NATIONAL FUEL GAS CO, 10-Q filed on 2/5/2016
Quarterly Report
Document And Entity Information
3 Months Ended
Dec. 31, 2015
Jan. 31, 2016
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Dec. 31, 2015 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q1 
 
Entity Registrant Name
NATIONAL FUEL GAS CO 
 
Entity Central Index Key
0000070145 
 
Current Fiscal Year End Date
--09-30 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
84,790,295 
Trading Symbol
nfg 
 
Consolidated Statements Of Income And Earnings Reinvested In The Business (Unaudited) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
INCOME
 
 
Operating Revenues
$ 375,195 
$ 523,909 
Operating Expenses
 
 
Purchased Gas
42,068 
127,091 
Operation and Maintenance
112,692 
112,582 
Property, Franchise and Other Taxes
20,357 
20,929 
Depreciation, Depletion and Amortization
70,551 
102,747 
Impairment of Oil and Gas Producing Properties
435,451 
Total Operating Expenses
681,119 
363,349 
Operating Income (Loss)
(305,924)
160,560 
Other Income (Expense):
 
 
Interest Income
1,799 
1,258 
Other Income
2,418 
1,183 
Interest Expense on Long-Term Debt
(30,372)
(22,311)
Other Interest Expense
(1,380)
(790)
Income (Loss) Before Income Taxes
(333,459)
139,900 
Income Tax Expense (Benefit)
(144,350)
55,160 
Net Income (Loss) Available for Common Stock
(189,109)
84,740 
EARNINGS REINVESTED IN THE BUSINESS
 
 
Balance at Beginning of Period
1,103,200 
1,614,361 
Beginning Retained Earnings Unappropriated And Current Period Net Income Loss
914,091 
1,699,101 
Dividends on Common Stock
(33,472)
(32,442)
Balance at December 31
$ 880,619 
$ 1,666,659 
Earnings Per Common Share, Basic:
 
 
Net Income (Loss) Available for Common Stock (in dollars per share)
$ (2.23)
$ 1.01 
Earnings Per Common Share, Diluted:
 
 
Net Income (Loss) Available for Common Stock (in dollars per share)
$ (2.23)
$ 1.00 
Weighted Average Common Shares Outstanding:
 
 
Used in Basic Calculation (shares)
84,651,233 
84,208,645 
Used in Diluted Calculation (shares)
84,651,233 
85,118,516 
Dividends Per Common Share:
 
 
Dividends Declared (in dollars per share)
$ 0.395 
$ 0.385 
Consolidated Statements Of Comprehensive Income (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]
 
 
Net Income (Loss) Available for Common Stock
$ (189,109)
$ 84,740 
Other Comprehensive Income (Loss), Before Tax:
 
 
Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period
(638)
(412)
Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period
65,372 
243,829 
Reclassification Adjustment for Realized (Gains) Losses on Derivative Financial Instruments in Net Income
(57,170)
(24,265)
Other Comprehensive Income (Loss), Before Tax
7,564 
219,152 
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Securities Available for Sale Arising During the Period
(191)
(160)
Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period
20,676 
102,949 
Reclassification Adjustment for Income Tax Benefit (Expense) on Realized Losses (Gains) from Derivative Financial Instruments in Net Income
(18,005)
(10,089)
Income Taxes – Net
2,480 
92,700 
Other Comprehensive Income
5,084 
126,452 
Comprehensive Income (Loss)
$ (184,025)
$ 211,192 
Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Sep. 30, 2015
ASSETS
 
 
Property, Plant and Equipment
$ 9,311,376 
$ 9,261,323 
Less - Accumulated Depreciation, Depletion and Amortization
4,428,593 
3,929,428 
Property, Plant and Equipment, Net, Total
4,882,783 
5,331,895 
Current Assets
 
 
Cash and Temporary Cash Investments
36,329 
113,596 
Hedging Collateral Deposits
9,551 1
11,124 1
Receivables – Net of Allowance for Uncollectible Accounts of $30,946 and $29,029, Respectively
211,112 
105,004 
Unbilled Revenue
40,178 
20,746 
Gas Stored Underground
28,811 
34,252 
Materials and Supplies - at average cost
32,389 
30,414 
Other Current Assets
66,145 
60,665 
Total Current Assets
424,515 
375,801 
Other Assets
 
 
Recoverable Future Taxes
172,205 
168,214 
Unamortized Debt Expense
2,085 
2,218 
Other Regulatory Assets
275,721 
278,227 
Deferred Charges
16,410 
15,129 
Other Investments
108,209 
92,990 
Goodwill
5,476 
5,476 
Prepaid Post-Retirement Benefit Costs
25,357 
24,459 
Fair Value of Derivative Financial Instruments
277,409 
270,363 
Other
162 
167 
Total Other Assets
883,034 
857,243 
Total Assets
6,190,332 
6,564,939 
Capitalization:
 
 
Common Stock, $1 Par Value Authorized - 200,000,000 Shares; Issued and Outstanding - 84,739,068 Shares and 84,594,383 Shares, Respectively
84,739 
84,594 
Paid in Capital
748,867 
744,274 
Earnings Reinvested in the Business
880,619 
1,103,200 
Accumulated Other Comprehensive Income
98,456 
93,372 
Total Comprehensive Shareholders’ Equity
1,812,681 
2,025,440 
Long-term Debt Noncurrent, Net of Unamortized Discount and Debt Issuance Costs
2,084,562 
2,084,009 
Total Capitalization
3,897,243 
4,109,449 
Current and Accrued Liabilities
 
 
Notes Payable to Banks and Commercial Paper
31,400 
Current Portion of Long-Term Debt
Accounts Payable
126,917 
180,388 
Amounts Payable to Customers
45,076 
56,778 
Dividends Payable
33,472 
33,415 
Interest Payable on Long-Term Debt
30,285 
36,200 
Customer Advances
23,425 
16,236 
Customer Security Deposits
16,757 
16,490 
Other Accruals and Current Liabilities
95,830 
96,557 
Fair Value of Derivative Financial Instruments
7,969 
10,076 
Total Current and Accrued Liabilities
411,131 
446,140 
Deferred Credits
 
 
Deferred Income Taxes
999,399 
1,137,962 
Taxes Refundable to Customers
94,468 
89,448 
Unamortized Investment Tax Credit
644 
731 
Cost of Removal Regulatory Liability
184,784 
184,907 
Other Regulatory Liabilities
113,187 
108,617 
Pension and Other Post-Retirement Liabilities
205,431 
202,807 
Asset Retirement Obligations
158,108 
156,805 
Other Deferred Credits
125,937 
128,073 
Total Deferred Credits
1,881,958 
2,009,350 
Commitments and Contingencies
Total Capitalization and Liabilities
$ 6,190,332 
$ 6,564,939 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2015
Sep. 30, 2015
Statement of Financial Position [Abstract]
 
 
Receivables, Allowance for Uncollectible Accounts
$ 30,946 
$ 29,029 
Common Stock, Par Value
$ 1 
$ 1 
Common Stock, Shares Authorized
200,000,000 
200,000,000 
Common Stock, Shares Issued
84,739,068 
84,594,383 
Common Stock, Shares Outstanding
84,739,068 
84,594,383 
Consolidated Statements Of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Dec. 31, 2015
Dec. 31, 2014
OPERATING ACTIVITIES
 
 
Net Income (Loss) Available for Common Stock
$ (189,109)
$ 84,740 
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
 
 
Impairment of Oil and Gas Producing Properties
435,451 
Depreciation, Depletion and Amortization
70,551 
102,747 
Deferred Income Taxes
(140,013)
33,207 
Excess Tax Benefits Associated with Stock-Based Compensation Awards
(226)
(7,667)
Stock-Based Compensation
960 
3,078 
Other
3,418 
2,358 
Change in:
 
 
Hedging Collateral Deposits
1,573 
(10,734)
Receivables and Unbilled Revenue
(31,150)
(60,947)
Gas Stored Underground and Materials and Supplies
3,466 
9,386 
Other Current Assets
(5,254)
(5,635)
Accounts Payable
(20,784)
19,378 
Amounts Payable to Customers
(11,702)
2,249 
Customer Advances
7,189 
1,431 
Customer Security Deposits
267 
630 
Other Accruals and Current Liabilities
(14,353)
(6,416)
Other Assets
885 
2,142 
Other Liabilities
2,904 
19,132 
Net Cash Provided by Operating Activities
114,073 
189,079 
INVESTING ACTIVITIES
 
 
Capital Expenditures
(186,437)
(244,927)
Net Proceeds from Sale of Oil and Gas Producing Properties
10,574 
Other
(15,756)
(1,229)
Net Cash Used in Investing Activities
(191,619)
(246,156)
Financing Activities
 
 
Changes in Notes Payable to Banks and Commercial Paper
31,400 
87,300 
Excess Tax Benefits Associated with Stock-Based Compensation Awards
226 
7,667 
Dividends Paid on Common Stock
(33,415)
(32,400)
Net Proceeds from Issuance of Common Stock
2,068 
1,548 
Net Cash Provided by Financing Activities
279 
64,115 
Net Increase (Decrease) in Cash and Temporary Cash Investments
(77,267)
7,038 
Cash and Temporary Cash Investments at October 1
113,596 
36,886 
Cash and Temporary Cash Investments at December 31
36,329 
43,924 
Supplemental Disclosure of Cash Flow Information, Non-Cash Investing Activities:
 
 
Non-Cash Capital Expenditures
93,983 
101,664 
Receivable from Sale of Oil and Gas Producing Properties
$ 94,364 
$ 0 
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies
Summary of Significant Accounting Policies
 
Principles of Consolidation.  The Company consolidates all entities in which it has a controlling financial interest.  All significant intercompany balances and transactions are eliminated.
 
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Reclassification. Due to the adoption of the authoritative guidance regarding the presentation of deferred income taxes, certain prior year amounts have been reclassified to conform with current year presentation. The Company reclassified Deferred Income Taxes of $137.2 million previously shown as Current Assets to Deferred Income Taxes shown as Deferred Credits on the Consolidated Balance Sheet at September 30, 2015.

Earnings for Interim Periods.  The Company, in its opinion, has included all adjustments (which consist of only normally recurring adjustments, unless otherwise disclosed in this Form 10-Q) that are necessary for a fair statement of the results of operations for the reported periods. The consolidated financial statements and notes thereto, included herein, should be read in conjunction with the financial statements and notes for the years ended September 30, 2015, 2014 and 2013 that are included in the Company's 2015 Form 10-K.  The consolidated financial statements for the year ended September 30, 2016 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.
 
The earnings for the three months ended December 31, 2015 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2016.  Most of the business of the Utility and Energy Marketing segments is seasonal in nature and is influenced by weather conditions.  Due to the seasonal nature of the heating business in the Utility and Energy Marketing segments, earnings during the winter months normally represent a substantial part of the earnings that those segments are expected to achieve for the entire fiscal year.  The Company’s business segments are discussed more fully in Note 7 – Business Segment Information.
 
Consolidated Statement of Cash Flows.  For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of generally three months or less to be cash equivalents.
 
Hedging Collateral Deposits.  This is an account title for cash held in margin accounts funded by the Company to serve as collateral for hedging positions.  In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instruments liability or asset balances.
 
Gas Stored Underground.  In the Utility segment, gas stored underground is carried at lower of cost or market, on a LIFO method.  Gas stored underground normally declines during the first and second quarters of the year and is replenished during the third and fourth quarters.  In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.”  Such reserve, which amounted to $1.0 million at December 31, 2015, is reduced to zero by September 30 of each year as the inventory is replenished.
 
Property, Plant and Equipment.  In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.
 
Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired.  Such costs amounted to $169.5 million and $176.3 million at December 31, 2015 and September 30, 2015, respectively.  All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the pool of capitalized costs being amortized.
 
Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The natural gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter.  The book value of the oil and gas properties exceeded the ceiling at December 31, 2015. As such, the Company recognized a pre-tax impairment charge of $435.5 million for the quarter ended December 31, 2015. A deferred income tax benefit of $182.9 million related to the impairment charge was also recognized for the quarter ended December 31, 2015. In adjusting estimated future cash flows for hedging under the ceiling test at December 31, 2015, estimated future net cash flows were increased by $253.7 million.

On December 1, 2015, Seneca and IOG - CRV Marcellus, LLC (IOG), an affiliate of IOG Capital, LP, and funds managed by affiliates of Fortress Investment Group, LLC, executed a joint development agreement that allows IOG to participate in the development of certain oil and gas interests owned by Seneca in Elk, McKean and Cameron Counties, Pennsylvania. Under the terms of the agreement, Seneca and IOG will jointly participate in a program that will develop up to 80 Marcellus wells, with Seneca serving as program operator. IOG will hold an 80% working interest and is obligated to participate in the first 42 wells, and has a one-time option to participate in the remaining 38 wells that can be exercised on or before July 1, 2016. With respect to the first 42 wells, IOG has committed to fund up to $231 million to develop the joint wells. At December 31, 2015, Seneca recorded $10.6 million of cash, a $94.4 million receivable (which was received in January 2016) and a $105 million reduction of property, plant and equipment in recognition of the first installment of IOG funding that is due to Seneca for costs previously incurred to develop a portion of the first 42 wells. As the fee-owner of the property’s mineral rights, Seneca retains a 7.5% royalty interest and the remaining 20% working interest (26% net revenue interest) in the first 42 wells. If IOG exercises its option to participate in the remaining 38 wells, IOG has agreed to fund up to an additional $211 million to develop such joint wells. Seneca will retain a 10% royalty and the remaining 20% working interest (28% net revenue interest) in the remaining 38 wells. Seneca’s working interest under the agreement will increase to 85% after IOG achieves a 15% internal rate of return.
Accumulated Other Comprehensive Income.  The components of Accumulated Other Comprehensive Income and changes for the three months ended December 31, 2015 and 2014, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands): 
 
Gains and Losses on Derivative Financial Instruments
Gains and Losses on Securities Available for Sale
Funded Status of the Pension and Other Post-Retirement Benefit Plans
Total
Three Months Ended December 31, 2015
 
 
 
 
Balance at October 1, 2015
$
157,197

$
5,969

$
(69,794
)
$
93,372

Other Comprehensive Gains and Losses Before Reclassifications
44,696

(447
)

44,249

Amounts Reclassified From Other Comprehensive Income
(39,165
)


(39,165
)
Balance at December 31, 2015
$
162,728

$
5,522

$
(69,794
)
$
98,456

Three Months Ended December 31, 2014
 
 
 
 
Balance at October 1, 2014
$
43,659

$
8,382

$
(56,020
)
$
(3,979
)
Other Comprehensive Gains and Losses Before Reclassifications
140,880

(252
)

140,628

Amounts Reclassified From Other Comprehensive Income
(14,176
)


(14,176
)
Balance at December 31, 2014
$
170,363

$
8,130

$
(56,020
)
$
122,473

 
 
 
 
 

Reclassifications Out of Accumulated Other Comprehensive Income.  The details about the reclassification adjustments out of accumulated other comprehensive income for the three months ended December 31, 2015 and 2014 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):
Details About Accumulated Other Comprehensive Income (Loss) Components
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income
Affected Line Item in the Statement Where Net Income (Loss) is Presented
 
Three Months Ended December 31,
 
 
2015
2014
 
Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:
 
 
 
     Commodity Contracts

$56,327


$20,036

Operating Revenues
     Commodity Contracts
920

4,229

Purchased Gas
     Foreign Currency Contracts
(77
)

Operation and Maintenance Expense
 
57,170

24,265

Total Before Income Tax
 
(18,005
)
(10,089
)
Income Tax Expense
 

$39,165


$14,176

Net of Tax

Other Current Assets.  The components of the Company’s Other Current Assets are as follows (in thousands):
                            
At December 31, 2015
 
At September 30, 2015
 
 
 
 
Prepayments
$
8,727

 
$
10,743

Prepaid Property and Other Taxes
15,143

 
13,709

Federal Income Taxes Receivable
7,120

 

Fair Values of Firm Commitments
16,618

 
15,775

Regulatory Assets
18,537

 
20,438

 
$
66,145

 
$
60,665


 
Other Accruals and Current Liabilities.  The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):
                            
At December 31, 2015
 
At September 30, 2015
 
 
 
 
Accrued Capital Expenditures
$
61,362

 
$
53,652

Regulatory Liabilities
4,695

 
5,346

Reserve for Gas Replacement
976

 

Federal Income Taxes Payable

 
5,686

State Income Taxes Payable
751

 
1,170

Other
28,046

 
30,703

 
$
95,830

 
$
96,557


 
Earnings Per Common Share.  Basic earnings per common share is computed by dividing income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For purposes of determining earnings per common share, the potentially dilutive securities the Company has outstanding are stock options, SARs, restricted stock units and performance shares.  As the Company recognized a net loss for the quarter ended December 31, 2015, the aforementioned securities, amounting to 394,205 securities, were not recognized in the diluted earnings per share calculation for the quarter ended December 31, 2015. For 2014, the diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method.  Stock options, SARs, restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share.  There were 2,461 securities excluded as being antidilutive for the quarter ended December 31, 2014.
 
Stock-Based Compensation.  The Company granted 309,996 performance shares during the quarter ended December 31, 2015. The weighted average fair value of such performance shares was $30.71 per share for the quarter ended December 31, 2015. Performance shares are an award constituting units denominated in common stock of the Company, the number of which may be adjusted over a performance cycle based upon the extent to which performance goals have been satisfied.  Earned performance shares may be distributed in the form of shares of common stock of the Company, an equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company. The performance shares do not entitle the participant to receive dividends during the vesting period.
 
Half of the performance shares granted during the quarter ended December 31, 2015 must meet a performance goal related to relative return on capital over the performance cycle of October 1, 2015 to September 30, 2018.  The performance goal over the performance cycle is the Company’s total return on capital relative to the total return on capital of other companies in a group selected by the Compensation Committee (“Report Group”).  Total return on capital for a given company means the average of the Report Group companies’ returns on capital for each twelve month period corresponding to each of the Company’s fiscal years during the performance cycle, based on data reported for the Report Group companies in the Bloomberg database.  The number of these performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value of these performance shares is calculated by multiplying the expected number of shares that will be issued by the average market price of Company common stock on the date of grant reduced by the present value of forgone dividends over the vesting term of the award.  The fair value is recorded as compensation expense over the vesting term of the award.  The other half of the performance shares granted during the quarter ended December 31, 2015 must meet a performance goal related to relative total shareholder return over the performance cycle of October 1, 2015 to September 30, 2018.  The performance goal over the performance cycle is the Company’s three-year total shareholder return relative to the three-year total shareholder return of the other companies in the Report Group.  Three-year shareholder return for a given company will be based on the data reported for that company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg database.  The number of these total shareholder return performance shares ("TSR performance shares") that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value price at the date of grant for the TSR performance shares is determined using a Monte Carlo simulation technique, which includes a reduction in value for the present value of forgone dividends over the vesting term of the award.  This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award.
 
The Company granted 99,843 non-performance based restricted stock units during the quarter ended December 31, 2015.  The weighted average fair value of such non-performance based restricted stock units was $35.57 per share for the quarter ended December 31, 2015. Restricted stock units represent the right to receive shares of common stock of the Company (or the equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company) at the end of a specified time period. These non-performance based restricted stock units do not entitle the participant to receive dividends during the vesting period. The accounting for non-performance based restricted stock units is the same as the accounting for restricted share awards, except that the fair value at the date of grant of the restricted stock units must be reduced by the present value of forgone dividends over the vesting term of the award.
 
No stock options, SARs or restricted share awards were granted by the Company during the quarter ended December 31, 2015.

New Authoritative Accounting and Financial Reporting Guidance. In May 2014, the FASB issued authoritative guidance regarding revenue recognition. The authoritative guidance provides a single, comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The original effective date of this authoritative guidance was as of the Company's first quarter of fiscal 2018. However, the FASB has delayed the effective date of the new revenue standard by one year, and the guidance will now be effective as of the Company's first quarter of fiscal 2019. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements and disclosures.

In June 2014, the FASB issued authoritative guidance regarding accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the employee has completed the requisite service period. This authoritative guidance requires that such performance targets that affect vesting be treated as performance conditions, meaning that the performance target should not be factored in the calculation of the award at the grant date. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. This authoritative guidance will be effective as of the Company's first quarter of fiscal 2017, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
In July 2015, the FASB issued authoritative guidance simplifying inventory measurement by requiring companies to value inventory at the lower of cost and net realizable value. The authoritative guidance applies to all inventory other than inventory that is measured using last-in, first-out or the retail inventory method. The intention of this authoritative guidance is to eliminate some diversity in practice. This authoritative guidance will be effective as of the Company's first quarter of fiscal 2018, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
    
In November 2015, the FASB issued authoritative guidance simplifying the presentation of deferred income taxes. The authoritative guidance requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The Company early adopted this guidance at December 31, 2015 on a retrospective basis.
    
In January 2016, the FASB issued authoritative guidance regarding the recognition and measurement of financial assets and liabilities. The authoritative guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities will be measured at fair value through earnings rather than through other comprehensive income. This authoritative guidance will be effective as of the Company's first quarter of fiscal 2019. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
 
The FASB authoritative guidance regarding fair value measurements establishes a fair-value hierarchy and prioritizes the inputs used in valuation techniques that measure fair value. Those inputs are prioritized into three levels. Level 1 inputs are unadjusted quoted prices in active markets for assets or liabilities that the Company can access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly at the measurement date. Level 3 inputs are unobservable inputs for the asset or liability at the measurement date. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
 
The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of December 31, 2015 and September 30, 2015.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value presentation for over the counter swaps combines gas and oil swaps because a significant number of the counterparties enter into both gas and oil swap agreements with the Company.  
Recurring Fair Value Measures
At fair value as of December 31, 2015
(Thousands of Dollars)   
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments(1)
 
Total(1)
Assets:
 

 
 

 
 

 
 

 
 

Cash Equivalents – Money Market Mutual Funds
$
10,323

 
$

 
$

 
$

 
$
10,323

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
5,350

 

 

 
(5,350
)
 

Over the Counter Swaps – Gas and Oil

 
284,066

 

 
(1,598
)
 
282,468

Foreign Currency Contacts

 

 

 
(5,059
)
 
(5,059
)
Other Investments:
 

 
 

 
 

 
 

 
 

Balanced Equity Mutual Fund
36,096

 

 

 

 
36,096

Fixed Income Mutual Fund
21,980

 

 

 

 
21,980

Common Stock – Financial Services Industry
4,179

 

 

 

 
4,179

Other Common Stock
494

 

 

 

 
494

Hedging Collateral Deposits
9,551

 

 

 

 
9,551

Total                                           
$
87,973

 
$
284,066

 
$

 
$
(12,007
)
 
$
360,032

 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
$
11,677

 
$

 
$

 
$
(5,350
)
 
$
6,327

Over the Counter Swaps – Gas and Oil

 
3,240

 

 
(1,598
)
 
1,642

Foreign Currency Contracts

 
5,059

 

 
(5,059
)
 

Total
$
11,677

 
$
8,299

 
$

 
$
(12,007
)
 
$
7,969

Total Net Assets/(Liabilities)
$
76,296

 
$
275,767

 
$

 
$

 
$
352,063

 
Recurring Fair Value Measures
At fair value as of September 30, 2015
(Thousands of Dollars)   
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments(1)
 
Total(1)
Assets:
 

 
 

 
 

 
 

 
 

Cash Equivalents – Money Market Mutual Funds
$
92,196

 
$

 
$

 
$

 
$
92,196

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
6,373

 

 

 
(6,373
)
 

Over the Counter Swaps – Gas and Oil

 
272,335

 
1,791

 
(808
)
 
273,318

Foreign Currency Contracts

 

 

 
(2,955
)
 
(2,955
)
Other Investments:
 

 
 

 
 

 
 

 
 

Balanced Equity Mutual Fund
34,884

 

 

 

 
34,884

Fixed Income Mutual Fund
8,004

 

 

 

 
8,004

Common Stock – Financial Services Industry
4,318

 

 

 

 
4,318

Other Common Stock
450

 

 

 

 
450

Hedging Collateral Deposits
11,124

 

 

 

 
11,124

Total                                           
$
157,349

 
$
272,335

 
$
1,791

 
$
(10,136
)
 
$
421,339

 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
$
15,276

 
$

 
$

 
$
(6,373
)
 
$
8,903

Over the Counter Swaps – Gas and Oil

 
1,981

 

 
(808
)
 
1,173

     Foreign Currency Contracts

 
2,955

 

 
(2,955
)
 

Total
$
15,276

 
$
4,936

 
$

 
$
(10,136
)
 
$
10,076

Total Net Assets/(Liabilities)
$
142,073

 
$
267,399

 
$
1,791

 
$

 
$
411,263


(1) 
Netting Adjustments represent the impact of legally-enforceable master netting arrangements that allow the Company to net gain and loss positions held with the same counterparties. The net asset or net liability for each counterparty is recorded as an asset or liability on the Company’s balance sheet.
 
Derivative Financial Instruments
 
At December 31, 2015 and September 30, 2015, the derivative financial instruments reported in Level 1 consist of natural gas NYMEX and ICE futures contracts used in the Company’s Energy Marketing segment. Hedging collateral deposits of $9.6 million at December 31, 2015 and $11.1 million at September 30, 2015, which are associated with these futures contracts, have been reported in Level 1 as well. The derivative financial instruments reported in Level 2 at December 31, 2015 and September 30, 2015 consist of natural gas price swap agreements used in the Company’s Exploration and Production and Energy Marketing segments, the majority of the crude oil price swap agreements used in the Company’s Exploration and Production segment and foreign currency contracts used in the Company's Exploration and Production segment. The fair value of the Level 2 price swap agreements is based on an internal, discounted cash flow model that uses observable inputs (i.e. LIBOR based discount rates and basis differential information, if applicable, at active natural gas and crude oil trading markets). The fair value of the Level 2 foreign currency contracts is determined using the market approach based on observable market transactions of forward Canadian currency rates. The derivative financial instruments reported in Level 3 consist of a small portion of the crude oil price swap agreements used in the Company’s Exploration and Production segment at September 30, 2015 that settled prior to December 31, 2015.  The fair value of the Level 3 crude oil price swap agreements was based on an internal, discounted cash flow model that uses both observable (i.e. LIBOR based discount rates) and unobservable inputs (i.e. basis differential information of crude oil trading markets with low trading volume). 
 
The accounting rules for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities.  At December 31, 2015, the Company determined that nonperformance risk would have no material impact on its financial position or results of operation.  To assess nonperformance risk, the Company considered information such as any applicable collateral posted, master netting arrangements, and applied a market-based method by using the counterparty's (assuming the derivative is in a gain position) or the Company’s (assuming the derivative is in a loss position) credit default swaps rates.
 
The tables listed below provide reconciliations of the beginning and ending net balances for assets and liabilities measured at fair value and classified as Level 3 for the quarters ended December 31, 2015 and 2014, respectively. For the quarters ended December 31, 2015 and December 31, 2014, no transfers in or out of Level 1 or Level 2 occurred.  There were no purchases or sales of derivative financial instruments during the periods presented in the tables below.  All settlements of the derivative financial instruments are reflected in the Gains/Losses Realized and Included in Earnings column of the tables below (amounts in parentheses indicate credits in the derivative asset/liability accounts). 
 
Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)   
 
Total Gains/Losses 
 
 
 
October 1, 2015
Gains/Losses Realized and Included in Earnings
Gains/Losses Unrealized and Included in Other Comprehensive Income (Loss)
Transfer In/Out of Level 3
December 31, 2015
Derivative Financial Instruments(2)
$
1,791

$
(2,002
)
(1) 
$
211

$

$

 
(1) 
Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended December 31, 2015
(2) 
Derivative Financial Instruments are shown on a net basis.
 
 
 
 
 
 
 

Fair Value Measurements Using Unobservable Inputs (Level 3)
(Thousands of Dollars)   
 
Total Gains/Losses 
 
 
 
October 1, 2014
Gains/Losses Realized and Included in Earnings
Gains/Losses Unrealized and Included in Other Comprehensive Income (Loss)
Transfer In/Out of Level 3
December 31, 2014
Derivative Financial Instruments(2)
$
1,368

$
(3,855
)
(1) 
$
7,824

$

$
5,337



(1) 
Amounts are reported in Operating Revenues in the Consolidated Statement of Income for the three months ended December 31, 2014
(2) 
Derivative Financial Instruments are shown on a net basis.
 
 
 
 
 
 
 
Financial Instruments
Financial Instruments
Financial Instruments
 
Long-Term Debt.  The fair market value of the Company’s debt, as presented in the table below, was determined using a discounted cash flow model, which incorporates the Company’s credit ratings and current market conditions in determining the yield, and subsequently, the fair market value of the debt.  Based on these criteria, the fair market value of long-term debt, including current portion, was as follows (in thousands): 
 
December 31, 2015
 
September 30, 2015
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-Term Debt
$
2,084,562

 
$
1,970,742

 
$
2,084,009

 
$
2,129,558


 
The fair value amounts are not intended to reflect principal amounts that the Company will ultimately be required to pay. Carrying amounts for other financial instruments recorded on the Company’s Consolidated Balance Sheets approximate fair value. The fair value of long-term debt was calculated using observable inputs (U.S. Treasuries/LIBOR for the risk free component and company specific credit spread information – generally obtained from recent trade activity in the debt).  As such, the Company considers the debt to be Level 2.
 
Any temporary cash investments, notes payable to banks and commercial paper are stated at cost. Temporary cash investments are considered Level 1, while notes payable to banks and commercial paper are considered to be Level 2.  Given the short-term nature of the notes payable to banks and commercial paper, the Company believes cost is a reasonable approximation of fair value.
 
Other Investments.  Investments in life insurance are stated at their cash surrender values or net present value as discussed below. Investments in an equity mutual fund, a fixed income mutual fund and the stock of an insurance company (marketable equity securities), as discussed below, are stated at fair value based on quoted market prices.
 
Other investments include cash surrender values of insurance contracts (net present value in the case of split-dollar collateral assignment arrangements) and marketable equity and fixed income securities. The values of the insurance contracts amounted to $45.5 million at December 31, 2015 and $45.3 million at September 30, 2015. The fair value of the equity mutual fund was $36.1 million at December 31, 2015 and $34.9 million at September 30, 2015. The gross unrealized gain on this equity mutual fund was $6.0 million at December 31, 2015 and $6.5 million at September 30, 2015.  The fair value of the fixed income mutual fund was $22.0 million at December 31, 2015 and $8.0 million at September 30, 2015. The gross unrealized loss on this fixed income mutual fund was $0.1 million at December 31, 2015. The fair value of the stock of an insurance company was $4.2 million at December 31, 2015 and $4.3 million at September 30, 2015. The gross unrealized gain on this stock was $2.5 million at December 31, 2015 and $2.6 million at September 30, 2015. The insurance contracts and marketable equity securities are primarily informal funding mechanisms for various benefit obligations the Company has to certain employees.
 
Derivative Financial Instruments.  The Company uses derivative financial instruments to manage commodity price risk in the Exploration and Production segment as well as the Energy Marketing segment. The Company enters into futures contracts and over-the-counter swap agreements for natural gas and crude oil to manage the price risk associated with forecasted sales of gas and oil. In addition, the Company also enters into foreign exchange forward contracts to manage the risk of currency fluctuations associated with transportation costs denominated in Canadian currency in the Exploration and Production segment. These instruments are accounted for as cash flow hedges. The Company also enters into futures contracts and swaps, which are accounted for as cash flow hedges, to manage the price risk associated with forecasted gas purchases. The Company enters into futures contracts and swaps to mitigate risk associated with fixed price sales commitments, fixed price purchase commitments, and the decline in value of natural gas held in storage. These instruments are accounted for as fair value hedges. The duration of the Company’s combined cash flow and fair value commodity hedges does not typically exceed 5 years while the foreign currency forward contracts do not exceed ten years. The Exploration and Production segment holds the majority of the Company’s derivative financial instruments. The derivative financial instruments held by the Energy Marketing segment are not considered to be material to the Company.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at December 31, 2015 and September 30, 2015.  Substantially all of the derivative financial instruments reported on those line items relate to commodity contracts and a small portion relates to foreign currency forward contracts.
 
Cash Flow Hedges
 
For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the period or periods during which the hedged transaction affects earnings.  Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. 

As of December 31, 2015, the Company had the following commodity derivative contracts (swaps and futures contracts) outstanding:
Commodity
Units

 
Natural Gas
159.6

 Bcf (short positions)
Natural Gas
3.0

 Bcf (long positions)
Crude Oil
1,815,000

 Bbls (short positions)
    
As of December 31, 2015, the Company was hedging a total of $87.5 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts (long positions).
As of December 31, 2015, the Company had $280.4 million ($162.7 million after tax) of net hedging gains included in the accumulated other comprehensive income balance. It is expected that $189.1 million ($109.7 million after tax) of such unrealized gains will be reclassified into the Consolidated Statement of Income within the next 12 months as the underlying hedged transaction are recorded in earnings.
Refer to Note 1, under Accumulated Other Comprehensive Income, for the after-tax gain (loss) pertaining to derivative financial instruments.

The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the
Three Months Ended December 31, 2015 and 2014 (Thousands of Dollars)
Derivatives in Cash Flow Hedging Relationships
Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on the Consolidated Statement of Comprehensive Income (Loss) (Effective Portion) for the Three Months Ended December 31,
Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income (Effective Portion)
Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income (Effective Portion) for the Three Months Ended December 31,
Location of Derivative Gain or (Loss) Recognized in the Consolidated Statement of Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Derivative Gain or (Loss) Recognized in the Consolidated Statement of Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) for the Three Months Ended December 31,
 
2015
2014
 
2015
2014
 
2015
2014
Commodity Contracts
$
65,341

$
240,023

Operating Revenue
$
56,327

$
20,036

Operating Revenue
$
137

$
1,460

Commodity Contracts
$
2,213

$
3,806

Purchased Gas
$
920

$
4,229

Not Applicable
$

$

Foreign Currency Contracts
$
(2,182
)
$

Operation and Maintenance Expense
$
(77
)
$

Not Applicable
$

$

Total
$
65,372

$
243,829

 
$
57,170

$
24,265

 
$
137

$
1,460

 
 
 
 
 
 
 
 
 

Fair Value Hedges
 
The Company utilizes fair value hedges to mitigate risk associated with fixed price sales commitments, fixed price purchase commitments, and the decline in the value of certain natural gas held in storage. With respect to fixed price sales commitments, the Company enters into long positions to mitigate the risk of price increases for natural gas supplies that could occur after the Company enters into fixed price sales agreements with its customers. With respect to fixed price purchase commitments, the Company enters into short positions to mitigate the risk of price decreases that could occur after the Company locks into fixed price purchase deals with its suppliers. With respect to storage hedges, the Company enters into short positions to mitigate the risk of price decreases that could result in a lower of cost or market writedown of the value of natural gas in storage that is recorded in the Company’s financial statements. As of December 31, 2015, the Company’s Energy Marketing segment had fair value hedges covering approximately 16.7 Bcf (16.4 Bcf of fixed price sales commitments, 0.1 Bcf of fixed price purchase commitments and 0.2 Bcf of commitments related to the withdrawal of storage gas). For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk completely offset each other in current earnings, as shown below.

Derivatives in Fair Value Hedging Relationships
Location of Gain or (Loss) on Derivative and Hedged Item Recognized in the Consolidated Statement of Income
Amount of Gain or (Loss) on Derivative Recognized in the Consolidated Statement of Income for the
Three Months Ended December 31, 2015
(In Thousands)
Amount of Gain or (Loss) on the Hedged Item Recognized in the Consolidated Statement of Income for the
Three Months Ended December 31, 2015
(In Thousands)
Commodity Contracts
Operating Revenues
$
3,920

$
(3,920
)
Commodity Contracts
Purchased Gas
$
(61
)
$
61

 
 
$
3,859

$
(3,859
)
 
Credit Risk
 
The Company may be exposed to credit risk on any of the derivative financial instruments that are in a gain position. Credit risk relates to the risk of loss that the Company would incur as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. To mitigate such credit risk, management performs a credit check, and then on a quarterly basis monitors counterparty credit exposure. The majority of the Company’s counterparties are financial institutions and energy traders. The Company has over-the-counter swap positions and applicable foreign currency forward contracts with sixteen counterparties of which fifteen are in a net gain position.   On average, the Company had $18.4 million of credit exposure per counterparty in a gain position at December 31, 2015. The maximum credit exposure per counterparty in a gain position at December 31, 2015 was $50.4 million. The Company’s gain position on such derivative financial instruments for certain counterparties exceeded the established thresholds at which the counterparties would be required to post collateral. At December 31, 2015, collateral deposits from counterparties of $35.5 million were posted. These collateral deposits are recorded as a component of Accounts Payable on the Consolidated Balance Sheet.
 
As of December 31, 2015, thirteen of the sixteen counterparties to the Company’s outstanding derivative instrument contracts (specifically the over-the-counter swaps and applicable foreign currency forward contracts) had a common credit-risk related contingency feature. In the event the Company’s credit rating increases or falls below a certain threshold (applicable debt ratings), the available credit extended to the Company would either increase or decrease. A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to increase the level of its hedging collateral deposits (in the form of cash deposits, letters of credit or treasury debt instruments). If the Company’s outstanding derivative instrument contracts were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then additional hedging collateral deposits may be required.  At December 31, 2015, the fair market value of the derivative financial instrument assets with a credit-risk related contingency feature was $179.9 million according to the Company’s internal model (discussed in Note 2 — Fair Value Measurements).  For its over-the-counter swap agreements and foreign currency forward contracts, no hedging collateral deposits were required to be posted by the Company at December 31, 2015.    
 
For its exchange traded futures contracts, the Company was required to post $9.6 million in hedging collateral deposits as of December 31, 2015.   As these are exchange traded futures contracts, there are no specific credit-risk related contingency features. The Company posts hedging collateral based on open positions and margin requirements it has with its counterparties.
 
The Company’s requirement to post hedging collateral deposits and the Company's right to receive hedging collateral deposits is based on the fair value determined by the Company’s counterparties, which may differ from the Company’s assessment of fair value. Hedging collateral deposits may also include closed derivative positions in which the broker has not cleared the cash from the account to offset the derivative liability. The Company records liabilities related to closed derivative positions in Other Accruals and Current Liabilities on the Consolidated Balance Sheet. These liabilities are relieved when the broker clears the cash from the hedging collateral deposit account. This is discussed in Note 1 under Hedging Collateral Deposits.
Income Taxes
Income Taxes
Income Taxes
 
The components of federal and state income taxes included in the Consolidated Statements of Income are as follows (in thousands): 
                                                         
Three Months Ended 
 December 31,
                                                         
2015
 
2014
Current Income Taxes 
 

 
 

Federal                                              
$
(8,227
)
 
$
16,528

State                                                  
3,890

 
5,425

 
 
 
 
Deferred Income Taxes                                
 

 
 

Federal                                               
(97,705
)
 
26,193

State                                                    
(42,308
)
 
7,014

 
(144,350
)
 
55,160

Deferred Investment Tax Credit                            
(87
)
 
(104
)
 
 
 
 
Total Income Taxes                                      
$
(144,437
)
 
$
55,056

Presented as Follows:
 

 
 

Other Income
(87
)
 
(104
)
Income Tax Expense (Benefit)
(144,350
)
 
55,160

 
 
 
 
Total Income Taxes
$
(144,437
)
 
$
55,056



Total income taxes as reported differ from the amounts that were computed by applying the federal income tax rate to income (loss) before income taxes.  The following is a reconciliation of this difference (in thousands): 
 
Three Months Ended 
 December 31,
 
2015
 
2014
U.S. Income (Loss) Before Income Taxes
$
(333,546
)
 
$
139,796

 
 

 
 

Income Tax Expense (Benefit), Computed at U.S. Federal Statutory Rate of 35%
$
(116,741
)
 
$
48,929

State Income Taxes (Benefit)
(24,972
)
 
8,085

Miscellaneous
(2,724
)
 
(1,958
)
 
 
 
 
Total Income Taxes
$
(144,437
)
 
$
55,056


 
On December 18, 2015, President Obama signed into law the Protecting Americans from Tax Hikes Act of 2015, which did not have a significant impact on total income tax expense.
Capitalization
Capitalization
Capitalization
 
Common Stock.  During the three months ended December 31, 2015, the Company issued 52,000 original issue shares of common stock as a result of stock option and SARs exercises and 60,650 original issue shares of common stock for restricted stock units that vested.  In addition, the Company issued 32,113 original issue shares of common stock for the Direct Stock Purchase and Dividend Reinvestment Plan and 31,810 original issue shares of common stock for the Company’s 401(k) plans.  The Company also issued 4,200 original issue shares of common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, as partial consideration for the directors’ services during the three months ended December 31, 2015.  Holders of stock options, SARs, restricted share awards or restricted stock units will often tender shares of common stock to the Company for payment of option exercise prices and/or applicable withholding taxes.  During the three months ended December 31, 2015, 36,088 shares of common stock were tendered to the Company for such purposes.  The Company considers all shares tendered as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law.
 
Current Portion of Long-Term Debt.    None of the Company’s long-term debt at December 31, 2015 will mature within the following twelve-month period.
Commitments And Contingencies
Commitments And Contingencies
Commitments and Contingencies
 
Environmental Matters.  The Company is subject to various federal, state and local laws and regulations relating to the protection of the environment.  The Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and to comply with regulatory requirements.  It is the Company’s policy to accrue estimated environmental clean-up costs (investigation and remediation) when such amounts can reasonably be estimated and it is probable that the Company will be required to incur such costs. 
    
At December 31, 2015, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites and third party waste disposal sites will be approximately $9.6 million.  The Company expects to recover its environmental clean-up costs through rate recovery over a period of approximately 12 years.

The Company's estimated liability for clean-up costs discussed above includes a $8.4 million estimated liability to remediate a former manufactured gas plant site located in New York. In February 2009, the Company received approval from the NYDEC of a Remedial Design Work Plan (RDWP) for this site. In October 2010, the Company submitted a RDWP addendum to conduct additional Preliminary Design Investigation field activities necessary to design a successful remediation. As a result of this work, the Company submitted to the NYDEC a proposal to amend the NYDEC’s Record of Decision remedy for the site.  In April 2013, the NYDEC approved the Company’s proposed amendment.  Final remedial design work for the site was completed, and active remedial work is nearing completion. 
 
The Company is currently not aware of any material additional exposure to environmental liabilities.  However, changes in environmental laws and regulations, new information or other factors could have an adverse financial impact on the Company.
 
Other.  The Company is involved in other litigation and regulatory matters arising in the normal course of business.  These other matters may include, for example, negligence claims and tax, regulatory or other governmental audits, inspections, investigations and other proceedings.  These matters may involve state and federal taxes, safety, compliance with regulations, rate base, cost of service and purchased gas cost issues, among other things.  While these other matters arising in the normal course of business could have a material effect on earnings and cash flows in the period in which they are resolved, an estimate of the possible loss or range of loss, if any, cannot be made at this time.
Business Segment Information
Business Segment Information
Business Segment Information    
 
The Company reports financial results for five segments: Exploration and Production, Pipeline and Storage, Gathering, Utility and Energy Marketing.  The division of the Company’s operations into reportable segments is based upon a combination of factors including differences in products and services, regulatory environment and geographic factors.
 
The data presented in the tables below reflect financial information for the segments and reconciliations to consolidated amounts.  As stated in the 2015 Form 10-K, the Company evaluates segment performance based on income before discontinued operations, extraordinary items and cumulative effects of changes in accounting (when applicable).  When these items are not applicable, the Company evaluates performance based on net income.  There have not been any changes in the basis of segmentation nor in the basis of measuring segment profit or loss from those used in the Company’s 2015 Form 10-K.  A listing of segment assets at December 31, 2015 and September 30, 2015 is shown in the tables below.  
Quarter Ended December 31, 2015 (Thousands)
 
 
 
 
 
 
 
Exploration and Production
Pipeline and Storage
Gathering
Utility
Energy Marketing
Total Reportable Segments
All Other
Corporate and Intersegment Eliminations
Total Consolidated
Revenue from External Customers
$151,965
$53,354
$125
$143,848
$24,984
$374,276
$706
$213
$375,195
Intersegment Revenues
$—
$22,183
$18,640
$3,664
$311
$44,798
$—
$(44,798)
$—
Segment Profit: Net Income (Loss)
$(237,086)
$21,276
$4,921
$18,606
$1,223
$(191,060)
$189
$1,762
$(189,109)

 


 





 
 
 
 
 
 
 
 
 
 
(Thousands)
Exploration and Production
Pipeline and Storage
Gathering
Utility
Energy Marketing
Total Reportable Segments
All Other
Corporate and Intersegment Eliminations
Total Consolidated
Segment Assets:
 
 
 
 
 
 
 
 
 
At December 31, 2015
$2,103,633
$1,597,432
$467,220
$1,930,977
$87,870
$6,187,132
$78,293
$(75,093)
$6,190,332
At September 30, 2015
$2,439,801
$1,590,525
$444,358
$1,934,730
$90,676
$6,500,090
$77,350
$(12,501)
$6,564,939

Quarter Ended December 31, 2014 (Thousands)
 
 
 
 
 
 
 
Exploration and Production
Pipeline and Storage
Gathering
Utility
Energy Marketing
Total Reportable Segments
All Other
Corporate and Intersegment Eliminations
Total Consolidated
Revenue from External Customers
$204,665
$51,745
$146
$210,073
$56,166
$522,795
$884
$230
$523,909
Intersegment Revenues
$—
$21,461
$24,428
$4,534
$206
$50,629
$—
$(50,629)
$—
Segment Profit: Net Income (Loss)
$26,720
$20,778
$11,623
$22,594
$2,826
$84,541
$(6)
$205
$84,740
 
 
 
 
 
 
 
 
 
 
Retirement Plan And Other Post-Retirement Benefits
Retirement Plan and Other Post-Retirement Benefits
Retirement Plan and Other Post-Retirement Benefits
 
Components of Net Periodic Benefit Cost (in thousands):
 
 
Retirement Plan
 
Other Post-Retirement Benefits
Three Months Ended December 31,
2015
2014
 
2015
2014





 




Service Cost
$
2,928

$
3,012

 
$
583

$
673

Interest Cost
10,579

10,304

 
5,096

4,821

Expected Return on Plan Assets
(14,842
)
(14,904
)
 
(7,883
)
(8,522
)
Amortization of Prior Service Cost (Credit)
308

46

 
(228
)
(478
)
Amortization of Losses
8,062

9,032

 
1,382

1,037

Net Amortization and Deferral for Regulatory Purposes (Including Volumetric Adjustments) (1)
1,906

1,292

 
4,121

4,920






 




Net Periodic Benefit Cost
$
8,941

$
8,782

 
$
3,071

$
2,451

 
 
 
 
 
 
(1) 
The Company’s policy is to record retirement plan and other post-retirement benefit costs in the Utility segment on a volumetric basis to reflect the fact that the Utility segment experiences higher throughput of natural gas in the winter months and lower throughput of natural gas in the summer months.
 
Employer Contributions.    During the three months ended December 31, 2015, the Company contributed $4.0 million to its tax-qualified, noncontributory defined-benefit retirement plan (Retirement Plan) and $0.7 million to its VEBA trusts and 401(h) accounts for its other post-retirement benefits.  In the remainder of 2016, the Company expects its contributions to the Retirement Plan to be in the range of $1.0 million to $6.0 million.  In the remainder of 2016, the Company expects to contribute approximately $2.0 million to its VEBA trusts and 401(h) accounts.
Regulatory Matters
Regulatory Matters
Regulatory Matters
    
Following negotiations and other proceedings, on December 6, 2013, Distribution Corporation filed an agreement, also executed by the Department of Public Service and intervenors, extending existing rates through, at a minimum, September 30, 2015. Although customer rates were not changed, the parties agreed that the allowed rate of return on equity would be set, for ratemaking purposes, at 9.1%.  Following conventional practice in New York, the agreement authorizes an “earnings sharing mechanism” (“ESM”).  The ESM distributes earnings above the allowed rate of return as follows:  from 9.5% to 10.5%, 50% would be allocated to shareholders, and 50% will be deferred for the benefit of customers; above 10.5%, 20% would be allocated to shareholders and 80% will be deferred for the benefit of customers.  The agreement further authorizes, and rates reflect, an increase in Distribution Corporation’s pipeline replacement spending by $8.2 million per year of the agreement.  The agreement contains other terms and conditions of service that are customary for settlement agreements recently approved by the NYPSC.  A $7.5 million refund provision was passed back to ratepayers during 2014 after the NYPSC approved the settlement agreement without modification in an order issued on May 8, 2014. All significant terms of the agreement, including existing rates, continue in effect beyond September 30, 2015 until modified by the NYPSC. The agreement also states that nothing in the agreement precludes the parties from meeting to discuss extending the agreement on mutually acceptable terms, and presenting such extension to the NYPSC for approval. On May 22, 2015, Distribution Corporation filed with the NYPSC a Notice of Impending Settlement Discussions stating that settlement discussions would be scheduled in the near future, and that such discussions might include, among other things, the possible extension of the agreement on mutually acceptable terms, and on October 21, 2015, Distribution Corporation filed with the NYPSC a Supplemental Notice of Impending Settlement Discussions. In the event settlement is not reached, nothing prevents Distribution Corporation from continuing to operate under the existing agreement or from filing a rate case.
FERC Rate Proceedings
On November 13, 2015, FERC approved Supply Corporation's rate case settlement that extends Supply Corporation's current FERC-approved rate case settlement, requires a rate case filing no later than December 31, 2019 and prohibits any party from seeking to initiate a rate case proceeding before September 30, 2017. Prior to this new extension settlement, Supply Corporation had been otherwise required by its existing rate settlement to make a general rate filing no later than January 1, 2016. The new extension settlement provides, among other things, that Supply Corporation reduce its maximum reservation, capacity, demand and deliverability rates by 2% effective November 1, 2015, and further reduce those rates by an additional 2% on November 1, 2016. Pursuant to the new extension settlement, Supply Corporation also adopted a mechanism that allows it to recover, as a surcharge, certain pipeline safety and greenhouse gas costs it may incur as a result of new rules and regulations.

Empire does not have a rate case currently on file with the FERC, but by order dated January 21, 2016, the FERC began a NGA Section 5 rate review of Empire's rates. By that order, Empire is required to file a Cost and Revenue Study within 75 days (by April 5, 2016).
Summary Of Significant Accounting Policies (Policy)
Principles of Consolidation.  The Company consolidates all entities in which it has a controlling financial interest.  All significant intercompany balances and transactions are eliminated.
 
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
Reclassification. Due to the adoption of the authoritative guidance regarding the presentation of deferred income taxes, certain prior year amounts have been reclassified to conform with current year presentation. The Company reclassified Deferred Income Taxes of $137.2 million previously shown as Current Assets to Deferred Income Taxes shown as Deferred Credits on the Consolidated Balance Sheet at September 30, 2015.
Earnings for Interim Periods.  The Company, in its opinion, has included all adjustments (which consist of only normally recurring adjustments, unless otherwise disclosed in this Form 10-Q) that are necessary for a fair statement of the results of operations for the reported periods. The consolidated financial statements and notes thereto, included herein, should be read in conjunction with the financial statements and notes for the years ended September 30, 2015, 2014 and 2013 that are included in the Company's 2015 Form 10-K.  The consolidated financial statements for the year ended September 30, 2016 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.
 
The earnings for the three months ended December 31, 2015 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2016.  Most of the business of the Utility and Energy Marketing segments is seasonal in nature and is influenced by weather conditions.  Due to the seasonal nature of the heating business in the Utility and Energy Marketing segments, earnings during the winter months normally represent a substantial part of the earnings that those segments are expected to achieve for the entire fiscal year.  The Company’s business segments are discussed more fully in Note 7 – Business Segment Information.
Consolidated Statement of Cash Flows.  For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of generally three months or less to be cash equivalents.
Hedging Collateral Deposits.  This is an account title for cash held in margin accounts funded by the Company to serve as collateral for hedging positions.  In accordance with its accounting policy, the Company does not offset hedging collateral deposits paid or received against related derivative financial instruments liability or asset balances.
Gas Stored Underground.  In the Utility segment, gas stored underground is carried at lower of cost or market, on a LIFO method.  Gas stored underground normally declines during the first and second quarters of the year and is replenished during the third and fourth quarters.  In the Utility segment, the current cost of replacing gas withdrawn from storage is recorded in the Consolidated Statements of Income and a reserve for gas replacement is recorded in the Consolidated Balance Sheets under the caption “Other Accruals and Current Liabilities.”  Such reserve, which amounted to $1.0 million at December 31, 2015, is reduced to zero by September 30 of each year as the inventory is replenished.
Property, Plant and Equipment.  In the Company’s Exploration and Production segment, oil and gas property acquisition, exploration and development costs are capitalized under the full cost method of accounting. Under this methodology, all costs associated with property acquisition, exploration and development activities are capitalized, including internal costs directly identified with acquisition, exploration and development activities. The internal costs that are capitalized do not include any costs related to production, general corporate overhead, or similar activities. The Company does not recognize any gain or loss on the sale or other disposition of oil and gas properties unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to a cost center.
 
Capitalized costs include costs related to unproved properties, which are excluded from amortization until proved reserves are found or it is determined that the unproved properties are impaired.  Such costs amounted to $169.5 million and $176.3 million at December 31, 2015 and September 30, 2015, respectively.  All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred. The amount of any impairment is transferred to the pool of capitalized costs being amortized.
 
Capitalized costs are subject to the SEC full cost ceiling test. The ceiling test, which is performed each quarter, determines a limit, or ceiling, on the amount of property acquisition, exploration and development costs that can be capitalized. The ceiling under this test represents (a) the present value of estimated future net cash flows, excluding future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, using a discount factor of 10%, which is computed by applying prices of oil and gas (as adjusted for hedging) to estimated future production of proved oil and gas reserves as of the date of the latest balance sheet, less estimated future expenditures, plus (b) the cost of unevaluated properties not being depleted, less (c) income tax effects related to the differences between the book and tax basis of the properties. The natural gas and oil prices used to calculate the full cost ceiling are based on an unweighted arithmetic average of the first day of the month oil and gas prices for each month within the twelve-month period prior to the end of the reporting period. If capitalized costs, net of accumulated depreciation, depletion and amortization and related deferred income taxes, exceed the ceiling at the end of any quarter, a permanent impairment is required to be charged to earnings in that quarter.  The book value of the oil and gas properties exceeded the ceiling at December 31, 2015. As such, the Company recognized a pre-tax impairment charge of $435.5 million for the quarter ended December 31, 2015. A deferred income tax benefit of $182.9 million related to the impairment charge was also recognized for the quarter ended December 31, 2015. In adjusting estimated future cash flows for hedging under the ceiling test at December 31, 2015, estimated future net cash flows were increased by $253.7 million.

On December 1, 2015, Seneca and IOG - CRV Marcellus, LLC (IOG), an affiliate of IOG Capital, LP, and funds managed by affiliates of Fortress Investment Group, LLC, executed a joint development agreement that allows IOG to participate in the development of certain oil and gas interests owned by Seneca in Elk, McKean and Cameron Counties, Pennsylvania. Under the terms of the agreement, Seneca and IOG will jointly participate in a program that will develop up to 80 Marcellus wells, with Seneca serving as program operator. IOG will hold an 80% working interest and is obligated to participate in the first 42 wells, and has a one-time option to participate in the remaining 38 wells that can be exercised on or before July 1, 2016. With respect to the first 42 wells, IOG has committed to fund up to $231 million to develop the joint wells. At December 31, 2015, Seneca recorded $10.6 million of cash, a $94.4 million receivable (which was received in January 2016) and a $105 million reduction of property, plant and equipment in recognition of the first installment of IOG funding that is due to Seneca for costs previously incurred to develop a portion of the first 42 wells. As the fee-owner of the property’s mineral rights, Seneca retains a 7.5% royalty interest and the remaining 20% working interest (26% net revenue interest) in the first 42 wells. If IOG exercises its option to participate in the remaining 38 wells, IOG has agreed to fund up to an additional $211 million to develop such joint wells. Seneca will retain a 10% royalty and the remaining 20% working interest (28% net revenue interest) in the remaining 38 wells. Seneca’s working interest under the agreement will increase to 85% after IOG achieves a 15% internal rate of return.
Accumulated Other Comprehensive Income.  The components of Accumulated Other Comprehensive Income and changes for the three months ended December 31, 2015 and 2014, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands): 
 
Gains and Losses on Derivative Financial Instruments
Gains and Losses on Securities Available for Sale
Funded Status of the Pension and Other Post-Retirement Benefit Plans
Total
Three Months Ended December 31, 2015
 
 
 
 
Balance at October 1, 2015
$
157,197

$
5,969

$
(69,794
)
$
93,372

Other Comprehensive Gains and Losses Before Reclassifications
44,696

(447
)

44,249

Amounts Reclassified From Other Comprehensive Income
(39,165
)


(39,165
)
Balance at December 31, 2015
$
162,728

$
5,522

$
(69,794
)
$
98,456

Three Months Ended December 31, 2014
 
 
 
 
Balance at October 1, 2014
$
43,659

$
8,382

$
(56,020
)
$
(3,979
)
Other Comprehensive Gains and Losses Before Reclassifications
140,880

(252
)

140,628

Amounts Reclassified From Other Comprehensive Income
(14,176
)


(14,176
)
Balance at December 31, 2014
$
170,363

$
8,130

$
(56,020
)
$
122,473

 
 
 
 
 

Reclassifications Out of Accumulated Other Comprehensive Income.  The details about the reclassification adjustments out of accumulated other comprehensive income for the three months ended December 31, 2015 and 2014 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):
Details About Accumulated Other Comprehensive Income (Loss) Components
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income
Affected Line Item in the Statement Where Net Income (Loss) is Presented
 
Three Months Ended December 31,
 
 
2015
2014
 
Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:
 
 
 
     Commodity Contracts

$56,327


$20,036

Operating Revenues
     Commodity Contracts
920

4,229

Purchased Gas
     Foreign Currency Contracts
(77
)

Operation and Maintenance Expense
 
57,170

24,265

Total Before Income Tax
 
(18,005
)
(10,089
)
Income Tax Expense
 

$39,165


$14,176

Net of Tax


Other Current Assets.  The components of the Company’s Other Current Assets are as follows (in thousands):
                            
At December 31, 2015
 
At September 30, 2015
 
 
 
 
Prepayments
$
8,727

 
$
10,743

Prepaid Property and Other Taxes
15,143

 
13,709

Federal Income Taxes Receivable
7,120

 

Fair Values of Firm Commitments
16,618

 
15,775

Regulatory Assets
18,537

 
20,438

 
$
66,145

 
$
60,665

Other Accruals and Current Liabilities.  The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):
                            
At December 31, 2015
 
At September 30, 2015
 
 
 
 
Accrued Capital Expenditures
$
61,362

 
$
53,652

Regulatory Liabilities
4,695

 
5,346

Reserve for Gas Replacement
976

 

Federal Income Taxes Payable

 
5,686

State Income Taxes Payable
751

 
1,170

Other
28,046

 
30,703

 
$
95,830

 
$
96,557

Earnings Per Common Share.  Basic earnings per common share is computed by dividing income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.  For purposes of determining earnings per common share, the potentially dilutive securities the Company has outstanding are stock options, SARs, restricted stock units and performance shares.  As the Company recognized a net loss for the quarter ended December 31, 2015, the aforementioned securities, amounting to 394,205 securities, were not recognized in the diluted earnings per share calculation for the quarter ended December 31, 2015. For 2014, the diluted weighted average shares outstanding shown on the Consolidated Statements of Income reflects the potential dilution as a result of these securities as determined using the Treasury Stock Method.  Stock options, SARs, restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share.  There were 2,461 securities excluded as being antidilutive for the quarter ended December 31, 2014.
 
Stock-Based Compensation.  The Company granted 309,996 performance shares during the quarter ended December 31, 2015. The weighted average fair value of such performance shares was $30.71 per share for the quarter ended December 31, 2015. Performance shares are an award constituting units denominated in common stock of the Company, the number of which may be adjusted over a performance cycle based upon the extent to which performance goals have been satisfied.  Earned performance shares may be distributed in the form of shares of common stock of the Company, an equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company. The performance shares do not entitle the participant to receive dividends during the vesting period.
 
Half of the performance shares granted during the quarter ended December 31, 2015 must meet a performance goal related to relative return on capital over the performance cycle of October 1, 2015 to September 30, 2018.  The performance goal over the performance cycle is the Company’s total return on capital relative to the total return on capital of other companies in a group selected by the Compensation Committee (“Report Group”).  Total return on capital for a given company means the average of the Report Group companies’ returns on capital for each twelve month period corresponding to each of the Company’s fiscal years during the performance cycle, based on data reported for the Report Group companies in the Bloomberg database.  The number of these performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value of these performance shares is calculated by multiplying the expected number of shares that will be issued by the average market price of Company common stock on the date of grant reduced by the present value of forgone dividends over the vesting term of the award.  The fair value is recorded as compensation expense over the vesting term of the award.  The other half of the performance shares granted during the quarter ended December 31, 2015 must meet a performance goal related to relative total shareholder return over the performance cycle of October 1, 2015 to September 30, 2018.  The performance goal over the performance cycle is the Company’s three-year total shareholder return relative to the three-year total shareholder return of the other companies in the Report Group.  Three-year shareholder return for a given company will be based on the data reported for that company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg database.  The number of these total shareholder return performance shares ("TSR performance shares") that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company.  The fair value price at the date of grant for the TSR performance shares is determined using a Monte Carlo simulation technique, which includes a reduction in value for the present value of forgone dividends over the vesting term of the award.  This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award.
 
The Company granted 99,843 non-performance based restricted stock units during the quarter ended December 31, 2015.  The weighted average fair value of such non-performance based restricted stock units was $35.57 per share for the quarter ended December 31, 2015. Restricted stock units represent the right to receive shares of common stock of the Company (or the equivalent value in cash or a combination of cash and shares of common stock of the Company, as determined by the Company) at the end of a specified time period. These non-performance based restricted stock units do not entitle the participant to receive dividends during the vesting period. The accounting for non-performance based restricted stock units is the same as the accounting for restricted share awards, except that the fair value at the date of grant of the restricted stock units must be reduced by the present value of forgone dividends over the vesting term of the award.
 
No stock options, SARs or restricted share awards were granted by the Company during the quarter ended December 31, 2015.
New Authoritative Accounting and Financial Reporting Guidance. In May 2014, the FASB issued authoritative guidance regarding revenue recognition. The authoritative guidance provides a single, comprehensive revenue recognition model for all contracts with customers to improve comparability. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The original effective date of this authoritative guidance was as of the Company's first quarter of fiscal 2018. However, the FASB has delayed the effective date of the new revenue standard by one year, and the guidance will now be effective as of the Company's first quarter of fiscal 2019. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements and disclosures.

In June 2014, the FASB issued authoritative guidance regarding accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the employee has completed the requisite service period. This authoritative guidance requires that such performance targets that affect vesting be treated as performance conditions, meaning that the performance target should not be factored in the calculation of the award at the grant date. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. This authoritative guidance will be effective as of the Company's first quarter of fiscal 2017, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
In July 2015, the FASB issued authoritative guidance simplifying inventory measurement by requiring companies to value inventory at the lower of cost and net realizable value. The authoritative guidance applies to all inventory other than inventory that is measured using last-in, first-out or the retail inventory method. The intention of this authoritative guidance is to eliminate some diversity in practice. This authoritative guidance will be effective as of the Company's first quarter of fiscal 2018, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
    
In November 2015, the FASB issued authoritative guidance simplifying the presentation of deferred income taxes. The authoritative guidance requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The Company early adopted this guidance at December 31, 2015 on a retrospective basis.
    
In January 2016, the FASB issued authoritative guidance regarding the recognition and measurement of financial assets and liabilities. The authoritative guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. All equity investments in unconsolidated entities will be measured at fair value through earnings rather than through other comprehensive income. This authoritative guidance will be effective as of the Company's first quarter of fiscal 2019. The Company is currently evaluating the impact that adoption of this guidance will have on its consolidated financial statements.
Summary Of Significant Accounting Policies (Tables)
The components of Accumulated Other Comprehensive Income and changes for the three months ended December 31, 2015 and 2014, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands): 
 
Gains and Losses on Derivative Financial Instruments
Gains and Losses on Securities Available for Sale
Funded Status of the Pension and Other Post-Retirement Benefit Plans
Total
Three Months Ended December 31, 2015
 
 
 
 
Balance at October 1, 2015
$
157,197

$
5,969

$
(69,794
)
$
93,372

Other Comprehensive Gains and Losses Before Reclassifications
44,696

(447
)

44,249

Amounts Reclassified From Other Comprehensive Income
(39,165
)


(39,165
)
Balance at December 31, 2015
$
162,728

$
5,522

$
(69,794
)
$
98,456

Three Months Ended December 31, 2014
 
 
 
 
Balance at October 1, 2014
$
43,659

$
8,382

$
(56,020
)
$
(3,979
)
Other Comprehensive Gains and Losses Before Reclassifications
140,880

(252
)

140,628

Amounts Reclassified From Other Comprehensive Income
(14,176
)


(14,176
)
Balance at December 31, 2014
$
170,363

$
8,130

$
(56,020
)
$
122,473

 
 
 
 
 

The details about the reclassification adjustments out of accumulated other comprehensive income for the three months ended December 31, 2015 and 2014 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):
Details About Accumulated Other Comprehensive Income (Loss) Components
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income
Affected Line Item in the Statement Where Net Income (Loss) is Presented
 
Three Months Ended December 31,
 
 
2015
2014
 
Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:
 
 
 
     Commodity Contracts

$56,327


$20,036

Operating Revenues
     Commodity Contracts
920

4,229

Purchased Gas
     Foreign Currency Contracts
(77
)

Operation and Maintenance Expense
 
57,170

24,265

Total Before Income Tax
 
(18,005
)
(10,089
)
Income Tax Expense
 

$39,165


$14,176

Net of Tax

The components of the Company’s Other Current Assets are as follows (in thousands):
                            
At December 31, 2015
 
At September 30, 2015
 
 
 
 
Prepayments
$
8,727

 
$
10,743

Prepaid Property and Other Taxes
15,143

 
13,709

Federal Income Taxes Receivable
7,120

 

Fair Values of Firm Commitments
16,618

 
15,775

Regulatory Assets
18,537

 
20,438

 
$
66,145

 
$
60,665

The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):
                            
At December 31, 2015
 
At September 30, 2015
 
 
 
 
Accrued Capital Expenditures
$
61,362

 
$
53,652

Regulatory Liabilities
4,695

 
5,346

Reserve for Gas Replacement
976

 

Federal Income Taxes Payable

 
5,686

State Income Taxes Payable
751

 
1,170

Other
28,046

 
30,703

 
$
95,830

 
$
96,557

Fair Value Measurements (Tables)
The following table sets forth, by level within the fair value hierarchy, the Company's financial assets and liabilities (as applicable) that were accounted for at fair value on a recurring basis as of December 31, 2015 and September 30, 2015.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value presentation for over the counter swaps combines gas and oil swaps because a significant number of the counterparties enter into both gas and oil swap agreements with the Company.  
Recurring Fair Value Measures
At fair value as of December 31, 2015
(Thousands of Dollars)   
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments(1)
 
Total(1)
Assets:
 

 
 

 
 

 
 

 
 

Cash Equivalents – Money Market Mutual Funds
$
10,323

 
$

 
$

 
$

 
$
10,323

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
5,350

 

 

 
(5,350
)
 

Over the Counter Swaps – Gas and Oil

 
284,066

 

 
(1,598
)
 
282,468

Foreign Currency Contacts

 

 

 
(5,059
)
 
(5,059
)
Other Investments:
 

 
 

 
 

 
 

 
 

Balanced Equity Mutual Fund
36,096

 

 

 

 
36,096

Fixed Income Mutual Fund
21,980

 

 

 

 
21,980

Common Stock – Financial Services Industry
4,179

 

 

 

 
4,179

Other Common Stock
494

 

 

 

 
494

Hedging Collateral Deposits
9,551

 

 

 

 
9,551

Total                                           
$
87,973

 
$
284,066

 
$

 
$
(12,007
)
 
$
360,032

 
 
 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

 
 

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
$
11,677

 
$

 
$

 
$
(5,350
)
 
$
6,327

Over the Counter Swaps – Gas and Oil

 
3,240

 

 
(1,598
)
 
1,642

Foreign Currency Contracts

 
5,059

 

 
(5,059
)
 

Total
$
11,677

 
$
8,299

 
$

 
$
(12,007
)
 
$
7,969

Total Net Assets/(Liabilities)
$
76,296

 
$
275,767

 
$

 
$

 
$
352,063

 
Recurring Fair Value Measures
At fair value as of September 30, 2015
(Thousands of Dollars)   
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments(1)
 
Total(1)
Assets:
 

 
 

 
 

 
 

 
 

Cash Equivalents – Money Market Mutual Funds
$
92,196

 
$

 
$

 
$

 
$
92,196

Derivative Financial Instruments:
 

 
 

 
 

 
 

 
 

Commodity Futures Contracts – Gas
6,373

 

 

 
(6,373
)
 

Over the Counter Swaps – Gas and Oil

 
272,335

 
1,791

 
(808
)
 
273,318

Foreign Currency Contracts

 

 

 
(2,955