Directors and Proposal 3 — Advisory Approval of Executive Compensation. The absence of voting instruction results in what is called a “broker non-vote” on those proposals and will not be counted. Your vote is important. Please make your voice heard by voting your shares on these important matters.

Where stockholders direct how their votes shall be cast, shares will be voted in accordance with such directions. Proxies submitted with abstentions and broker non-votes will be included in determining whether or not a quorum is present. Abstentions and broker non-votes will not be counted in tabulating the number of votes cast on proposals submitted to stockholders and therefore will have no effect on the outcome of the votes.

The proxy also confers discretionary authority to vote on all matters that may properly come before the Annual Meeting, or any adjournment or postponement thereof, respecting (i) matters of which the Company did not have timely notice but that may be presented at the meeting; (ii) approval of the minutes

 

1


of the prior meeting; (iii) the election of any person as a director if a nominee is unable to serve or for good cause will not serve; (iv) any stockholder proposal omitted from this proxy statement pursuant to Rule 14a-8 or 14a-9 of the Securities and Exchange Commission’s (the “SEC”) proxy rules; and (v) all matters incident to the conduct of the meeting.

Revoking a Proxy

Any stockholder giving a proxy may revoke it at any time prior to the voting thereof by mailing a revocation or a subsequent proxy to Paula M. Ciprich, General Counsel and Secretary of the Company, at the address noted below, by voting a subsequent proxy by Internet or phone, or by filing written revocation at the meeting with Ms. Ciprich, Secretary of the meeting, or by casting a ballot at the meeting. If you are an employee stockholder or retired employee stockholder, you may revoke voting instructions given to the Trustee by following the instructions under “Employee and Retiree Stockholders” in this proxy statement.

Employee and Retiree Stockholders

If you are a participant in the Company’s Employee Stock Ownership Plan or any of the Company’s Tax-Deferred Savings Plans (the “Plans”), the proxy card will also serve as a voting instruction form to instruct Vanguard Fiduciary Trust Company (the “Trustee” for the Plans), as to how to vote your shares. All shares of Common Stock for which the Trustee has not received timely directions shall be voted by the Trustee in the same proportion as the shares of Common Stock for which the Trustee received timely directions, except in the case where to do so would be inconsistent with the provisions of Title I of Employee Retirement Income Security Act (“ERISA”). If the voting instruction form is returned signed but without directions marked for one or more items, regarding the unmarked items you are instructing the Trustee and the Proxies to vote FOR Proposals 1, 2 and 3. Participants in the Plan(s) may also provide those voting instructions by telephone or the Internet. Those instructions may be revoked by re-voting or by written notice to Vanguard Fiduciary Trust Company on or before March 4, 2013 in care of the following address:

To:    Vanguard Fiduciary Trust Co.

c/o National Fuel Gas Company

Attn: Legal Department

6363 Main Street

Williamsville, NY 14221

Multiple Copies of Proxy Statement

The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, stockholders of record who have the same address and last name may receive only one copy of the proxy statement and the Company’s annual report. However, if any stockholder wishes to revoke consent for householding and receive a separate summary annual report, financial statements or proxy statement for the upcoming Annual Meeting or in the future, he or she may telephone, toll-free, 1-800-542-1061. The stockholder will need their 12-digit Investor ID number and should simply follow the prompts. Stockholders may also write Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks or brokers if they are the beneficial holders, or by contacting Broadridge at the address provided above if they are the record holders. This procedure will reduce our printing costs and postage fees, and reduce the quantity of paper arriving at your address.

Stockholders who participate in householding will continue to receive separate proxy cards. Householding will not affect your dividend check mailings.

For additional information on householding, please see “IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS” in this proxy statement.

 

2


Other Matters

The Board of Directors does not know of any other matter that will be presented for consideration at the Annual Meeting. If any other matter does properly come before the Annual Meeting, the Proxies will vote in their discretion on such matter.

Annual Report

Mailed herewith is a copy of the Company’s Summary Annual Report for the fiscal year ended September 30, 2012 (“fiscal 2012”). Also enclosed are the financial statements for fiscal 2012. The Company will furnish any exhibit to the Form 10-K upon request to the Secretary at the Company’s principal office, and upon payment of $5 per exhibit.

 

3


PROPOSAL 1. ELECTION OF DIRECTORS

Three directors are to be elected at the Annual Meeting. The nominees for the three directorships are: Mr. David C. Carroll, Mr. Craig G. Matthews, and Mr. David F. Smith. Messrs. Carroll, Matthews and Smith are currently directors of the Company.

The services of Mr. Richard G. Reiten conclude at the 2013 Annual Meeting, in accordance with the provisions of the Company’s Corporate Governance Guidelines on Director Age. Mr. Reiten has been a director since 2004. The Board is deeply appreciative of his industry insight and his many valuable contributions to the Company over that time.

The Company’s Restated Certificate of Incorporation provides that the Board of Directors shall be divided into three classes, and that these three classes shall be as nearly equal in number as possible. (A class of directors is the group of directors whose terms expire at the same annual meeting of stockholders.) As well, the Company’s Restated Certificate of Incorporation provides that any elected director shall hold office until their successors are elected and qualify, subject to prior death, resignation, retirement, disqualification or removal from office. Accordingly, Messrs. Carroll, Matthews, and Smith have been nominated for terms of three years and until their respective successors shall be elected and shall qualify.

It is intended that the Proxies will vote for the election of Messrs. Carroll, Matthews, and Smith as directors, unless they are otherwise directed by the stockholders. Although the Board of Directors has no reason to believe that any of the nominees will be unavailable for election or service, stockholders’ proxies confer discretionary authority upon the Proxies to vote for the election of another nominee for director in the event any nominee is unable to serve, or for good cause will not serve. Messrs. Carroll, Matthews, and Smith have consented to being named in this proxy statement and to serve if elected.

The affirmative vote of a plurality of the votes cast by the holders of shares of Common Stock entitled to vote is required to elect each of the nominees for director.

Refer to the following pages for information concerning the three nominees for director, as well as concerning the six incumbent directors of the Company whose current terms will continue after the Annual Meeting, including information with respect to their principal occupations and certain other positions held by them.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR

THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.

Nominees for Election as Directors for Three-Year Terms to Expire in 2016

David C. Carroll has been President and CEO of Gas Technology Institute (“GTI”) since 2006. He joined GTI in 2001 as Vice President of Business Development. From 1996 to 2001, he worked for Praxair, Inc., serving as Director of Business Development from 1999 to 2001. Prior to that, Mr. Carroll held positions of increasing responsibility with Liquid Carbonic Industries, a subsidiary of Chicago Bridge & Iron, from 1994 to 1996, and Air Products and Chemicals, Inc. from 1980 to 1994. All of these companies are industrial gas producers and manufacturers. Mr. Carroll has served on the board of Versa Power Systems, Inc. since 2006. He is a member of the Society of Gas Lighting, and the Executives’ Club of Chicago. He is also Chairman of the steering committee for the 17th International Conference and Exhibition on Liquified Natural Gas in Houston (2013) and will become President of the International Gas Union as the United States prepares to host the 2018 World Gas Conference in Washington, D.C. Mr. Carroll earned a B.S. in Chemical Engineering from the University of Pittsburgh, an MBA from Lehigh University, and has completed the Stanford Executive Program at Stanford University’s Graduate School of Business. Mr. Carroll, 56, has served as an independent director for the Company since June 2012.

 

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As a highly respected, nationally recognized leader with a multi-faceted knowledge of the natural gas industry, Mr. Carroll brings both industry and leadership experience to the Board. His technical expertise on unconventional gas production, transmission and distribution pipeline integrity, and end-use technologies is directly relevant to the Company’s business operations. In addition, Mr. Carroll’s involvement in both the domestic and international natural gas communities provides the Board with a broad perspective on emerging issues.

Craig G. Matthews was President, Chief Executive Officer and Director of NUI Corporation, a diversified energy company acquired by AGL Resources Inc. on November 30, 2004, from February 2004 to December 2004. In addition, he was Vice Chairman, Chief Operating Officer and Director of KeySpan Corporation (“KeySpan”, previously Brooklyn Union Gas Co.), a natural gas utility company, from March 2001 to March 2002, and held various positions over a 36 year career at KeySpan, including Executive Vice President, and Chief Financial Officer. He was also a Director of KeySpan as well as its exploration and production subsidiary Houston Natural Gas Co. He has been a Director of Hess Corporation (formerly Amerada Hess Corporation) since 2002, and a Board member of Republic Financial Corporation since May 2007. Mr. Matthews is a Member and Former Chairman of the Board of Trustees, Polytechnic Institute of New York University, and is a member of the National Advisory Board for the Salvation Army as well as the founding Chairman of the New Jersey Salvation Army Board. He received his B.S. in Civil Engineering from Rutgers in 1965, and completed his M.S. in Industrial Management at Brooklyn Polytechnic University. He also holds a Doctor of Engineering (Honorary) from NYU/POLY received in 2009. Mr. Matthews, 69, has been a Company director since 2005.

Mr. Matthews’ substantial background in the energy industry, including executive, managerial and financial experience with KeySpan and NUI Corporation over 37 years, and particularly his experience in applying accounting principles and developing financial strategy at energy companies, make him highly qualified for his service as Chairman of the Company’s Audit Committee. As more fully described in the Audit Committee discussion on page 10, Mr. Matthews qualifies as an “audit committee financial expert” under the Securities and Exchange Commission Rules. During his career, Mr. Matthews has had responsibilities in the areas of marketing, information systems, engineering, finance, and strategic planning.

David F. Smith has been Chairman of the Board of the Company since March 11, 2010, and Chief Executive Officer of the Company since February 2008. Mr. Smith has been Chairman of National Fuel Gas Distribution Corporation (1), and National Fuel Gas Supply Corporation (1) since March of 2008, and Chairman of Empire Pipeline, Inc. (1) and Seneca Resources Corporation (1) since April 2008. He was previously President of the Company from February 2006 to June 2010 and Vice President from April 2005 to February 2006, President from April 2005 to July 2008 and Senior Vice President from June 2000 to April 2005 of National Fuel Gas Supply Corporation (1), and President from July 1999 to April 2005 and Senior Vice President from January 1993 to July 1999 of National Fuel Gas Distribution Corporation (1). Mr. Smith was also President of Empire State Pipeline (1) from April 2005 through July 2008, and President or Chairman of various non-regulated subsidiaries of the Company. He is a Board member of the American Gas Association (“AGA”) (Executive Committee), American Gas Foundation, Gas Technology Institute (Executive Committee), the Business Council of New York State (Chairman and member of the Executive Committee), the Buffalo Niagara Enterprise (immediate past Chairman and member of the Executive Committee), the State University of New York at Buffalo Law School Dean’s Advisory Council and The Buffalo Sabres Foundation. Mr. Smith holds a Bachelor of Arts in Political Science from the State University of New York at Fredonia, as well as a Juris Doctorate from the State University of New York at Buffalo School of Law. Mr. Smith, 59, has been a Company director since 2007.

Mr. Smith has been employed by the Company since 1978, and during his tenure has served as President of the Company’s pipeline and storage, and utility subsidiaries, and Chairman of Seneca Resources Corporation. He has a long and active participation in industry groups that tackle important

 

(1)

Wholly-owned subsidiary of the Company

 

5


issues facing our industry. These experiences provide the foundation for his role as the strategic leader of the Company. Also, Mr. Smith has deep ties to Western New York, the location of the Company’s corporate headquarters and a number of its significant business operations.

Directors Whose Terms Expire in 2014

Robert T. Brady is the Executive Chairman of Moog Inc. (“Moog”), a worldwide designer, manufacturer and integrator of precision control components and systems. Mr. Brady was Chief Executive Officer of Moog from 1988 to December 1, 2011 and he has been a Moog Board member since 1984. He was President of Moog from 1988 until December 2010. He is also a Director of Astronics Corporation and M&T Bank Corporation and was a director of Seneca Foods Corporation until August 2011. Mr. Brady was named to the UB Council (State University of New York at Buffalo) in January of 2008, is a member of the Governor’s Regional Economic Development Council of Western New York and is also a member of the Board of the Buffalo Niagara Partnership. Mr. Brady holds a B.S. in Mechanical Engineering from the Massachusetts Institute of Technology and an M.B.A. from the Harvard University School of Business Administration. He also served as an officer in the U.S. Navy. He is the Lead Independent Director of the Company’s Board of Directors and, as such, chairs the regular executive sessions of non-management directors. He is also the designated contact for stockholders and other interested parties to communicate with the non-management directors on the Board. Mr. Brady, 72, has been a Company director since 1995.

Mr. Brady brings to the Board strong business and leadership insight from his experience at a publicly-traded company, having been with Moog since 1966 in positions that have encompassed finance, production and operations management, and also from having served as an officer in the U.S. Navy. He is the Company’s only independent director who is currently an executive at a publicly-traded company, which brings a unique and important perspective to the Board.

Rolland E. Kidder was the founder of Kidder Exploration, Inc., an independent Appalachian oil and gas company, and was Chairman and President from 1984 to 1994. Mr. Kidder is also a former Director of the Independent Oil and Gas Association of New York and the Pennsylvania Natural Gas Association — both Appalachian-based energy associations. He was a Trustee of the New York Power Authority from 1982 to 1993, an investment advisor for P.B. Sullivan & Co., Inc. from 1994 to 2001 and Executive Director of the Robert H. Jackson Center, Inc., in Jamestown, New York, from 2002 to 2006. Mr. Kidder holds a B.A. from Houghton College, and a Juris Doctorate from the State University of New York at Buffalo School of Law. Mr. Kidder, 72, has been a Company director since 2002.

As the founder and former president of an Appalachian producer, Mr. Kidder brings to the Board his knowledge and experience of the exploration and production business in Appalachia. His past directorships of both Pennsylvania and New York based independent producer associations also contribute to that industry knowledge. Mr. Kidder has worked and lives in a small town, in a rural area of the Company’s utility service territory. His local knowledge helps the Board understand the perspective of the Company’s retail utility customers and the Company’s retail stockholders, many of whom are also utility customers and who represent a significant portion of the Company’s stockholder ownership.

Frederic V. Salerno is a director of GGCP, Inc., a company controlled by Mario Gabelli and one of several affiliated investment management entities that hold, in the aggregate, a significant stake in the Company. Since 2006, Mr. Salerno has also served as Senior Advisor to New Mountain Capital, L.L.C., an investment manager (“New Mountain”). Mr. Salerno retired as Vice Chairman and Chief Financial Officer of Verizon, Inc. (“Verizon”) in September 2002 after more than 37 years in the telecommunications industry. He was Senior Vice Chairman and Chief Financial Officer of Verizon prior to the Bell Atlantic/GTE merger, which created Verizon. Mr. Salerno joined New York Telephone in 1965, became Vice President in 1983 and was appointed President and Chief Executive Officer in 1987 (NY Telephone became Bell Atlantic in 1997). He also served as President, and currently serves as Trustee, of the Inner City Scholarship Fund. In addition, he was Chairman of the Board of Trustees of the State University of New York from 1990 to 1996. Mr. Salerno is a Director of Akamai Technologies, Inc., Intercontinental

 

6


Exchange, Inc., Viacom, Inc., and CBS Corporation and was a Director of Bear Stearns & Co., Inc., from 1993 to 2008, Consolidated Edison, Inc. from 2002 to 2006, and was Chairman of the Board of Orion Power Holdings from 2000 to 2002. Mr. Salerno holds a B.S. in Engineering from Manhattan College and an M.B.A. from Adelphi University. Mr. Salerno, 69, has been a Company director since 2008.

Mr. Salerno was nominated and elected to the Board in 2008 pursuant to a now-expired agreement with New Mountain, which at that time held a significant ownership position in your Company. The Board chose to nominate Mr. Salerno for another term although it was under no obligation to do so. Mr. Salerno provides to the Board a particular perspective of an institutional stockholder. As the former Chief Financial Officer of Verizon and Bell Atlantic, Mr. Salerno brings extensive financial expertise to the Board. Further, Mr. Salerno’s years of experience in the telecommunications industry provide the Board with an additional perspective from a regulated business outside the natural gas industry. In addition, Mr. Salerno’s experience serving on boards for a variety of major public companies provides the Company with a perspective from other industries.

Directors Whose Terms Expire in 2015

Philip C. Ackerman was Chief Executive Officer of the Company from October 2001 to February 2008, Chairman of the Board of the Company from January 2002 to March, 2010, President of the Company from July 1999 to February 2006, Senior Vice President of the Company from June 1989 to July 1999 and Vice President of the Company from 1980 to June 1989. He was also President of National Fuel Gas Distribution Corporation (1) from October 1995 to July 1999 and Executive Vice President from June 1989 to October 1995, Executive Vice President of National Fuel Gas Supply Corporation (1) from October 1994 to March 2002, President of Seneca Resources Corporation (1) from June 1989 to October 1996, President of Horizon Energy Development, Inc. (1) from September 1995 to March 2008 and President of certain other non-regulated subsidiaries of the Company from prior to 1992 to March 2008. Mr. Ackerman is also currently a Director of Associated Electric and Gas Insurance Services Limited. Mr. Ackerman holds a B.S. in Accounting from the State University of New York at Buffalo and a Juris Doctorate from Harvard University. Mr. Ackerman, 69, has been a Company director since 1994.

Mr. Ackerman’s more than 40 years’ involvement with the Company, including his experience as President of all of the Company’s major subsidiaries, enables him to provide the Board with an in-depth perspective on the Company. During his tenure with the Company, National Fuel grew from a regional utility company with $300 million in assets to a fully integrated energy company with over $5.1 billion in assets. Also, Mr. Ackerman has deep ties to Western New York, the location of the Company’s corporate headquarters and a number of its significant business operations.

R. Don Cash has been Chairman Emeritus since May 2003, and a Board Director since May 1978, of Questar Corporation (“Questar”), an integrated natural gas company headquartered in Salt Lake City, Utah. He was Chairman of Questar from May 1985 to May 2003, Chief Executive Officer of Questar from May 1984 to May 2002 and President of Questar from May 1984 to February 1, 2001. Mr. Cash has been a Director of Zions Bancorporation since 1982, a Director of Associated Electric and Gas Insurance Services Limited since 1993 and is a Director of the Ranching Heritage Association. He was a Director of TODCO (The Offshore Drilling Company) from May 2004 to July 2007 and a former Trustee, until September 2002, of the Salt Lake Organizing Committee for the Olympic Winter Games of 2002. Mr. Cash holds a degree in Engineering from Texas Tech University. Mr. Cash, 70, has been a Company director since 2003.

Because of his nearly 18 years of experience at the helm of Questar Corporation and over 30 years of directorship experience on multiple oil and gas industry-related boards, Mr. Cash provides a broad perspective on the issues facing the Company. In particular, Mr. Cash’s depth of experience with Questar (a company which at the time had utility, pipeline and storage and exploration and production businesses) uniquely positions him to provide valuable insights and to inform Board discussions.

 

(1)

Wholly-owned subsidiary of the Company

 

7


Stephen E. Ewing was Vice Chairman of DTE Energy (“DTE”), a Detroit-based diversified energy company involved in the development and management of energy-related businesses and services nationwide, from November 2005 to December 2006. Two of DTE’s subsidiaries are Detroit Edison, the nation’s 7th largest electric utility, and Michigan Consolidated Gas Co. (“MichCon”), the nation’s 10th largest natural gas local distribution company. Mr. Ewing also had responsibility for DTE’s exploration and production subsidiary (DTE Gas Resources) with operations in the Antrim and Barnett Shale. He was also at various times Group President, Gas Division, DTE, President and Chief Operating Officer of MCN Energy Group, Inc. (the then parent of MichCon and a company which had utility, pipeline and storage and exploration and production businesses) and President and Chief Executive Officer of MichCon, until it was acquired by DTE. Mr. Ewing has been a Director of CMS Energy since July 2009. He was also Chairman of the Board of Directors of the AGA for 2006, a member of the National Petroleum Council, and Chairman of the Midwest Gas Association and the Natural Gas Vehicle Coalition. He is currently a Trustee and immediate past Chairman of the Board of The Skillman Foundation, a not-for-profit foundation focused on providing education for low-income children, Chairman of the Auto Club of Michigan and Vice Chairman of the Board of the Auto Club Group (AAA). Mr. Ewing holds a B.A. from DePauw University and an MBA from Michigan State University, and completed the Harvard Advanced Management Program. Mr. Ewing, 68, has been a Company director since 2007.

Mr. Ewing’s extensive executive management experience at energy companies with regulated businesses similar to those with the Company provides the Board with a valuable perspective on the Company’s regulated operations. Also, his responsibility for DTE’s exploration and production subsidiary, with operations in the Antrim and Barnett Shale, enables Mr. Ewing to provide knowledgeable insights with regard to the Company’s exploration and production business.

Annual Meeting Attendance

Last year all directors except Mr. Salerno attended the 2012 Annual Meeting, and they are expected to do so this year. A meeting of the Board of Directors will take place on the same day and at the same place as the Annual Meeting (and probably future years), and directors are expected to attend all meetings. If a director is unable to attend a Board meeting in person, participation by telephone is permitted and in that event the director may not be physically present at the Annual Meeting of Stockholders.

Director Independence

The Board of Directors has determined that directors Ackerman, Brady, Carroll, Cash, Ewing, Kidder, Matthews, Reiten and Salerno are independent, and that Mr. Smith, Chairman of the Board and Chief Executive Officer of the Company, is not independent due to his employment relationship with the Company. The Board’s determinations of director independence were made in accordance with the listing standards of the New York Stock Exchange (the “NYSE”) and SEC regulations. In making its independence determinations, the Board considered that Mr. Brady is Executive Chairman of Moog, which maintains its headquarters in the Company’s utility service territory, and that payments made by Moog to Company affiliates for natural gas service in each of Moog’s last three fiscal years were less than (i) $1,000,000 or (ii) 2% of Moog’s consolidated gross revenues for the applicable fiscal year. Similarly, the Board considered that Mr. Carroll is President and Chief Executive Officer of GTI, an organization that receives payments from the Company for dues and fees to support research and development, and that such payments in each of GTI’s last three fiscal years were less than (i) $1,000,000 or (ii) 2% of GTI’s consolidated gross revenues for the applicable fiscal year. The Board also considered that a son of Mr. Kidder is employed by an affiliate of the Company (since before Mr. Kidder became a Company director) in a non-executive supervisory position, at a rate of total compensation that does not implicate the SEC’s regulations regarding related person transactions.

 

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Board Leadership Structure

The Board of Directors has decided that the appropriate leadership structure at the present time is a combined CEO/Chairman. The Board believes that the combination of the roles provides an efficient and effective leadership model of clear accountability and promotes unified leadership and direction for the Company and also allows for a clear focus for management to execute business plans. It is the Board’s opinion that the stockholders’ interests are best served by allowing the Board to retain flexibility to determine the optimal organizational structure for the Company at a given time, including whether the Chairman role should be filled by the CEO who serves on the Board. At times in the past the roles have been separate. The members of the Board possess considerable experience and unique knowledge of the challenges and opportunities the Company faces, have significant industry experience and are in the best position to evaluate its needs and how best to organize the capabilities of the directors and management to meet those needs.

The independent directors met three times during fiscal 2012, consistent with the requirements of the NYSE rules. In addition, non-management directors meet at regularly scheduled executive sessions without management.

The sessions are chaired by the Lead Independent Director, Robert T. Brady. The Board of Directors provides a process for stockholders and other interested parties to send communications to the Board or to certain directors. Communications to Mr. Brady, to the non-management directors as a group, or to the entire Board should be addressed as follows: Robert T. Brady, Moog Inc., P.O. Box 18, East Aurora, New York 14052. For the present, all stockholder and interested parties’ communications addressed in such manner will go directly to the indicated directors. If the volume of communication becomes such that the Board determines to adopt a process for determining which communications will be relayed to Board members, that process will appear on the Company’s website at www.nationalfuelgas.com.

Diversity

Under the Company’s Corporate Governance Guidelines, the Board of Directors is required, when selecting candidates for re-election and candidates for Board membership, to consider factors that include a diversity of experience related to the business segments in which the Company operates, as well as a diversity of perspectives to be brought to the Board by the individual members.

Meetings of the Board of Directors and Standing Committees

In fiscal 2012, there were four meetings of the Board of Directors. In addition, directors attended meetings of standing or pro tempore committees. The Audit Committee held nine meetings, the Compensation Committee held five meetings, the Executive Committee did not meet, and the Nominating/Corporate Governance Committee held three meetings. During fiscal 2012, all directors attended at least 75% of the aggregate of meetings of the Board and of the committees of the Board on which they served.

 

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The table below shows the number of meetings conducted in fiscal 2012 and the directors who serve on these committees.

 

    BOARD COMMITTEES

DIRECTOR

  Audit   Compensation   Executive   Nominating/
Corporate
Governance

Philip C. Ackerman

      X  

Robert T. Brady

    X   X   X (Chair)

David C. Carroll

        X

R. Don Cash

  X   X(Chair)     X

Stephen E. Ewing

  X   X    

Rolland E. Kidder

  X       X

Craig G. Matthews

  X (Chair)     X  

Richard G. Reiten

    X     X

Frederic V. Salerno

    X     X

David F. Smith

      X (Chair)  

Number of Meetings in Fiscal 2012

  9   5   0   3

Audit

The Audit Committee is a separately designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”). The Audit Committee held nine meetings during fiscal 2012 in order to review the scope and results of the annual audit, to receive reports of the Company’s independent registered public accounting firm and chief internal auditor, to monitor compliance with the Company’s Reporting Procedures for Accounting and Auditing Matters (included in this proxy statement as Appendix A) and to prepare a report of the committee’s findings and recommendations to the Board of Directors. The members of the committee are independent as independence for audit committee members is defined in NYSE listing standards, and in SEC regulations. No Audit Committee member simultaneously serves on the audit committees of more than three public companies. The Board limits the number of audit committees on which an Audit Committee member can serve to three, unless the Board has determined that such simultaneous service would not impair the ability of such members to serve effectively. The Company’s Board of Directors has determined that the Company has one audit committee financial expert (as defined by SEC regulations) serving on its Audit Committee, namely Mr. Matthews who is an independent director.

In connection with its review of the Company’s internal audit function, the Audit Committee in 2011 had a Quality Assessment performed by Ernst & Young that concluded that the Company’s Audit Services Department conducts its audits in accordance with the Institute of Internal Auditors International Standards for the Professional Practice of Internal Auditing (the “Standards”). The Standards state that an external Quality Assessment should be conducted at least once every five years.

Further information relating to the Audit Committee appears in this proxy statement under the headings “Audit Fees” and “Audit Committee Report.” A current copy of the Audit Committee charter is available to security holders on the Company’s website at www.nationalfuelgas.com.

Compensation

As described in the Compensation Discussion and Analysis in this proxy statement, the Compensation Committee held five meetings during fiscal 2012, in order to review and determine the compensation of Company executive officers, to review reports and to grant awards under the Company’s 2010 Equity Compensation Plan, the 1997 Award and Option Plan, the National Fuel Gas Company Performance Incentive Program, the National Fuel Gas Company 2012 Performance Incentive Program (both referred to herein as the “Performance Incentive Program” and separately referred to by name), the

 

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Annual At Risk Compensation Incentive Program (“AARCIP” or the “At Risk Plan”), and the Executive Annual Cash Incentive Program (“EACIP”). The members of the committee are independent as independence is defined in NYSE listing standards. The members of the committee are also “non-employee directors” as defined in SEC regulations and “outside directors” as defined in Federal tax regulations. A current copy of the charter of the Compensation Committee is available to security holders on the Company’s website at www.nationalfuelgas.com.

The Compensation Committee is responsible for various aspects of executive compensation, including approval of the base salaries and incentive compensation of the Company’s executive officers. The committee is authorized to evaluate director compensation and make recommendations to the full Board regarding director compensation. The committee may form subcommittees and delegate to those subcommittees such authority as the committee deems appropriate, other than authority required to be exercised by the committee as a whole. The committee also administers the Company’s 2010 Equity Compensation Plan, the 1997 Award and Option Plan, the At Risk Plan, and the National Fuel Gas Company Performance Incentive Program, and approves performance conditions and target incentives of executive officers under the EACIP. As described more fully in the Compensation Discussion and Analysis, the Company retained The Hay Group, and Meridian Compensation Partners, LLC, both independent compensation consulting firms, to assist in determining executive compensation. In addition, as set forth in the Compensation Committee’s charter, the Chief Executive Officer may and does make, and the committee may and does consider, recommendations regarding the Company’s compensation and employee benefit plans and practices. The committee then approves executive compensation as it deems appropriate.

Executive

The Executive Committee did not meet during fiscal 2012. The committee has, and may exercise, the authority of the full Board, except as may be prohibited by New Jersey corporate law (N.J.S.A.§ 14A:6-9).

Nominating/Corporate Governance

All the members of the Nominating/Corporate Governance Committee are independent, as independence is defined in NYSE listing standards. The committee makes recommendations to the full Board on nominees for the position of director. The committee also has duties regarding corporate governance matters as required by law, regulation or NYSE rules. The committee held three meetings during fiscal 2012. Stockholders may recommend individuals to the committee to consider as potential nominees. Procedures by which stockholders may make such recommendations are set forth in Exhibit B to the Company’s Corporate Governance Guidelines, described in the following paragraph.

The committee’s charter provides for the committee to develop and recommend to the Board criteria for selecting new director nominees and evaluating unsolicited nominations, which criteria are included in this proxy statement as part of the Company’s Corporate Governance Guidelines. A current copy of the charter of the committee is available to stockholders on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office. A current copy of the Corporate Governance Guidelines is included in this proxy statement as Appendix B, and is available to stockholders on the Company’s website at www.nationalfuelgas.com. Appendix B also addresses the qualifications and skills the committee believes are necessary in a director, and the committee’s consideration of stockholder recommendations for director. Stockholder recommendations identifying a proposed nominee and setting out his or her qualifications should be delivered to the Company’s Secretary at its principal office no later than September 20, 2013 in order to be eligible for consideration at the 2014 Annual Meeting of Stockholders.

Charitable Contributions by Company

Within the preceding three years, the Company did not make any charitable contributions to any charitable organization in which a director served as an executive officer which exceeded the greater of $1 million or 2% of the charitable organization’s consolidated gross revenues in a single fiscal year.

 

11


Compensation Committee Interlocks and Insider Participation

There are no “Compensation Committee interlocks” or “insider participation” which SEC regulations or NYSE listing standards require to be disclosed in this proxy statement.

Risk Oversight

The Company has an enterprise risk management program developed by senior management and the Board and overseen by the CEO. Under this program, major enterprise-wide risks have been identified, along with the mitigative measures to address and manage such risk. At each quarterly meeting of the Audit Committee, to which all Directors are invited and typically attend, the major risks and associated mitigative measures are reviewed. At each Board meeting, a specific presentation is made regarding one or two specific areas of risk. Additional review or reporting on enterprise risks is conducted as needed or as requested by the Board.

Related Person Transactions

The Company had no related person transactions in fiscal 2012. The Company’s Code of Business Conduct and Ethics (the “Code”) (which is in writing and available to stockholders as described at the end of this proxy statement) identifies the avoidance of any actual or perceived conflicts between personal interests and Company interests as an essential part of the responsibility of the Company’s directors, officers and employees. The Code provides that a conflict of interest may arise when a director, officer or employee receives improper personal benefits as a result of his or her position in the Company, or when personal situations tend to influence or compromise a director’s, officer’s or employee’s ability to render impartial business decisions in the best interest of the Company. Potential conflicts of interest under the Code would include but not be limited to related person transactions. The Audit Committee administers the Code as it relates to the Company’s directors and executive officers.

The Company’s policies and procedures for the review, approval or ratification of related person transactions are set forth in writing in the charter of the Audit Committee. The charter provides that the Audit Committee will review and, if appropriate, approve or ratify any transaction between the Company and a related person which is required to be disclosed under SEC rules. In the course of its review of a transaction, the Audit Committee will consider the nature of the related person’s interest in the transaction, the material terms of the transaction, the significance of the transaction to the related person and to the Company, whether the transaction would affect the independence of a director, and any other matters the Audit Committee deems appropriate. The Audit Committee will approve or ratify only those transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as the Audit Committee determines in good faith. Any member of the Audit Committee who is a related person with respect to a transaction under review may not participate in the deliberations or vote respecting approval or ratification of the transaction.

Directors’ Compensation

The 2009 Non-Employee Director Equity Compensation Plan (“Director Compensation Plan”) was approved at the 2009 Annual Meeting of Stockholders. This plan provides for the issuance of shares on a quarterly basis to non-employee directors, in such amounts as the Board may determine from time to time. In addition, non-employee directors receive a portion of their compensation in cash, as determined by the Board from time to time. Directors who are not Company employees or retired employees do not participate in any of the Company’s employee benefit or compensation plans. Directors who are current employees receive no compensation for serving as directors.

In fiscal 2012, non-employee directors were paid an annual retainer of $44,000 plus 1,800 shares of Common Stock. The directors received this annual retainer in quarterly payments of $11,000 and 450 shares of stock, with payments prorated for any quarter in which a director had partial service. Common Stock issued to non-employee directors under director compensation plans is nontransferable until the later of two years from issuance or six months after the recipient’s cessation of service as a director of the Company except that transferability restrictions lapse upon the death of the recipient.

 

12


Fees for each Board and committee meeting were $1,800. Non-employee directors were each paid an additional annual retainer of $10,000 if appointed as Chairman of any committee; accordingly, Messrs. Brady, Cash and Matthews each received an additional annual retainer of $10,000 during fiscal 2012.

Benefit accruals under the Directors’ Retirement Plan ceased for each current non-employee director on December 31, 1996. Mr. Brady is the only current director eligible for benefits under the Directors’ Retirement Plan benefits, and after he leaves the Board he will receive his accrued Directors’ Retirement Plan benefits of $1,800 per year for up to ten years. Individuals who become directors after February 1997 are not eligible to receive benefits under the Directors’ Retirement Plan. The Directors’ Retirement Plan pays an annual retirement benefit equal to 10% of the annual retainer in effect on December 31, 1996 ($18,000 per year), multiplied by the number of full years of service prior to January 1, 1997, but not to exceed 100% of that annual retainer. The retirement benefit begins upon the later of the date of the director’s retirement from the Board or the date the director turns age 70, and continues until the earlier of the expiration of ten years or the death of the director.

The Company requires that each director, in order to receive compensation for service as a director, must beneficially own at least 500 shares of Common Stock at the end of the first year of service as a director, at least 1,000 shares at the end of the second year of service and at least 3,000 shares at the end of the third year of service. All directors are compliant with this requirement.

The following table sets forth the compensation paid to each non-employee director for service during fiscal 2012:

DIRECTOR COMPENSATION TABLE — FISCAL 2012

 

Name

  Fees
Earned or
Paid in
Cash
($)(1)
    Stock
Awards
($)(2)
    Option
Awards
($)
    Non-Equity
Incentive
Plan
Compensation
($)
    Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)(3)
    All Other
Compensation
($)(4)
    Total
($)
 

Philip C. Ackerman

    54,800        89,566        None        None        N/A        3        144,369   

Robert T. Brady

    75,600        89,566        None        None        N/A        3        165,169   

David C. Carroll

    17,501        26,414        None        None        N/A        1        43,916   

R. Don Cash

    91,800        89,566        None        None        N/A        3        181,369   

Stephen E. Ewing

    80,000        89,566        None        None        N/A        3        169,569   

Rolland E. Kidder

    72,800        89,566        None        None        N/A        3        162,369   

Craig G. Matthews

    79,200        89,566        None        None        N/A        3        168,769   

Richard G. Reiten

    65,600        89,566        None        None        N/A        3        155,169   

Frederic V. Salerno

    63,800        89,566        None        None        N/A        3        153,369   

 

(1)

Represents the portion of the annual retainer paid in cash, plus meeting fees, plus an additional annual retainer for service as a committee Chairman, as applicable.

 

(2)

Represents the fair market value on the date of issuance, of the Common Stock issued under the Director Compensation Plan, as required by the Financial Accounting Standards Board’s (FASB’s) authoritative guidance for stock compensation. The average of the high and low stock price on each date of issuance was used to compute the fair market value. The average prices (and resultant quarterly values of the Stock Awards) were as follows: $47.62 for October 3, 2011 (stock in total valued at $21,429), $56.325 for January 3, 2012 (stock in total valued at $25,346), $48.25 for April 2, 2012 (stock in total valued at $21,713), $44.84 for June 7, 2012 (stock in total valued at $5,336) (Mr. Carroll only) and $46.84 for July 2, 2012 (stock in total valued at $21,078). As of September 30, 2012, the aggregate number of shares paid for all years of director service under director compensation plans to Messrs. Ackerman, Brady, Carroll, Cash, Ewing, Kidder, Matthews, Reiten and Salerno are 4,300, 16,600, 569, 13,233, 8,446, 13,690, 10,841, 11,076 and 5,165 respectively.

 

13


(3)

Mr. Brady is the only active director who has an accrued pension benefit under the Directors’ Retirement Plan described above. The Company expensed the present value of this future benefit in a prior fiscal year and continues to expense only the interest associated with this benefit. For fiscal 2012, the interest expense to the Company was $267. The directors do not have a non-qualified deferred compensation plan or any other pension plan.

 

(4)

Represents premiums paid on a Blanket Travel Insurance Policy, which covers each director up to a maximum benefit of $500,000. This insurance provides coverage in case of death or injury while on a trip for Company business.

AUDIT FEES

In addition to retaining PricewaterhouseCoopers LLP to report on the annual consolidated financial statements of the Company for fiscal 2012, the Company retained PricewaterhouseCoopers LLP to provide various non-audit services in fiscal 2012. The aggregate fees billed for professional services by PricewaterhouseCoopers LLP for each of the last two fiscal years were as follows:

 

     2011      2012  

Audit Fees(1)

   $ 1,535,512       $ 1,829,000   

Audit-Related Fees(2)

   $ 0       $ 0   

Tax Fees

     

Tax advice and planning(3)

   $ 30,000       $ 0   

Tax compliance(4)

   $ 111,500       $ 53,868   

All Other Fees(5)

   $ 4,040       $ 3,589   
  

 

 

    

 

 

 

TOTAL

   $ 1,681,052       $ 1,886,457   
  

 

 

    

 

 

 

 

(1)

Audit Fees include audits of consolidated financial statements and internal control over financial reporting, reviews of financial statements included in quarterly Forms 10-Q, comfort letters and consents, and audits of certain of the Company’s wholly-owned subsidiaries to meet statutory or regulatory requirements.

 

(2)

Audit-Related Fees include audits of certain of the Company’s wholly-owned subsidiaries not required by statute or regulation, and consultations concerning technical financial accounting and reporting standards.

 

(3)

Tax advice and planning includes consultations on various federal, state and foreign tax matters.

 

(4)

Tax compliance includes tax return preparation and tax audit assistance.

 

(5)

All Other Fees relate to permissible fees other than those described above and include the software-licensing fee for an accounting and financial reporting research tool.

The Audit Committee’s charter (available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office) references its pre-approval policies and procedures. The committee has pre-approved the use of PricewaterhouseCoopers LLP for specific types of services, including various audit and audit-related services and certain tax services, among others. The chair of the committee and, in his absence, another specified member of the committee, are authorized to pre-approve any audit or non-audit service on behalf of the committee. Each pre-approval is to be reported to the full committee at the first regularly scheduled committee meeting following such pre-approval.

For fiscal 2012, none of the services provided by PricewaterhouseCoopers LLP were approved by the Audit Committee in reliance upon the “de minimus exception” contained in Section 202 of Sarbanes-Oxley and codified in Section 10A(i)(1)(B) of the Securities Exchange Act and in 17 CFR 210.2-01(c)(7)(i)(C).

 

14


AUDIT COMMITTEE REPORT

The Company’s Board of Directors has adopted a written charter for the Audit Committee of the Board of Directors, a copy of which is available on the Company’s website at www.nationalfuelgas.com and in print to stockholders who request a copy from the Company’s Secretary at its principal office.

The Audit Committee has reviewed and discussed the Company’s audited financial statements for fiscal 2012 with management. The Audit Committee has also reviewed with management its evaluation of the Company’s internal control over financial reporting and reviewed management’s assessment about the effectiveness of the Company’s internal control over financial reporting, including any significant deficiencies in such internal control over financial reporting. The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communication With Audit Committees, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T. The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by Rule 3526, Communication with Audit Committees Concerning Independence, of the PCAOB and has discussed with the independent registered public accounting firm the independent registered public accounting firm’s independence. The Audit Committee also has considered whether the independent registered public accounting firm’s provision of non-audit services to the Company and its affiliates is compatible with the independent registered public accounting firm’s independence.

Based on the review, discussions and considerations referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the last fiscal year for filing with the SEC.

AUDIT COMMITTEE

CRAIG G. MATTHEWS, Chairman

R. DON CASH

STEPHEN E. EWING

ROLLAND E. KIDDER

 

15


SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth for each current director, each nominee for director, each of the executive officers named in the Summary Compensation Table, and for all directors and officers as a group, information concerning beneficial ownership of Common Stock. The Common Stock is the only class of Company equity securities outstanding. Unless otherwise stated, to the best of the Company’s knowledge, each person has sole voting and investment power with respect to the shares listed, including shares which the individual has the right to acquire through exercise of stock options or stock-settled stock appreciation rights (“SARs”) but has not done so. All information is as of November 30, 2012.

 

Name of Beneficial

Owner

  Exercisable Stock
Options/SARs(1)
    Shares Held
in ESOP(2)
    Shares Held in
401(k)
Plan(3)
    Restricted
Stock(4)
    Shares Otherwise
Beneficially Owned(5)
    Percent of
Class(6)
 

Philip C. Ackerman

    296,420        0        0        0        1,184,942 (7)      1.77

David P. Bauer

    36,174        0        4,252        2,084        3,083        *   

Robert T. Brady

    0        0        0        0        19,250        *   

Matthew D. Cabell

    126,465        0        1,488        64,375        19,908        *   

David C. Carroll

    0        0        0        0        1,119        *   

R. Don Cash

    0        0        0        0        27,683 (8)      *   

Anna Marie Cellino

    74,513        1,085        25,846        6,250        158,924        *   

Stephen E. Ewing

    0        0        0        0        12,096        *   

Rolland E. Kidder

    0        0        0        0        27,640 (9)      *   

Craig G. Matthews

    0        0        0        0        18,714        *   

Richard G. Reiten

    0        0        0        0        12,526        *   

Frederic V. Salerno

    0        0        0        0        5,915        *   

David F. Smith

    231,379        1,819        15,777        16,250        196,086 (10)      *   

Ronald J. Tanski

    133,205        2,894        19,716        10,417        206,062 (11)      *   

Directors and Executive Officers as a Group (20 — individuals)

    1,234,364        13,634        141,018        114,795        2,138,021        4.30

 

 *

Represents beneficial ownership of less than 1% of issued and outstanding Common Stock on November 30, 2012.

 

(1)

This column lists shares with respect to which each of the named individuals, and all current directors and executive officers as a group (20 individuals), have the right to acquire beneficial ownership within 60 days of November 30, 2012, through the exercise of stock options/SARs granted under the 1997 Award and Option Plan and the 2010 Equity Compensation Plan. The shares included in this column for exercisable SARs equal the number of shares the officer would have received by exercising those SARs on November 30, 2012, when the Fair Market Value (or “FMV”) was $52.17 per share. Stock options and SARs, until exercised, have no voting power. The FMV is the average of the high and low stock price on a specified date.

 

(2)

This column lists shares held in the Company and Subsidiaries Employee Stock Ownership Plan (“ESOP”). The beneficial owners of these shares have sole voting power with respect to shares held in the ESOP, but do not have investment power respecting most of those shares until they are distributed.

 

(3)

This column lists shares held in the Company Tax-Deferred Savings Plan for Non-Union Employees (“TDSP”), a 401(k) plan. The beneficial owners of these shares have sole voting and investment power with respect to shares held in the TDSP.

 

16


(4)

This column lists shares of restricted stock, certain restrictions on which had not lapsed as of November 30, 2012. Owners of restricted stock have power to vote the shares, but have no investment power with respect to the shares until the restrictions lapse.

 

(5)

This column includes shares held of record and any shares beneficially owned through a bank, broker or other nominee.

 

(6)

This column lists the sum of the individual’s (or individuals’) stock options, SARs and shares shown on this table, expressed as a percent of the Company’s outstanding shares and that individual’s (or individuals’) exercisable stock options and SARs at November 30, 2012.

 

(7)

Includes 1,000 shares held by Mr. Ackerman’s wife in a trust originally established for the benefit of her mother, 8,991 shares held by Mr. Ackerman’s wife as trustee for her sister, 76,250 shares also held in trust, as to which shares Mr. Ackerman disclaims beneficial ownership, 375,500 shares also held in three Grantor Retained Annuity Trusts (shares of 170,500, 105,000 and 100,000 respectively in each trust), as to which shares Mr. Ackerman disclaims beneficial ownership and 220 shares with respect to which Mr. Ackerman shares voting and investment power with his wife.

 

(8)

Includes 5,000 shares held by the Don Kay Clay Cash Foundation, a Utah not-for-profit corporation, of which Mr. Cash, his wife, son and daughter-in-law are directors and also includes 9,000 shares held by Triple C Securities & Investment, Ltd. a limited partnership in which Mr. Cash has an interest. Mr. Cash disclaims beneficial ownership of all 14,000 shares.

 

(9)

Includes 10,000 shares owned by Mr. Kidder’s wife, as to which Mr. Kidder shares voting and investment power.

 

(10)

Includes 51,902 shares owned by Mr. Smith’s wife, as to which Mr. Smith shares voting and investment power.

 

(11)

Includes 614 shares owned jointly with Mr. Tanski’s wife, as to which Mr. Tanski shares voting and investment power.

As of January 7, 2013, the Company knows of no one who beneficially owns in excess of 5% of the Company’s Common Stock, which is the only class of Company stock outstanding, except as set forth in the table below.

 

Name and Address of Beneficial Owner

   Shares Held as
Trustee for Company
Employee Benefit
Plans(1)
     Shares
Otherwise
Beneficially Held
    Percent
of
Class(2)
 

Vanguard Fiduciary Trust Company

100 Vanguard Boulevard

Malvern, PA 19355

     3,932,736         4,072,779 (3)      9.59

Mario J. Gabelli

Gabelli & Company, Inc.

One Corporate Center

Rye, NY 10580

     N/A         7,559,756 (4)      9.05

State Street Corporation

One Lincoln Street

Boston, MA 02111

     N/A         4,932,669 (5)      5.91

 

(1)

This column lists the shares held by Vanguard Fiduciary Trust Company in its capacity as trustee for certain employee benefit plans. Vanguard Fiduciary Trust Company held 3,932,736 shares on behalf of the plans as of January 7, 2013, all of which have been allocated to plan participants. The plan trustee votes the shares allocated to participant accounts as directed by those participants. Shares held by the Trustee on behalf of the plans as to which participants have made no timely voting directions are voted by the Trustee in the same proportion as the shares of Common Stock for which the Trustee received timely directions, except in the case where to do so would be inconsistent with provisions of Title I of ERISA. Vanguard Fiduciary Trust Company disclaims beneficial ownership of

 

17


 

all shares held in trust by the Trustee that have been allocated to the individual accounts of participants in the plans for which directions have been received, pursuant to Rule 13d-4 under the Securities Exchange Act.

 

(2)

This column lists the sum of the shares shown on this table, expressed as a percent of the Company’s outstanding shares at January 7, 2013.

 

(3)

The Vanguard Group, which is affiliated with Vanguard Fiduciary Trust Company, has sole investment discretion and no voting authority with respect to 4,015,980 shares of Company Common Stock, and defined investment discretion and sole voting authority with respect to 53,899 shares of Company Common Stock and sole investment discretion and sole voting authority with respect to 2,900 shares of Company Common Stock, according to its Form 13F for the period ended September 30, 2012.

 

(4)

This number of shares is derived from Amendment No. 4 to Schedule 13D filed on July 9, 2012 by Gabelli Funds, LLC, GAMCO Asset Management Inc., Gabelli Securities, Inc., MJG Associates, Inc., MJG-IV Limited Partnership, Gabelli Foundation, Inc., GGCP, Inc., GAMCO Investors, Inc., and Mario J. Gabelli.

 

(5)

The number of shares is derived from State Street Corporation’s Form 13F for the period ending September 30, 2012. State Street has defined investment discretion and sole voting authority with respect to these shares.

 

18


EQUITY COMPENSATION PLAN INFORMATION

As of September 30, 2012

 

Plan category

   Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
     Weighted-average exercise
price of outstanding
options, warrants and
rights
(b)
     Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
 

Equity compensation plans approved by security holders

     3,016,771       $ 38.56         2,168,260 (1) 

Equity compensation plans not approved by security holders

     0         0         0   
  

 

 

    

 

 

    

 

 

 

Total

     3,016,771       $ 38.56         2,168,260   
  

 

 

    

 

 

    

 

 

 

 

(1)

Of the securities listed in column (c), 71,046 were available at September 30, 2012 for issuance pursuant to the Company’s 2009 Non-Employee Director Equity Compensation Plan and 2,097,214 were available for future issuance under the 2010 Equity Compensation Plan. The term of the 1997 Award and Option Plan expired on March 31, 2012.

 

19


EXECUTIVE COMPENSATION

Compensation Committee Report

The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based upon this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

COMPENSATION COMMITTEE

R. D. CASH, Chairman

R. T. BRADY

S. E. EWING

R. G. REITEN

F. V. SALERNO

Compensation Discussion and Analysis

EXECUTIVE SUMMARY

The Company’s compensation policies and procedures encourage a culture of pay for performance and are strongly aligned with the long-term interests of the Company’s stockholders. Our pay for performance culture continues to evolve as the Compensation Committee reviews and revises certain aspects of the compensation program to incorporate the feedback of our stockholders as well as corporate governance best practices.

The Compensation Discussion and Analysis (“CD&A”) provides a detailed review of the Company’s executive compensation program, including the goals of the program. In addition to cash compensation, the Committee grants long-term equity incentives, most often with a 3-year time horizon, to focus management’s attention on creating shareholder value from a long-term investor’s perspective. The CD&A describes in detail the components of the program and the fiscal 2012 compensation paid to or earned by each named executive officer (as defined herein). Overall, the Company’s long-term performance and total direct compensation are in line with that of its peers.

2012 Performance and Long-Term Strategic Initiatives

In 2012, the Company’s Board of Directors and executives continued to focus on long-term shareholder value. Fiscal year financial results were impacted by the twin headwinds of decades-low natural gas prices affecting several major subsidiaries and the warmest winter on record in the Company’s natural gas utility service territory. However, increased crude oil and natural gas production, along with improvement in the Company’s midstream businesses as a result of significant capital investments in prior years helped to mitigate the impact of these forces. Long-term planning across our diversified business model has been and will continue to be a key contributing factor to the Company’s ability to weather short-term trends and circumstances, while steadily capitalizing on opportunities for continued success.

2012 Financial and Operating Highlights:

 

   

Dividend: In June, the Company’s annual dividend rate was increased to $1.46 per share, or 2.8%, marking the 42nd year of consecutive dividend increases and 110th year of uninterrupted dividend payments.

 

   

Production: Seneca Resources Corporation (“Seneca”), the Company’s exploration and production subsidiary, increased its total natural gas and crude oil production to 83.4 Bcfe (of natural gas), or 23% compared to the prior year.

 

20


   

Natural Gas & Crude Oil Reserves: At the end of fiscal 2012, Seneca increased its proved reserves of natural gas and crude oil to 1.246 trillion cubic feet equivalent (“Tcfe”), an improvement of 33% from the prior year.

 

   

Pipeline Projects: In the Pipeline & Storage segment, net income increased by $29.0 million, or 92%, largely as a result of the completion of two major pipeline expansion projects, the Tioga County Extension Project (designed to move Marcellus Shale production to Canada and the Northeast United States) and the Line N 2011 expansion (designed to transport Marcellus Shale production to major domestic markets), as well as a new rate case settlement.

 

   

Performance: Total shareholder return (“TSR”) for the five-year period ended September 30, 2012 was 33% versus the 34% median of our 2012 Hay peer group, putting our performance in line with that of our selected peers.

 

LOGO

2012 Long-Term Strategic Results

National Fuel’s capital intensive operations require a focus on strategic initiatives and projects that may take several years from business planning through completion. The results of this focus include:

 

   

Pipeline Expansion: In the Pipeline & Storage segment, we commenced construction on two new major pipeline expansions, the Northern Access Expansion and the Line N 2012 Expansion.

 

21


 

Both of these projects went into service in the first quarter of fiscal 2013. These projects, combined with the phase-in of previously completed projects, are expected to add more than $20 million in revenue to the Pipeline & Storage segment in fiscal 2013.

 

   

Acreage Evaluation: Seneca continued to delineate its 775,000 net acres prospective for the Marcellus Shale, while also drilling its first two horizontal evaluation wells in areas that are prospective for the emerging Utica Shale.

 

   

New Crude Oil Opportunities: Seneca acquired a modest acreage position in the emerging Mississippian Lime field in Kansas and negotiated a farm-in agreement in an oil field near its existing California assets.

 

   

Developing New Pipeline Routes: Supply, Empire and Midstream continue to aggressively pursue opportunities to expand their pipeline infrastructure to serve the rapid growth in volumes of natural gas and natural gas liquids being produced from the Marcellus and Utica shales in Appalachia.

2012 Say on Pay Vote, Stockholder Engagement and Resulting Changes to 2013 Compensation

The 2012 Say-on-Pay advisory vote yielded a result of 73% of votes cast in support of the compensation of the Company’s named executive officers. To be proactive in our stockholder engagement, members of Company management held meetings during the summer of 2012 with some of the Company’s largest stockholders to obtain feedback on our compensation program, among other topics. This engagement, representing more than 20% of our total shares outstanding as of September 30, 2012, facilitated important dialogue in which we gathered various viewpoints.

While 2012 compensation for executives was set prior to the 2012 advisory vote and stockholder engagement efforts, it is important to note that the Compensation Committee of the Company’s Board of Directors has incorporated stockholder feedback in its setting of fiscal 2013 compensation. Specifically, on December 19, 2012, the Compensation Committee granted restricted stock units subject to a performance condition under the Company’s 2010 Equity Compensation Plan to the named executive officers. The Committee’s action represents a change from its practice in prior fiscal years, including fiscal 2012 where the Committee utilized a cash based program for a portion of long-term incentive compensation. The compensation program will be subject to further review and possible amendment in fiscal 2013.

The following are changes that were implemented for 2013 based on comments received while engaging stockholders for feedback on the Company’s compensation program:

Ø    Shift of long term incentive from a combination of cash and equity to solely equity

Ø    Multiple types of equity awards

Ø    Performance conditions associated with certain types of equity awards

Management and the Board consider it important to maintain a program of ongoing stockholder engagement, communication, and transparency, and as a result, the Company plans to continue to build upon these efforts in fiscal 2013.

 

22


Peer Selection Continually Evolves

For the purpose of benchmarking 2012 performance and setting 2013 compensation targets, the Compensation Committee exercised its business judgment, with the advice of independent compensation consultant The Hay Group to modify the peer group listed in the compensation consultant discussion below. Specifically, Ultra Petroleum Corporation was added in place of Southern Union Company due to Southern Union’s acquisition by another entity in 2012. The Committee believes that Ultra Petroleum Corporation is an appropriate addition to the peer group due to its exploration and production operations in the Marcellus Shale and the Company’s continuing focus on its own Marcellus Shale assets.

 

      Hay Group — 2012 Peer Companies    Exploration
&
Production
   Natural
Gas Utility
   Pipeline
&
Storage

1

   AGL Resources Inc.         X    X

2

   Atmos Energy Corporation         X    X

3

   Cabot Oil & Gas Corporation    X          

4

   Energen Corporation    X    X     

5

   EQT Corporation    X    X    X

6

   MDU Resources, Inc.    X    X    X

7

   New Jersey Resources Corporation         X    X

8

   Northwest Natural Gas Company         X    X

9

   Questar Corporation    X    X    X

10

   Quicksilver Resources, Inc.    X          

11

   Range Resources Corporation    X          

12

   Southern Union Company         X    X

12

   Southwest Gas Corporation         X     

13

   St. Mary Land & Exploration Company    X          

14

   UGI Corporation         X     

15

   Ultra Petroleum Corporation    X          

16

   Whiting Petroleum Corporation    X          
     TOTAL    10    10    7

2012 Named Executive Officer Compensation

From a near-term perspective, fiscal 2012 was a difficult year given decades-low natural gas prices and the warmest winter on record, which most significantly impacted the performance of our Exploration and Production segment. Our one-year TSR was 14.21% at the 38th percentile of our 2012 Hay peer group. Our CEO’s annual short-term cash incentive decreased by 26% from the prior fiscal year, reflecting the impact of these factors on his Consolidated Earnings Per Share goal, Production Volume goal, and Marcellus Shale Production goal. Similarly, the annual short-term cash incentive of our President and Chief Operating Officer and the President of our Exploration and Production subsidiary decreased by 21% and 34%, respectively, from the prior fiscal year. For all named executive officers the annual bonus amount decreased by approximately 20% in the aggregate. It is not possible to benchmark 2012 compensation against the peer group because 81% of the group maintains a fiscal year based on the calendar year, and will therefore not report 2012 compensation until months after this proxy statement is filed. From a long-term perspective, fiscal 2012 was a year of continued focus on long-range planning and completion of capital intensive projects that we believe will pay dividends for years to come.

 

23


Distinguishing “Awarded” Pay from “Reported” Pay

In reviewing our executive compensation, it is important to distinguish the reported compensation provided to our named executive officers in fiscal 2012 from the compensation that was actually paid or is expected to be paid to them for fiscal 2012 performance. We have provided an additional compensation table below in order to distinguish the annual short-term cash incentive from the 3-year long-term cash incentive and to remove the volatile, significant effects of changes in actuarial assumptions on the value of the named executive officers’ pension benefits disclosed in the 2012 Summary Compensation Table. The “Awarded” Pay table is not a substitute for the Summary Compensation Table, which can be found at page 41 in this proxy statement.

 

Name and Principal Position

  Year     Salary
($)
    Short-Term
Cash
Incentive

($)
    Long-Term
Cash
Incentive *
($)
    Stock
Awards

($)
    Equity
Awards

($)
    All Other
Compensation

($)
    Total
($)
 

David F. Smith

    2012        880,000        1,073,160        1,178,800        550,900        448,008        151,211        4,282,079   

Chairman and Chief

Executive Officer of the Company

    2011        835,000        1,457,075        1,091,232        598,734        574,838        171,440        4,728,319   
    2010        772,500        1,317,499        1,010,880        0        1,507,675        159,235        4,767,789   
               

David P. Bauer

    2012        293,750        215,000        67,360        68,863        56,001        23,728        724,702   

Treasurer and Principal Financial Officer of the Company

    2011        268,750        200,000        50,520        79,831        76,645        20,039        695,785   
    2010        223,413        140,000        46,656        0        48,246        15,395        473,710   
               

Ronald J. Tanski

    2012        681,000        640,140        673,600        344,313        280,005        96,124        2,715,182   

President and Chief

Operating Officer of the Company

    2011        652,500        810,144        631,500        399,156        383,225        104,539        2,981,064   
    2010        601,250        877,104        604,800        0        844,298        105,304        3,032,756   
               

Matthew D. Cabell

    2012        573,750        445,402        505,200        309,881        252,005        58,412        2,144,650   

President of Seneca

Resources Corporation

    2011        547,789        676,060        404,160        359,241        344,903        55,962        2,388,115   
    2010        503,750        623,617        388,800        0        663,377        52,538        2,232,082   

Anna Marie Cellino

    2012        482,250        585,861        378,900        206,588        168,003        79,695        1,901,297   

President of National Fuel Gas Distribution Corporation

    2011        458,750        551,853        336,800        239,494        229,935        76,204        1,893,036   
    2010        430,000        552,034        172,800        0        422,149        74,398        1,651,381   
               

 

*

For fiscal year 2012, Long-Term Cash Incentive represents an estimated payment for the three-year performance period ended September 30, 2012. See footnote 3 to the Summary Compensation Table for more information.

CEO Compensation in Alignment with Peers

The Compensation Committee understands the importance of using benchmark data that reflects information from companies with comparable business segments over similar time periods. Reflected in the chart below is The Hay Group’s comparison of fiscal 2011 total direct compensation for the Company’s CEO against that of CEOs in our 2012 Hay peer group. Like the Company’s five-year TSR performance, discussed above, the Company’s CEO total direct compensation shown in the table below is in line with that of our peers.

Fiscal 2011 is the most recent complete fiscal year for which proxy statement data is available. 2012 compensation may not yet be accurately compared to peers because 2012 proxy statement data for those peers is not yet available.

 

24


    LOGO         

 

 

Chairman and CEO

 
 

Compared to CEO proxy data for fiscal year 2011

 

 

                 Total  Direct
Compensation
Company   Title   

Sales

($M)

  

 

Actual

  

 

Target

AGL Resources, Inc.

  Chairman, President & CEO    $2,338    $3,114,877    $4,078,477

Atmos Energy Corp.

  President & CEO    $4,348    $2,948,266    $2,953,602

Cabot Oil & Gas Corp.

  Chairman, President & CEO    $980    $6,266,435    $5,283,102

Energen Corp.

  Chairman, President & CEO    $1,483    $3,603,730    $3,379,766

EQT Corp.

  Chairman, President & CEO    $1,640    $6,167,343    $4,752,343

MDU Resources Group Inc

  President & CEO    $4,050    $2,789,068    $2,584,318

New Jersey Resources Corp.

  Chairman, President & CEO    $3,009    $2,929,082    $2,798,536

Northwest Natural Gas Co.

  President & CEO    $849    $1,404,063    $1,416,605

Questar Corp.

  President & CEO    $1,194    $2,998,629    $2,597,634

Quicksilver Resources Inc

  President & CEO    $944    $4,457,045    $4,692,507

Range Resources Corp.

  Chairman & CEO    $1,214    $7,836,123    $7,045,508

SM Energy Co

  President & CEO    $1,383    $5,192,950    $4,843,592

Southwest Gas Corp.

  CEO    $1,887    $2,076,763    $2,000,863

UGI Corp.

  Chairman & CEO    $6,091    $6,280,268    $6,416,941

Ultra Petroleum Corp.

  Chairman, President & CEO    $1,315    $5,731,250    $4,893,750

Whiting Petroleum Corp.

  Chairman & CEO    $1,883    $6,706,117    $5,612,291

Summary Statistics

                  

75th Percentile

     $2,506    $6,192,116    $4,991,088

Average

     $2,163    $4,406,376    $4,084,365

Median

     $1,562    $4,030,388    $4,385,492

25th Percentile

     $1,209    $2,943,470    $2,748,311

National Fuel Gas Company

  Chairman & CEO    $1,779    $4,230,647    $3,608,572

Percentile Rank

       57%    52%    42%

Total Direct Compensation = base salary + bonus + long-term incentives (target value for cash and grant date value for equity)

 

 

© 2012 Hay Group. All rights reserved

 

25


OBJECTIVES OF THE EXECUTIVE COMPENSATION PROGRAM

The Company’s executive compensation program is designed to:

 

   

Focus management efforts on both near-term and long-term drivers of stockholder value.

 

   

Tie a significant portion of executive compensation to long-term stockholder returns by linking a significant portion of an executive officer’s potential compensation to the future price of the Company’s Common Stock.

 

   

Attract, motivate, reward and retain management talent in the highly competitive energy industry in order to achieve the objectives that contribute to the overall success of the Company.

Important elements of the Company’s executive compensation program include the following items:

 

   

The Company does not provide tax “gross-ups.”

 

   

The Company requires executive officers and other officers to meet stock ownership requirements that range from one to four times base salary.

 

   

The Company’s equity incentive plans prohibit the repricing or exchange of equity awards without stockholder approval.

 

   

The Committee has engaged two independent compensation consultants to assist it in setting compensation.

 

   

All change-in-control agreements are double triggered.

As is more fully described below, the Company achieves these objectives by providing its executive officers a total compensation program, established and administered by the Committee based on its business judgment following review of the analysis prepared by its compensation consultants of the compensation practices at companies in the energy industry, in general industry and in the exploration and production segment, as appropriate. Total compensation for executive officers is comprised of the following components, each of which is addressed in greater detail below:

 

   

Base salary;

 

   

Annual cash incentive compensation;

 

   

Long term incentive compensation; consisting of cash and/or restricted stock and/or grants of stock-settled stock appreciation rights; and

 

   

Employee benefits, including retirement, health and welfare benefits.

The charts below show the following compensation components as a proportion of the named executive officers’ total direct compensation:

 

   

Base salary for calendar year 2012

 

   

Annual cash incentive for fiscal 2012 based on the achievement of specific performance goals established by the Compensation Committee

 

   

Long-term cash incentive for fiscal 2012 based on a target amount established by the Compensation Committee that could be paid, if at all, depending on Company performance over a 3-year period (see Performance Incentive Program)

 

   

Long-term equity incentive for fiscal 2012 based on the grant date fair value for Restricted Stock and a Black-Scholes calculation for Stock Appreciation Rights

Each of these compensation components is discussed in this CD&A.

 

26


The charts indicate that 76% of our Chairman and Chief Executive Officer’s pay is variable and that 70% of our other named executive officers’ pay is variable.

 

LOGO

Role of the Compensation Committee    The Committee is comprised of five directors, all of whom have been determined by the Board to be independent. The Committee administers the Company’s compensation program for executive officers, setting base salaries and available incentive compensation ranges. The Committee exercises the authority delegated to it by the stockholders or the Board under the Company’s cash and equity incentive compensation plans, which include:

 

   

Cash Compensation Plans

 

   

Short-Term

 

   

2012 Annual At Risk Compensation Incentive Plan (the “At Risk Plan”)

 

   

Executive Annual Cash Incentive Program (the “EACIP”)

 

   

Long-Term (both referred to herein as “Performance Incentive Program”)

 

   

National Fuel Gas Company Performance Incentive Program (a closed program under which the last award was made in fiscal 2011)

 

   

National Fuel Gas Company 2012 Performance Incentive Program (the new program approved by the shareholders in 2012 that replaces the above program)

 

   

Equity Compensation Plans

 

   

Long-Term

 

   

National Fuel Gas Company 1997 Award and Option Plan, as amended (the “1997 Award and Option Plan”)

 

   

2010 Equity Compensation Plan

In addition, the Committee makes recommendations to the Board with respect to:

 

   

the development of incentive compensation plans and equity-based plans; and

 

   

changes in compensation for non-employee directors.

As described below, the Committee retains the services of independent compensation consultants to assist the Committee in administering the Company’s compensation program. Further, as discussed earlier

 

27


in this proxy statement, the members of the Committee have vast experience in the energy industry and/or as leaders of major corporations. In these roles, as well as through their experiences with the Company, the Committee has garnered extensive knowledge regarding the art of establishing a competitive and properly focused compensation program for the Company’s executive officers. In making the decisions discussed below, the Committee uses its subjective business judgment developed through its years of experience.

Role of Chief Executive Officer

In making its subjective determinations with respect to executive officers other than Mr. Smith, the Committee discusses the information it receives from its compensation consultants with Mr. Smith and seeks his recommendation as to the appropriate base salaries, and target short-term and long-term incentive awards for each of these other officers, based on The Hay Group (“Hay”) and Meridian Compensation Partners, LLC (“Meridian”) recommendations and his assessment of their performance, contributions and abilities. Mr. Smith also provides input to the Committee’s compensation consultants with regard to the functions of the Company’s officers, to facilitate their recommendations and comparisons of such officers’ and their positions to other positions in the marketplace.

Independent Compensation Consultants

The Compensation Committee utilizes recommendations of compensation consultants in exercising its business judgment as to compensation matters, including the selection of peer companies for compensation comparison purposes. The Committee has retained the services of two independent compensation consultants, Hay and Meridian, to evaluate executive compensation. The Committee retained two compensation consultants in order to obtain advice targeted at its regulated entities (Hay) and at its exploration and production segment (Meridian) due to the diverse business of these segments.

Determining Our Peers    Because of National Fuel’s diverse asset mix, selecting an appropriate peer group of companies requires a customized approach that calls for more critical thought than simple selection of a standard industry group, which may include companies without a natural gas business. The Company’s assets span the entire natural gas supply chain and include Exploration & Production, Pipeline & Storage, and Natural Gas Utility operations. For compensation and performance comparisons, the Committee utilizes two separate peer groups. The primary peer group against which we generally benchmark the Company as a whole is formulated with the assistance of Hay and is intended to include a group of companies that, as a whole, represent our asset mix as illustrated in the chart below. Meridian assists in the formulation of a peer group that is targeted to evaluate our E&P business and the compensation of executives that oversee it. Both groups change and evolve over time as the Committee believes is warranted based on its business judgment. The Committee believes that the peer groups selected with the guidance of Hay and Meridian include a mix of companies that reflect the businesses in which your Company participates, as reflected in the tables below.

The Hay Group    Hay assists the Compensation Committee in evaluating and setting compensation for Company officers and officers employed by affiliate companies other than Seneca. Generally, Hay provides job evaluation to a wide range of companies through detailed position analysis based on proprietary information from multiple parent organizations and business units. Hay provides similar analysis for supervisory positions in the Company’s regulated subsidiaries. Hay’s job evaluation and benchmarking methodology allows for customizable job descriptions and organizational rankings that are specific to the Company but relative to industry benchmarks.

In 2011 for Company officers, and officers employed by affiliate companies other than Seneca, Hay provided an analysis of compensation practices with respect to the following forms of compensation compared to similar positions in general industry and, where appropriate, in the energy industry based on Hay’s proprietary databases:

 

  1)

Base Salary

 

  2)

Total Cash Compensation (base salary + short-term and long-term cash incentive)

 

28


  3)

Total Direct Compensation (base salary + short-term and long-term cash incentive + long-term equity incentive)

 

  Hay

also made recommendations on incentive compensation target amounts to the Committee for:

 

  1)

Short-Term Incentive (cash incentive payments as discussed below)

 

  2)

Long-Term Incentive (stock appreciation rights, restricted stock and the Performance Incentive Program target awards also discussed below).

Additionally, Hay provided a proxy analysis of base salary, incentive targets, total cash compensation, long-term incentive and total direct compensation for four of the five named executive officers (Messrs. Smith, Tanski and Bauer and Mrs. Cellino) for whom adequate comparative information was available based on 2011 proxy data for the Company and the 16 energy companies in the 2011 peer group listed below.

These 16 companies were selected for the peer group because each participates in one or more businesses that are similar to those of the Company.

 

      Hay Group — 2011 Peer Companies    Exploration
&
Production
   Natural
Gas Utility
   Pipeline
&
Storage

1

   AGL Resources Inc.         X    X

2

   Atmos Energy Corporation         X    X

3

   Cabot Oil & Gas Corporation    X          

4

   Energen Corporation    X    X     

5

   EQT Corporation    X    X    X

6

   MDU Resources, Inc.    X    X    X

7

   New Jersey Resources Corporation         X    X

8

   Northwest Natural Gas Company         X    X

9

   Questar Corporation    X    X    X

10

   Quicksilver Resources, Inc.    X          

11

   Range Resources Corporation    X          

12

   Southern Union Company         X    X

13

   Southwest Gas Corporation         X     

14

   St. Mary Land & Exploration Company    X          

15

   UGI Corporation         X     

16

   Whiting Petroleum Corporation    X          
     TOTAL    9    11    8

The Compensation Committee reviews the members of the peer group from time to time, and makes adjustments, as it believes are warranted. As noted above, in 2012, for purposes of considering 2013 compensation, the Committee revised the peer group to add Ultra Petroleum Corporation in place of Southern Union Company, due to Southern Union’s acquisition by another entity during that year. The Committee believes that Ultra Petroleum Corporation is an appropriate addition to the peer group due to its operations in the Marcellus Shale and the Company’s continuing focus on its own Marcellus Shale assets.

Meridian Compensation Partners, LLC    Meridian assists the Committee in evaluating and setting compensation for employees at Seneca, including that of Mr. Cabell. Meridian also benchmarks Mr. Smith’s and Mr. Tanski’s compensation against this peer group. The Committee requested this analysis for its use in supplementing the comparisons provided by Hay due to the increasing importance of the Company’s exploration and production segment and Mr. Smith’s and Mr. Tanski’s management of that segment. The Committee selected Meridian due to its expertise in oil & gas exploration and production (“E&P”) industry compensation matters.

 

29


In 2011, Meridian provided an analysis for Messrs. Cabell, Smith and Tanski of compensation practices with respect to the following forms of compensation compared to similar positions in the E&P industry:

1. Base Salary

2. Target Short-Term Incentive

3. Target Cash Compensation (base salary plus short-term incentive)

4. Long-Term Incentive

5. Total Target Compensation (base salary plus short-term and long-term incentive)

The Meridian analysis was based on data from Meridian’s Proprietary Oil and Gas Compensation Database, supplemented by published survey data and available proxy data, from 15 E&P companies chosen by the Committee based on certain criteria, such as revenues, assets, standardized measure and the nature of each company’s operations in the E&P segment of the energy industry, that made them relatively comparable to the operations at Seneca. The companies in the 15 member peer group range in size from $4.6 billion to $139 million in E&P revenues, (with a median of $938 million), from $25 billion to $1.1 billion in E&P asset size (with a median of $13.9 billion) and from $4 billion to $655 million in standardized measure (with a median of $2.7 billion). The 2011 peer group is:

 

      Meridian Compensation Partners — 2011 Peer E&P Companies

1

   Berry Petroleum    9    QEP Resources Inc.

2

   Bill Barrett Corporation    10    Quicksilver Resources, Inc.

3

   Carrizo Oil & Gas, Inc.    11    Range Resources Corporation

4

   El Paso Corporation    12    SM Energy Company

5

   Energen Corporation    13    Southwestern Energy Company

6

   EQT Corporation    14    Swift Energy Company

7

   EXCO Resources, Inc.    15    Ultra Petroleum Corporation

8

   Forest Oil Corporation          

The Committee reviews the members of this E&P peer group from time to time and makes adjustments, as it believes are warranted. In 2011, the Committee revised the peer group by eliminating six companies, in order to facilitate position matching. In 2012, for purposes of considering 2013 compensation, the Committee excluded QEP Resources due to its size, and El Paso Corporation due to its acquisition by Kinder Morgan in May 2012. The Committee also added Unit Corporation, Oasis Petroleum, Laredo Petroleum Holdings, PDC Energy, Endeavour International, Resolute Energy, Goodrich Petroleum and Approach Resources, to bring the total number of E&P peers to twenty-one. The Committee believes that these changes provide a more diverse peer group and will facilitate better position matching.

TOTAL COMPENSATION

Base Salary

Base salaries provide a predictable base compensation for day-to-day job performance. The Committee reviews base salaries at calendar year-end for the Company’s executive officers and adjusts them, if it deems appropriate in its subjective business judgment, following review of its compensation consultants’ competitive analysis and upon consideration of the recommendations of the Chief Executive Officer. In addition, base salary may be adjusted during the calendar year when changes in responsibility occur. Base salary is not adjusted based on specific objective financial results, although overall corporate performance is reviewed by the Committee in its decision making process. The Committee does not use formulas; rather, it exercises its business judgment.

 

30


In establishing the base salary amount, the Committee generally targets a range of the 50th percentile to the 75th percentile of the survey data provided by Hay and Meridian. In the subjective business judgment of the Committee, payment in this range or, if necessary, above this range, is necessary to attract, retain and motivate the individuals responsible for the success of the business enterprise. The Committee also considers overall corporate performance and an individual’s specific responsibilities, experience (including time in position), and effectiveness and makes adjustments based on the Committee members’ business judgment and the CEO’s recommendations. For calendar year 2012, the Committee considered the report of Hay that Mr. Smith’s salary was below the Energy Industry median for a second year and increased Mr. Smith’s base salary to continue to bridge that gap. The Committee believed that this action was particularly important given the competition for talent in the exploration and production industry, which is a primary business focus of the Company.

The Committee also increased Mr. Tanski’s base salary for calendar year 2012 to an amount that was slightly above the market median for the Energy Industry. This increase was based on the Committee’s and Mr. Smith’s assessment of Mr. Tanski’s performance in the key position of President and Chief Operating Officer of the Company, particularly Mr. Tanski’s oversight of the growth of the exploration and production segment and the pipeline and storage segment.

For calendar year 2012, based on its and Mr. Smith’s assessment of Mr. Cabell’s responsibilities, experience and effectiveness in the past year, the Committee increased Mr. Cabell’s base salary to an amount that was higher than the 75th percentile of the Meridian data. This increase was awarded in recognition of his performance in the management of the exploration and production segment, and to retain him in his position given the competition for talent in the industry and in that geographic region.

The Committee considered the report of Hay that Mrs. Cellino’s salary was below the Energy Industry median, and following discussion with Mr. Smith, the Committee increased Mrs. Cellino’s base salary to an amount that was essentially equivalent to the market median for the Energy Industry. The increase was based on the Committee’s and Mr. Smith’s assessment of her attention to customer service, safety and oversight of budget and cost control at the utility segment.

In making the annual base salary increase in 2012 for Mr. Bauer, the Committee referenced Hay’s report and increased Mr. Bauer’s salary to the level of that approximated by the Energy Industry median. The Committee action followed discussion with Messrs. Smith and Tanski, of Mr. Bauer’s specific responsibilities, experience and effectiveness, and his performance managing the Company’s financial strategy.

The fiscal 2012 base salaries of the named executive officers are shown on the Summary Compensation Table under “Salary” column within this proxy statement.

Annual Cash Incentive

The Company pays an annual cash incentive to its executives to motivate their performance over a short-term (which is generally considered to be no longer than two years). Early in the fiscal year, the Committee establishes a target amount for the annual cash incentive, stated as a percentage of base salary. Executives can earn up to 200% of target, based on performance on written goals. For executives under the EACIP, including Mr. Bauer, the Chief Executive Officer has broad discretion to reduce the amount payable as annual cash incentive based on any factors the Chief Executive Officer may determine.

 

31


Target Award Levels

In setting target award levels for the annual cash incentive for 2012, the Committee exercised its business judgment and, upon consideration of the recommendations of Hay and Meridian and, other than with respect to his target incentive, those made by Mr. Smith, set target awards as follows:

 

Executive

   Target
(As a Percentage of Base Salary)
 

Mr. Smith

     100

Mr. Tanski

     80

Mr. Cabell

     70

Mrs. Cellino

     70

Mr. Bauer

     45

Performance Goals

Based upon discussions with Mr. Smith and Mr. Tanski and upon review of forecasted financial data, the Committee approved for each named executive who participated in the At Risk Plan (Messrs. Smith, Tanski and Cabell and Mrs. Cellino) or the EACIP (Mr. Bauer), a set of particular performance goals for the 2012 fiscal year. Certain goals overlapped among named executives; for example, each named executive had a goal tied to consolidated earnings per share. Incentive Payments under the At Risk Plan and the EACIP are based upon performance against the stated objectives. For those officers who participated in the At Risk Plan, 100% of the target incentive was made dependent on objective performance criteria. For those officers under the EACIP, 75% of the target incentive was made dependent on objective performance criteria, and 25% was made dependent on a subjective performance criterion, namely, the Chief Executive Officer’s subjective determination of the officer’s performance. All performance criteria, including any subjective measures, applicable to a particular executive are communicated to that executive in writing at the time the criteria are established.

To determine the annual cash incentive award based on stated performance objectives, the weight assigned to each goal is multiplied by the percentage of the goal achieved to calculate a weighted percentage for each goal. Once the weighted percentage for each goal is determined, the percentages are totaled. That total weighted percentage is multiplied by the target award to arrive at the total incentive payment amount. The target award is a percentage of the named executive’s base salary for the fiscal year, and the maximum possible award is two times the target amount. The fiscal 2012 annual cash incentives of the named executive officers are shown on the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column, except that for Mr. Bauer, the portion of his annual cash incentive not based on objective performance criteria is shown in the “Bonus” column. For each named executive, the amount awarded was based on the executive’s performance against the pre-established performance criteria. With respect to the subjective performance criterion applicable to Mr. Bauer, Mr. Smith noted in particular Mr. Bauer’s performance in overseeing preparation and control of the financial statements, communications with investors and his role as Treasurer and Principal Financial Officer of the Company. The incentive payments made to the named executives were approved by the Committee.

 

32


The following chart identifies the goals assigned to each of the named executive officers for the 2012 fiscal year, the percentage of each goal achieved, the weight assigned to each goal, and the weighted percentage achieved for each goal. Also noted is each named executive’s total weighted percentage, target and incentive payment. Following the chart, numbered sequentially to match the appearance of the performance objective in the chart is a summary of what the objective was at the target level of performance, and a summary of actual performance. With regard to the earnings per share goals, a two-year average was used to calculate performance levels for the consolidated earnings per share goal, regulated companies’ earnings per share goal and Seneca earnings per share goal, as a mechanism to incent individuals to consider more than a one-year earnings impact.

 

Annual Cash Incentive
Executive   David F. Smith     David P. Bauer     Ronald J. Tanski     Matthew D. Cabell     Anna Marie Cellino  
Fiscal 2012 Goals   %
Achvd
    Wght     Wghtd %
Achvd
    %
Achvd
    Wght     Wghtd %
Achvd
    %
Achvd
    Wght     Wghtd %
Achvd
    %
Achvd
    Wght     Wghtd %
Achvd
    %
Achvd
    Wght     Wghtd %
Achvd
 

1.

 

Consolidated EPS*

    150     0.25        37.50     150     0.25        37.50     150     0.25        37.50     150     0.15        22.50     150     0.25        37.50

2.

 

Regulated EPS*

    200     0.25        50.00     200     0.25        50.00     200     0.25        50.00                 200     0.25        50.00

3.

 

Seneca EPS*

                                        75     0.15        11.25            

4.

 

Production Volume

    0     0.20        0.00                 0     0.15        0.00     0     0.20        0.00            

5.

 

Shale Production

    63     0.15        9.45                             63     0.10        6.30            

6.

 

Safety

    200     0.05        10.00                 200     0.05        10.00                 200     0.10        20.00

7.

 

Environmental/Safety

    100     0.05        5.00                             100     0.05        5.00            

8.

 

Investor Relations - PE Ratio

    200     0.05        10.00     200     0.10        20.00     200     0.05        10.00                        

9.

 

Segment Growth

                            0     0.05        0.00                        

10.

 

Regulated Companies Capital Expenditures

                            0     0.15        0.00                        

11.

 

Seneca Reserve Replacement

                                        200     0.20        40.00            

12.

 

F&D Cost

                                        200     0.10        20.00            

13.

 

LOE and G&A

                                        117     0.05        5.85            

14.

 

Investor Relations - 1 on 1 Visits

                200     0.10        20.00                                    

15.

 

SOX Internal Control Compliance

                200     0.05        10.00                                    

16.

 

HEAP - NY

                            200     0.05        10.00                 200     0.05        10.00

17.

 

HEAP - PA

                                                    121     0.05        6.05

18.

 

PSC Customer Service

                                                    200     0.10        20.00

19.

 

Distribution Operational Safety

                                                    200     0.05        10.00

20.

 

Distribution Meter Reading

                                                    200     0.10        20.00

21.

 

Distribution Capital Expenditures

                                                    0     0.05        0.00

22.

 

CEO Discretion

                100.59     0.25        25.15                                    
   

Total Weighted % Achieved

    121.95%        162.65%        117.50%        110.90%        173.55%   
   

Target

    $880,000        $132,188        $544,800        $401,625        $337,575   
   

Bonus

    $1,073,160        $215,000        $640,140        $445,402        $585,861   

 

*

reflects an average of 2012 performance and 2011 performance

 

33


Performance Measure

  

Target Performance Level

1.  

Consolidated earnings per share. In

determining final performance level, the results of this goal are averaged with the prior year results on the same goal

  

$2.64 up to but not including $2.73 diluted earnings per share, excluding any period-end impairment charges and any reversal of certain project reserves

Actual Performance: 2012 EPS excluding any period-end impairment charges and any reversal of certain project reserves =$2.66; performance level of 100%; 2-year average of performance

levels =(200%+100%)/2=150%

2.  

Regulated companies earnings per share. In

determining final performance level, the results of this goal are averaged with the prior year results on the same goal

  

$1.12 up to but not including $1.17 diluted earnings per share, excluding any period-end impairment charges and any reversal of certain project reserves

Actual Performance: 2012 Regulated EPS excluding any period-end impairment charges and any reversal of certain project reserves=$1.44; performance level of 200%; 2-year average of performance levels =(200%+200%)/2=200%

3.  

Seneca earnings per share. In determining

final performance level, the results of this goal are averaged with the prior year results on the same goal

  

$1.39 up to but not including $1.44, excluding any period-end impairment charges

Actual Performance: 2012 Seneca EPS excluding any period-end impairment charges=$1.15; performance level of 0%; 2-year average of performance levels=(150%+0%)/2=75%

4.   Production volume   

92 Billion cubic feet equivalent

Actual Performance: 83.4 Bcfe; performance level of 0%

5.  

Shale Production. Measured based

on average net daily shale production achieved in the last quarter of the fiscal year

  

210 MMcf/day

Actual Performance: 195 MMcf/day; performance level of 63%

6.  

Safety. Measured by the number of OSHA

recordable injuries in the utility and pipeline and storage segments

  

5.61 OSHA recordable injuries

Actual Performance: 3.70 OSHA recordable injuries; performance level of 200%.

7.  

Environmental/Safety. Measured by

number of Pennsylvania Department of Environmental Protection enforcements per wells drilled

  

0.20 enforcements per wells drilled

Actual Performance: 0.20; performance level of 100%

8.  

Investor relations. Price/Earnings ratio as

compared to those Reported in Edward Jones Natural Gas Industry Summary of September 30, 2012 for Diversified Natural Gas Companies

  

Top one-half

Actual Performance: 3rd; performance level of 200%

9.   Segment growth in Pipeline and Storage   

Completion of three of six items to grow the pipeline and storage segment

Actual Performance: Completion of two out of six items; performance level of 0%

 

34


Performance Measure

  

Target Performance Level

10.  

Regulated Companies Capital Expenditures

Budget

  

90% of specified projects completed at or below the approved budget and not less than 95% of contractor bid amount

Actual Performance: 78% of specified projects; performance level of 0%

11.   Total Reserve Replacement for Seneca   

Replace 350% of fiscal 2012 production

Actual Performance: Replaced 472.7%; performance level of 200%

12.   Finding and development costs   

$2.20 per million cubic feet equivalent

Actual Performance: $1.68/Mcfe; performance level of 200%

13.  

Lease operating expense plus general and

administrative expense, per Mcfe

  

$1.70 per million cubic feet equivalent

Actual Performance: $1.65/Mcfe; performance level of 117%

14.  

Investor relations. Measured by one-on-one

meetings

  

Meetings with 75 different analysts or money managers

Actual Performance: 108 meetings; performance level of 200%

15.  

SOX Compliance. Measured by number of

material weaknesses and significant deficiencies

  

No material weaknesses and no significant deficiencies that aggregate to a material weakness

Actual Performance: No material weaknesses and no significant deficiencies identified during fiscal 2012; performance level of 200%

16.  

HEAP – NY. Measured by

number of basic grants collected

  

75,000

Actual Performance: 87,663; performance level of 200%

17.  

HEAP – PA. Measured by

number of basic grants collected

  

19,500

Actual Performance: 19,819; performance level of 121%

18.  

Customer service. Measured by the utility

segment’s quality performance standards in New York

  

0 penalty units assessed and at least 86% of calls answered within 30 seconds

Actual Performance: 0 penalty units and telephone response of 92.1%; performance level of 200%

19.  

Operational Safety. Measured by the utility

segment’s operational safety performance standards in New York

  

Complete two of three operational safety measures

Actual Performance: Three operational safety measures completed; performance level of 200%

20.   Meter reading at the utility   

Reduce the number of estimated meter reads and active meters with no Company read in New York or Pennsylvania

Actual Performance: Accomplished all performance levels in both states; performance level of 200%

21.   Distribution Capital Expenditures Budget   

90% of specified projects completed at or below the approved budget and not less than 95% of contractor bid amount

Actual Performance: 72% of specified projects; performance level of 0%

22.  

CEO Discretion. Individual performance

as subjectively determined by the CEO

  

Performance level of 100% on a scale of 0% to 200%

Actual Performance:100.59%

 

35


Long-Term Incentive Compensation

Stock options, restricted stock, restricted stock units, stock-settled stock appreciation rights (“SARs”) and the Performance Incentive Program represent the long-term incentive and retention component of the executive compensation package. Such awards are intended to focus attention on managing the Company from a long-term investor’s perspective. In addition, the Committee wishes to encourage officers and other managers to have a significant, personal investment in the Company through stock ownership. The Committee typically makes equity awards on an annual basis, but has not established a policy to make grants at a specific meeting, to allow flexibility to review and evaluate appropriate equity grant practices.

With respect to long-term incentive compensation, the Committee uses its business judgment to establish target awards based on the recommendations provided by its compensation consultants and the Chief Executive Officer. For fiscal 2012 awards, the Committee allocated approximately one-half of the long-term incentive opportunity to the cash-based Performance Incentive Program and one-half to equity based awards. Based on its consideration of the results of the Say on Pay advisory vote as well as opinions expressed by its long-term shareholders, for fiscal 2013 the Committee determined to allocate all of the long-term incentive opportunity to equity based awards — using both awards of SARs that vest in equal increments over the next three years and awards of performance-based Restricted Stock Units that vest, if at all, at the end of three fiscal years, only to the extent the performance condition is met.

For awards of SARs, the award is determined based on the value of each such awards derived using a Black-Scholes formula. For awards of restricted stock, if any, the award is valued based on the number of restricted stock awarded times the fair market value of the Company Common Stock at the time of grant. The Committee follows this practice as a means of limiting the dilutive effect of equity grants, while at the same time achieving the objective of having a meaningful percentage of the compensation of the executive officers linked to the value of the Company’s stock.

Stock Appreciation Rights, Stock Options and Restricted Stock

In fiscal 2012, the Committee awarded a portion of each executive officer’s target awards in the form of SARs rather than stock options, as they are less dilutive to stockholder equity, and a portion as Restricted Stock. The Committee anticipates that it will continue utilizing SARs, and Restricted Stock, or Restricted Stock Units, instead of options in the future. Vesting of these stock-settled SARs and Restricted Stock occurs in three annual installments. The SARs are not exercisable until December 19, 2014. The fiscal 2012 SARs and Restricted Stock granted to the named executive officers are set out in the Grants of Plan-Based Awards in Fiscal 2012 Table within this proxy statement.

Performance Incentive Program

The Performance Incentive Program is the Company’s cash-based, long-term incentive program, approved by the shareholders at the 2012 Annual Meeting of Stockholders. This program was adopted as a complement to the equity based programs and to provide another component of total compensation that is dependent on the Company’s relative performance.

Under the Performance Incentive Program, the Committee establishes target cash incentive opportunities for each officer whom the Committee has selected as eligible to participate. The Committee also establishes the performance period, which is typically a three-year period. The performance condition under the Program is the Company’s Total Return on Capital relative to the same metric for those companies reported in the Natural Gas Distribution and Integrated Natural Gas Companies group as calculated and reported in the Monthly Utility Reports (each, a “Monthly Utility Report”) of AUS, Inc., a leading industry consultant (“AUS”). This measure was chosen because it utilizes an independently selected group of industry peers. The natural gas distribution and integrated natural gas companies reported in the December 2012 AUS Monthly Utility Report are:

AGL Resources Inc.

Atmos Energy Corporation

 

36


Delta Natural Gas Company

Energen Corporation

Energy Transfer Equity, L.P.

EQT Corporation

Gas Natural, Inc.

Laclede Group, Inc.

National Fuel Gas Company

New Jersey Resources Corp.

Northwest Natural Gas Co.

ONEOK, Inc.

Piedmont Natural Gas Co., Inc.

Questar Corporation

RGC Resources, Inc.

South Jersey Industries, Inc.

Southwest Gas Corporation

WGL Holdings, Inc.

This financial metric reflects how profitably management is able to allocate capital to its operations and also because it provides a performance metric of relevance to all participants, regardless of the business segment(s) for which they provide services. Based on the level of performance over the applicable three-year performance period, a cash incentive payment may be made, ranging from 0% to 200% of the portion of each executive officers’ target incentives allocated to the Performance Incentive Program awards.

The target awards established for the current named executive officers for the October 1, 2011 through September 30, 2014 performance period are:

 

Mr. Smith

   $ 800,000   

Mr. Tanski

   $ 500,000   

Mr. Bauer

   $ 140,000   

Mr. Cabell

   $ 450,000   

Mrs. Cellino

   $ 240,000   

Generally, payment on awards made under the Performance Incentive Program will be made at the levels specified below, if the Company achieves performance as detailed below over the applicable three-year performance period:

 

National Fuel Rank as a Percentile

of Peer Group

   Percentage of Target
Incentive Payable
 

Less than 45.01%

     0

45.01%

     50

60%

     100

75%

     150

100%

     200

For threshold levels of performance between two established performance levels, the amount of target incentive payable will be determined by mathematical interpolation. Ranking of the companies in the Monthly Utility Reports is determined by calculating the average return on capital for each company for the three-year performance period and sorting the companies from highest to lowest.

The Committee has broad discretion to reduce the amount payable to any participant in the Performance Incentive Program. The Committee may reduce a payment based on any factors it may determine, including the participant’s individual performance. The Committee does not have upward discretion to increase the amount payable under the Performance Incentive Program.

At times, AUS does not include in its calculations gains realized on the sale of operations that are reported under Generally Accepted Accounting Principles as discontinued operations. The Committee previously determined, however, that payouts under the Program may take into account the results of the Company’s discontinued operations, if any.

 

37


Previously, the Committee had approved target incentives for the current named executive officers under this Program associated with the three-year performance period of October 1, 2009 through September 30, 2012. The performance metric for this period was the same as noted above, and the target incentives were as follows:

 

Mr. Smith

   $ 700,000   

Mr. Tanski

   $ 400,000   

Mr. Bauer

   $ 40,000   

Mr. Cabell

   $ 300,000   

Mrs. Cellino

   $ 225,000   

Because the Monthly Utility Report with the necessary data for fiscal 2012 will not be available until February of 2013, the actual award amounts earned for this performance period of October 1, 2009 through September 30, 2012 are currently unknown. The amounts shown in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation Column” as explained in footnote (2) within this proxy statement were accrued by the Company in fiscal 2012 as estimates of the amount which will be calculated and paid, in the second quarter of fiscal 2013. The estimated percentile of the Company’s total return on capital as compared with the Company’s peer group for the performance period of October 1, 2009 through September 30, 2012 would yield an incentive payment equal to 168.4% of the target award.

EMPLOYEE BENEFITS

Retirement Benefits

The Company maintains a qualified defined contribution retirement plan which includes a traditional 401(k) benefit as well as a Retirement Savings Account (“RSA”) benefit for eligible employees (i.e., those hired at various points in 2003 and thereafter, depending on employee type), a qualified defined benefit retirement plan (for those hired prior to various points in 2003), a non-qualified executive retirement plan and a non-qualified tophat plan. These plans help the Company attract and retain high caliber employees in high-level management positions, and, in the case of the non-qualified plans, restore retirement benefits lost to employees under the qualified retirement plans as a result of the effect of the Internal Revenue Code limits and the qualified plans’ limits on compensation considered and benefits provided under such qualified plans. The employee benefits for executive officers employed prior to 2003 differ from those made available to those employed during or after that year. The Company made changes to its programs that reflected a shift in competitive practices away from certain types of retirement benefits, but generally grandfathered existing employees (including executive officers) who were then in service in the benefits programs that are commensurate with those in the regulated energy industry.

Messrs. Smith and Tanski and Mrs. Cellino are eligible to participate in the qualified defined contribution retirement plan (traditional 401(k)), the qualified defined benefit retirement plan, and both of the non-qualified plans. Mr. Cabell is eligible to participate in the qualified defined contribution plan (including the RSA benefit) and the non-qualified tophat plan. Mr. Bauer is eligible to participate in the qualified defined contribution retirement plan (traditional 401(k) plan), the qualified defined benefit retirement plan and the non-qualified tophat plan. These benefits are described in more detail in the section entitled “Pension Benefits” within this proxy statement.

Executive Life Insurance

In 2004, the Committee authorized an insurance program known as the “ExecutiveLife Insurance Plan.” Under this plan, upon specific direction of the Company’s Chief Executive Officer, when an executive officer reaches age 50, the Company would pay the cost of a life insurance policy or policies, to be owned by the executive officer, in an amount up to $15,000 per year. The payment is taxable income to the executive officer and ceases when the executive officer’s employment ceases. The Committee authorized this plan as a replacement for its prior practice of providing split dollar life insurance agreements to designated executive officers. The Committee replaced the split dollar arrangement with

 

38


the current plan because it was prohibited by the Sarbanes-Oxley Act from making premium payments on certain split dollar policies due to their nature as loans. Mr. Tanski, Mr. Cabell and Mrs. Cellino are covered by the ExecutiveLife Insurance Plan.

Mr. Smith is not a participant in the ExecutiveLife Insurance Plan referenced above. In September 2009, the Company entered into an agreement with Mr. Smith (the Life Insurance Premium Agreement) whereby the Company pays to Mr. Smith up to $33,000 per year to be used for life insurance. The Committee recommended the agreement because the Company has been prohibited by the Sarbanes-Oxley Act from making premium payments on split dollar arrangements, as noted above. The payment is taxable income to Mr. Smith. Pursuant to the agreement, this agreement terminates on the earliest of: (1) Mr. Smith’s death; (2) October 31, 2017; or (3) the date Mr. Smith’s employment is terminated if for cause.

CHANGE IN CONTROL ARRANGEMENTS

The Company’s named executive officers serve at the pleasure of the Board of Directors and are not employed pursuant to employment agreements. Each of the named executive officers is a party to an Employment Continuation and Noncompetition Agreement (“ECNA”) with the Company, which would become effective upon a Change in Control of the Company.

If an executive officer’s employment is terminated without cause within a specific time following a Change in Control of the Company, many of the components of total compensation described above become immediately vested or paid out in a lump sum. More detail about these items and calculations as of September 30, 2012, are set forth in the section entitled “Potential Payments Upon Termination or Change in Control” within this proxy statement.

Upon recommendation by the Committee, in December of 1998 the Company adopted the amended and restated ECNA. In September of 2007, and again in September of 2008, the ECNA was amended and restated in order to be in compliance with Internal Revenue Code Section 409A and the final regulations promulgated thereunder. No enhancement to the benefit provided under the original agreement was added either time.

The Company and the Committee believe that these agreements are required for the attraction and retention of the executive talent needed to achieve corporate objectives and to assure that executive officers direct their attention to their duties, acting in the best interests of the stockholders, notwithstanding the potential for loss of employment in connection with a Change in Control.

The agreement contains a “double-trigger” provision that provides payment only if employment terminates within three years following a Change in Control, as defined in the agreement, either by the Company other than for cause or by the executive officer for good reason. The Committee believes this structure strikes a balance between the incentive and the executive attraction and retention efforts described above, without providing Change in Control benefits to executive officers who continue to enjoy employment with the Company in the event of a Change in Control transaction.

The payment is generally calculated by multiplying 1.99 by the sum of the executive officer’s current base salary plus the average of the annual short-term incentive compensation payment for the previous two fiscal years. The 1.99 multiplier is reduced on a pro-rata basis if termination occurs between age 62 and 65. There is no gross-up for taxes. If payment is triggered, certain health benefits are continued for the earlier of 18 months following termination or the date other similar coverage becomes available.

The ECNA contains a restrictive covenant whereby the executive officer may, upon termination following a Change in Control, choose to refrain from being employed by or otherwise serving as an agent, consultant, partner or major stockholder of a business engaged in activity that is competitive with that of the Company or its subsidiaries. If the executive officer so chooses to be bound by this restrictive covenant, an additional payment is made in the amount of one times the sum of current base salary plus

 

39


the average of the annual short-term incentive compensation payment for the previous two fiscal years. There is no gross-up for taxes. The Committee and the Company believe this is an appropriate payment in exchange for the non-compete covenant agreed to by the executive officer.

OWNERSHIP GUIDELINES

In fiscal 2002, in an effort to emphasize the importance of stock ownership and after consultation with the Compensation Committee, Company Common Stock ownership guidelines were established for officers. These guidelines range from one times base salary for junior officers to four times base salary at the Chief Executive Officer level. Other employees receiving options and SARs are encouraged to retain their Common Stock for long-term investment. We believe that employees who are stockholders perform their jobs in a manner that considers the long-term interests of the stockholders. Company Directors are also subject to ownership requirements, as noted on page 13 of this proxy statement.

TAX AND ACCOUNTING CONSIDERATIONS

In designing the Company’s compensation program, consideration is given to the accounting treatment of the awards made to our executive officers and pertinent tax law provisions. In granting stock settled SARs in lieu of options, the Company took into account that such SARs result in the same financial accounting cost as would have applied to a comparable award of options, but resulted in less dilution to stockholders. Section 162(m) of the Internal Revenue Code prohibits the Company from deducting compensation paid in excess of $1 million per year to any executive officer listed in the Summary Compensation Table unless such compensation qualifies as “performance-based compensation” within the meaning of Section 162(m). The Committee has generally designed the At Risk Plan, the Performance Incentive Program and the short-term cash incentive compensation payable thereunder, and long-term equity awards to qualify for this performance based exception. However, the Committee may elect to award compensation that is not fully deductible, if the Committee determines that such award is consistent with its philosophy and is in the best interests of the Company and its stockholders. The Company has also designed its compensation program with the intent that any awards granted thereunder will either be exempt from, or comply with the applicable requirements under Section 409A of the Internal Revenue Code.

 

40


Summary Compensation Table

The following table sets forth a summary of the compensation paid to or earned by each person who served as the Chief Executive Officer, the principal financial officer and each of the three other most highly compensated executive officers (the “named executive officers”) of the Company in fiscal 2012. The compensation reflected for each officer was for the officer’s services provided in all capacities to the Company and its subsidiaries.

 

Name and Principal

Position

  Fiscal
Year
    Salary
($)
    Bonus
($)(1)
    Stock
Awards
($)(2)
    Equity
Awards
($)(2)
    Non-Equity
Incentive
Plan
Compensation
($)(3)
    Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(4)
    All Other
Compensation
($)(5)
    Total
($)
 

David F. Smith

    2012        880,000        N/A        550,900        448,008        2,251,960        3,234,805        151,211        7,516,884   

Chairman and Chief

    2011        835,000        N/A        598,734        574,838        2,548,307        2,203,193        171,440        6,931,512   

Executive Officer of the

    2010        772,500        N/A        0        1,507,675        2,328,379        2,230,428        159,235        6,998,217   

Company

                 

David P. Bauer

    2012        293,750        33,242        68,863        56,001        249,118        178,196        23,728        902,898   

Treasurer and Principal

    2011        268,750        44,288        79,831        76,645        206,232        74,142        20,039        769,927   

Financial Officer of the

    2010        223,413        81,354        0        48,246        105,302        67,016        15,395        540,726   

Company

                 

Ronald J. Tanski

    2012        681,000        N/A        344,313        280,005        1,313,740        1,845,542        96,124        4,560,724   

President and Chief

    2011        652,500        N/A        399,156        383,225        1,441,644        1,727,500        104,539        4,708,564   

Operating Officer of the

    2010        601,250        N/A        0        844,298        1,481,904        1,693,463        105,304        4,726,219   

Company

                 

Matthew D. Cabell

    2012        573,750        N/A        309,881        252,005        950,602        N/A        58,412        2,144,650   

President of Seneca

    2011        547,789        N/A        359,241        344,903        1,080,220        N/A        55,962        2,388,115   

Resources

    2010        503,750        N/A        0        663,377        1,012,417        N/A        52,538        2,232,082   

Corporation

                 

Anna Marie Cellino

    2012        482,250        N/A        206,588        168,003        964,761        1,420,489        79,695        3,321,786   

President of National Fuel

    2011        458,750        N/A        239,494        229,935        888,653        1,047,211        76,204        2,940,247   

Gas Distribution Corporation

    2010        430,000        N/A        0        422,149        724,834        943,312        74,398        2,594,693   

 

(1)

For fiscal 2012 and fiscal 2011, this column represents the portion of Mr. Bauer’s EACIP payment which was based on the CEO’s subjective determination of Mr. Bauer’s performance. Mr. Bauer was not an executive officer at the beginning of fiscal 2010 and was not a participant in the EACIP that year. For fiscal 2010, this column represents the portion of Mr. Bauer’s annual cash incentive which was based on the CEO’s subjective determination of Mr. Bauer’s performance ($67,024), plus an additional amount recommended by the CEO and approved by the Compensation Committee ($14,330). With the exception of this $14,330 payment, the amounts in this column for fiscal years 2011 and 2010 have been reclassified from the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

 

(2)

The stock and equity award values show the full grant date fair value of stock and SAR awards. For information on the valuation assumptions with respect to these awards, refer to Note A under the heading “Stock-Based Compensation” in the Company’s financial statements in its Form 10-K for the fiscal year ended September 30, 2012 (“2012 Form 10-K”).

 

(3)

For fiscal 2012, for Messrs. Smith, Tanski and Cabell and Mrs. Cellino, this column reflects both an estimated Performance Incentive Program payment expected to be paid by March 15, 2013 ($1,178,800 for Mr. Smith, $673,600 for Mr. Tanski, $505,200 for Mr. Cabell and $378,900 for Mrs. Cellino) and the actual At Risk Plan payment made in December 2012 ($1,073,160 for Mr. Smith, $640,140 for Mr. Tanski, $445,402 for Mr. Cabell and $585,861 for Mrs. Cellino). For Mr. Bauer, this column represents the estimated Performance Incentive Program payment expected to be paid by March 15, 2013 of $67,360 and an annual incentive payment of $181,758.

 

    

For the three-year performance period ended September 30, 2012, the Company estimates that its performance relative to its peer group will result in a payout of approximately 168.40% of the “Target Incentive Opportunity” set for each of the participants in the Performance Incentive Program. This estimate of 168.40% is subject to change based on the final AUS report for the performance period ended September 30, 2012.

 

    

With respect to fiscal 2011, the estimated Performance Incentive amount that was in the fiscal 2011 proxy has been updated for actual Performance Incentive Program payments made in March 2012 ($1,091,232 for Mr. Smith, $631,500 for Mr. Tanski, $404,160 for Mr. Cabell, $336,800 for Mrs. Cellino and $50,520 for Mr. Bauer).

 

41


    

Please refer to the Compensation Discussion and Analysis for additional information about these programs, including information regarding the performance conditions applicable to the awards.

 

(4)

This column represents the actuarial increase in the present value of the named executive officer’s benefits under all pension plans maintained by the Company determined using interest rate and mortality rate assumptions consistent with those used in the Company’s financial statements in its 2012 Form 10-K, as described in Note H, “Retirement Plan and Other Post-Retirement Benefits.” The amount for Mr. Bauer also includes the actuarial increase in the present value of his Retirement Plan-Related Tophat. These amounts may include amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested as of September 30, 2012, 2011 and 2010, respectively. For fiscal 2012, the amount includes above market earnings under the Deferred Compensation Plan for Mrs. Cellino of $3,717. See the narrative, tables and notes to the Pension Plan and the Nonqualified Deferred Compensation Plan within this proxy statement.

 

(5)

All Other Compensation Table *

The following table describes each component of the All Other Compensation column in the Summary Compensation Table for fiscal 2012.

 

Description

   David F.
Smith
($)
     David P.
Bauer
($)
     Ronald J.
Tanski
($)
     Matthew D.
Cabell
($)
     Anna Marie
Cellino
($)
 

Defined Contributions(a)

     14,900         10,767         14,900         14,917         14,900   

401(k) Tophat(b)

     102,090         11,575         64,228         13,000         49,072   

RSA Tophat(c)

     0         0         0         15,375         0   

Employee Stock Ownership Plan (ESOP) Supplemental Payment(d)

     1,061         0         1,876         0         603   

Life Insurance(e)

     33,000         1,334         15,000         15,000         15,000   

Travel Accident Insurance(f)

     160         52         120         120         120   

Total

     151,211         23,728         96,124         58,412         79,695   

 

 *

The aggregate amount of perquisites or other personal benefits is less than $10,000 for each of the named officers.

 

a)

Represent the Company matching contributions for all named executive officers within the 401(k) and the Company contribution into the Retirement Savings Account (RSA) plan for Mr. Cabell. Each officer receives a Company match within the 401(k) plan on the lesser of a) their base salary or b) the IRS annual compensation limits. Messrs. Smith, and Tanski and Mrs. Cellino receive a 6% match in the 401(k) plan. For the period of 10/1/11 to 1/31/12, Mr. Cabell and Mr. Bauer received a 401(k) match of 3% and 4% respectively. For the balance of the fiscal year, Mr. Cabell and Mr. Bauer received a 401(k) match of 4.5%.

 

    

In addition, Mr. Cabell is a participant in the Company’s RSA Plan and receives a 2% Company contribution on the portion of his base salary plus annual bonus that does not exceed the IRS annual compensation limits.

 

b)

Each officer is prohibited from receiving the full 401(k) Company match on their salary due to the IRS annual compensation limits. The 401(k) Tophat gives each officer, except Mr. Cabell, a Company match on the following forms of compensation: i.) base salary that exceeds the IRS annual compensation limit; ii.) EACIP payment; and iii.) At Risk Plan payment, as applicable. For Mr. Cabell, the 401(k) Tophat is based on his annual base salary that exceeds the IRS maximum annual compensation limits. The 401(k) Tophat represent the benefit earned in fiscal 2012.

 

c)

Represents the Company contributions on Mr. Cabell’s base salary plus At Risk Plan payment that exceeded the IRS annual compensation limit. The RSA Tophat represents the benefit earned in fiscal 2012.

 

d)

All management participants who were hired prior to December 31, 1986, participate in the ESOP which pays dividends to the participants on the Common Stock held in the plan. The participant does not have the option to reinvest these dividends in order to defer the federal and state income taxes on these dividends. Therefore, the Company makes supplemental payments representing the approximate amount the Company saves in corporate income taxes. The ESOP is a qualified benefit plan that was frozen in 1987 and closed to future participants.

 

e)

Represents the Company-paid life insurance premiums on behalf of Messrs. Tanski, and Cabell and Mrs. Cellino, under the ExecutiveLife Insurance Plan. The Company also reimbursed Mr. Smith $33,000 under the Life Insurance Premium Agreement. For Mr. Bauer, this represents the Company paid insurance premiums under the National Fuel Gas Company Group Life Insurance Plan.

 

f)

Represents the premiums paid for the blanket travel insurance policy, which provides a death benefit to beneficiaries of an officer if the officer dies while traveling.

 

42


Grants of Plan-Based Awards in Fiscal 2012

The following table sets forth information with respect to awards granted to the named executive officers during fiscal 2012 under the Performance Incentive Program, the At Risk Plan, the EACIP, the 1997 Award and Option Plan and the 2010 Equity Compensation Plan. Please refer to the CD&A within this proxy statement for additional information regarding these plans.

 

                Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards
    All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(1)
    All Other
SAR
Awards:
Number of
Securities
Underlying
SARs
(#)(2)
    Exercise or
Base
Price of
SAR
Awards
($/Sh)
    Grant Date
Fair Value of
SAR/Stock
Awards
($)(5)
 

Name

  Note     Grant
Date
    Threshold
($)
    Target
($)
    Maximum
         ($)          
         

David F. Smith

    (1     12/19/11              10,000            550,900   
    (2     12/19/11                40,000        55.09        448,008   
    (3     12/19/11        0        800,000        1,600,000           
    (4     12/20/11        412,500        880,000        1,760,000           

David P. Bauer

    (1     12/19/11              1,250            68,863   
    (2     12/19/11                5,000        55.09        56,001   
    (3     12/19/11        0        140,000        280,000           
    (4     12/20/11        61,963        132,188        264,376           

Ronald J. Tanski

    (1     12/19/11              6,250            344,313   
    (2     12/19/11                25,000        55.09        280,005   
    (3     12/19/11        0        500,000        1,000,000           
    (4     12/20/11        255,375        544,800        1,089,600           

Matthew D. Cabell

    (1     12/19/11              5,625            309,881   
    (2     12/19/11                22,500        55.09        252,005   
    (3     12/19/11        0        450,000        900,000           
    (4     12/20/11        105,427        401,625        803,250           

Anna Marie Cellino

    (1     12/19/11              3,750            206,588   
    (2     12/19/11                15,000        55.09        168,003   
    (3     12/19/11        0        240,000        480,000           
    (4     12/20/11        158,238        337,575        675,150           

 

(1)

The shares of restricted stock shown on this table were granted under the 1997 Award and Option Plan and vest in one-third increments on the anniversary date of the award. Please refer to the narrative disclosure under “Potential Payments Upon Termination or Change in Control” section within this proxy statement for additional information regarding termination prior to and after the vest date of the restricted stock.

 

(2)

The stock appreciation rights shown on this table were granted under the 1997 Award and Option Plan with a ten-year term, and will vest in one-third increments on December 19, 2012, 2013 and 2014. The exercise price of the SARs is based on the average of the high and low market price of the Common Stock on the date of grant. The SARs may be exercised any time after December 19, 2014 and prior to the expiration date as such is shown in the Outstanding Equity Awards table that follows, as long as the holder remains employed by the Company, and subject to the Company’s Insider Trading Policy. Please refer to the narrative disclosure under “Potential Payments Upon Termination or Change in Control” section within this proxy statement for additional information regarding termination prior to and after the vest date of the SARs.

 

(3)

Represents the range of possible payments under the National Fuel Gas Company 2012 Performance Incentive Program for which target awards were established in fiscal 2012 with a performance period that begins October 1, 2011 and ends on September 30, 2014.

 

(4)

For Messrs. Smith, Tanski and Cabell and Mrs. Cellino, this represents the annual cash incentive set in fiscal 2012 under the At Risk Plan. For Mr. Bauer, this represents the annual cash incentive under the EACIP. The amount actually paid for fiscal 2012 is set forth in the Summary Compensation Table under the “Non-Equity Incentive Plan Compensation” column. Please refer to the CD&A for additional information about the performance conditions applicable to each payment.

 

(5)

The equity award values reflect the fair value of SARs and restricted stock at the date of grant. Refer to Note A under the heading “Stock-Based Compensation” in the Company’s financial statements in its 2012 Form 10-K.

 

43


Outstanding Equity Awards at Fiscal Year-End 2012

The following table sets forth, on an award-by-award basis, the number of securities underlying unexercised stock options or SARs and the total number and aggregate market value of shares of unvested restricted stock held by the named executives, as of September 30, 2012. The table also provides the exercise price, which is the FMV (the average of the high and low on grant date) and date of expiration of each unexercised stock option or SAR.

 

    Option/SAR Awards     Stock Awards  

Name

  Grant
Date(1)
    Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
(#)(1)
    Option/SAR
Exercise
Price
($)(2)
    Option/SAR
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3)
    Market
Value of
Shares
or Units
of Stock
That

Have
Not
Vested
($)(3)
 

David F. Smith

    03/29/05        50,000        0        28.16        03/30/2015        0        0   
    05/10/06        55,000        0        35.11        05/10/2016        0        0   
    12/06/06        60,000        0        39.48        12/06/2016        0        0   
    02/20/08        23,333        0        47.37        02/20/2018        0        0   
    12/22/08        150,000        0        29.88        12/22/2018        0        0   
    03/11/10        83,333        41,667        52.10        03/11/2020        0        0   
    12/20/10        0        0        0        N/A        6,250        337,750   
    12/20/10        12,500        25,000        63.87        12/20/2020        0        0   
    12/19/11        0        0        0        N/A        10,000        540,400   
    12/19/11        0        40,000        55.09        12/19/2021        0        0   

David P. Bauer

    03/29/05        25,000        0        28.16        03/30/2015        0        0   
    05/10/06        3,500        0        35.11        05/10/2016        0        0   
    12/06/06        5,000        0        39.48        12/06/2016        0        0   
    02/20/08        1,166        0        47.37        02/20/2018        0        0   
    12/22/08        6,000        0        29.88        12/22/2018        0        0   
    03/11/10        2,666        1,334        52.10        03/11/2020        0        0   
    12/20/10        0        0        0        N/A        834        45,069   
    12/20/10        1,666        3,334        63.87        12/20/2020        0        0   
    12/19/11        0        0        0        N/A        1,250        67,550   
    12/19/11        0        5,000        55.09        12/19/2021        0        0   

Ronald J. Tanski

    03/29/05        18,700        0        28.16        03/30/2015        0        0   
    05/10/06        36,000        0        35.11        05/10/2016        0        0   
    12/06/06        45,000        0        39.48        12/06/2016        0        0   
    02/20/08        15,000        0        47.37        02/20/2018        0        0   
    12/22/08        75,000        0        29.88        12/22/2018        0        0   
    03/11/10        46,666        23,334        52.10        03/11/2020        0        0   
    12/20/10        0        0        0        N/A        4,167        225,185   
    12/20/10        8,333        16,667        63.87        12/20/2020        0        0   
    12/19/11        0        0        0        N/A        6,250        337,750   
    12/19/11        0        25,000        55.09        12/19/2021        0        0   

Matthew D. Cabell

    12/11/06        100,000        0        39.50        12/11/2016        0        0   
    12/05/07        0        0        0        N/A        20,000        1,080,800   
    02/20/08        8,333        0        47.37        02/20/2018        0        0   
    12/22/08        60,000        0        29.88        12/22/2018        0        0   
    09/17/09        0        0        0        N/A        35,000        1,891,400   
    03/11/10        36,666        18,334        52.10        03/11/2020        0        0   
    12/20/10        0        0        0        N/A        3,750        202,650   
    12/20/10        7,500        15,000        63.87        12/20/2020        0        0   
    12/19/11        0        0        0        N/A        5,625        303,975   
    12/19/11        0        22,500        55.09        12/19/2021        0        0   

 

44


    Option/SAR Awards     Stock Awards  

Name

  Grant
Date(1)
    Number of
Securities
Underlying
Unexercised
Options/SARs
Exercisable
(#)
    Number of
Securities
Underlying
Unexercised
Options/SARs
Unexercisable
(#)(1)
    Option/SAR
Exercise
Price
($)(2)
    Option/SAR
Expiration
Date
    Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(3)
    Market
Value of
Shares
or Units
of Stock
That
Have

Not
Vested
($)(3)
 

Anna Marie Cellino

    03/29/05        30,000        0        28.16        03/30/2015        0        0   
    05/10/06        12,000        0        35.11        05/10/2016        0        0   
    12/06/06        15,000        0        39.48        12/06/2016        0        0   
    02/20/08        4,166        0        47.37        02/20/2018        0