EX-99 2 0002.txt FINANCIAL STATEMENTS NFR POWER, INC. FINANCIAL STATEMENTS SEPTEMBER 30, 1999 NFR POWER, INC. --------------- INDEX TO FINANCIAL STATEMENTS ----------------------------- Page Number ------ Report of Independent Accountants 1 Financial Statements: NFR Power, Inc. Balance Sheet at September 30, 1999 2 NFR Power, Inc. Statement of Operations for the Year Ended September 30, 1999 3 NFR Power, Inc. Statement of Stockholder's Deficit at September 30, 1999 4 NFR Power, Inc. Statement of Cash Flows for the Year Ended September 30, 1999 5 Notes to Financial Statements 6 - 8 Report of Independent Accountants To the Board of Directors and Stockholder of NFR Power, Inc. In our opinion, the accompanying balance sheet and the related statement of operations, stockholder's deficit, and cash flows present fairly, in all material respects, the financial position of NFR Power Inc. (the "Company") at September 30, 1999, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/PricewaterhouseCoopers LLP April 17, 2000 NFR Power, Inc. Balance Sheet September 30, 1999 ----------------- Assets Current Assets: Cash $ 14,550 Accounts Receivable 56,319 Taxes Receivable from the Parent 43,760 Prepayments 53,984 ----------------- 168,613 ----------------- Property, Plant and Equipment: Building 100,000 Industrial and Office Equipment 59,681 ----------------- 159,681 Less: Accumulated Depreciation (6,761) ----------------- 152,920 ----------------- Total Assets $ 321,533 ================= Liabilities and Stockholder's Deficit Liabilities Current Liabilities: Notes Payable - Intercompany $ 324,008 Accounts Payable - Intercompany 51,555 Accounts Payable 7,239 ----------------- 382,802 ----------------- Stockholder's Deficit: Common Stock, $1 par value; authorized 20,000 shares; 500 shares issued and outstanding 500 Paid in Capital 19,500 Accumulated Deficit (81,269) ----------------- (61,269) ----------------- Total Capitalization and Liabilities $ 321,533 ================= See Notes to Financial Statements NFR Power, Inc. Statement of Operations For the Year Ended September 30, 1999 -------------------------------- Operating Revenues $ 41,156 -------------------------------- Operating Expenses: Utilities 55,305 Property, Franchise and Other Taxes 54,763 Contractors 24,000 Repairs and Maintenance 17,914 Depreciation 6,761 Other 5,381 -------------------------------- 164,124 -------------------------------- Operating Loss (122,968) -------------------------------- Interest Expense: Intercompany Interest Expense 2,061 -------------------------------- Income Taxes: Current (43,760) -------------------------------- Net Loss $ (81,269) ================================ See Notes to Financial Statements NFR Power, Inc. Statement of Stockholder's Deficit
Total Common Paid-in Deficit Stockholder's Stock Capital Accumulated Deficit ------------ ------------ ---------------------- ------------------ Balance at October 1, 1998 $ - $ - $ - $ - Common Stock Issued 500 19,500 - 20,000 Net Loss - - (81,269) (81,269) ------------ ------------ ---------------------- ------------------ Balance at September 30, 1999 $ 500 $ 19,500 $ (81,269) $ (61,269) ============ ============ ====================== ==================
See Notes to Financial Statements NFR Power, Inc. Statement of Cash Flows For the Year Ended September 30, 1999 ------------------- Operating Activities Net Loss $ (81,269) Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 6,761 Change in: Accounts Receivable (56,319) Taxes Receivable from the Parent (43,760) Prepayments (53,984) Accounts Payable - Intercompany 51,555 Accounts Payable 7,239 ------------------- Net Cash Used in Operating Activities (169,777) ------------------- Investing Activities Capital Expenditures (159,681) ------------------- Net Cash Used in Investing Activities (159,681) ------------------- Financing Activities Change in Notes Payable - Intercompany 324,008 Proceeds from Common Stock Issuance 20,000 ------------------- Net Cash Provided by Financing Activities 344,008 ------------------- Net Increase in Cash 14,550 Cash at October 1, 1998 - ------------------- Cash at September 30, 1999 $ 14,550 =================== See Notes to Financial Statements NFR Power, Inc. Notes to Financial Statements Note 1: Description of Business NFR Power, Inc. (Power), a New York corporation, is a wholly owned subsidiary of National Fuel Gas Company (NFG). Power purchased a shell co-generation plant on June 29, 1999 through the use of an intercompany demand note payable to National Fuel Resources, Inc. (NFR) (see Note 3: Notes Payable - Intercompany), another wholly owned subsidiary of NFG. In March 2000, Power purchased a 50% partnership interest in a company that generates electricity from the methane gas created in a landfill (see further discussion in Note 4: Subsequent Event). Power is designated as an "exempt wholesale generator" under the Public Utility Holding Company Act of 1935. Power is currently in the process of installing new generation equipment which will produce 40 to 50 megawatts of electricity upon completion. Power anticipates electric generation will begin in the latter part of fiscal 2001 or during fiscal 2002. Note 2: Summary of Significant Accounting Policies Property, Plant and Equipment At September 30, 1999, property, plant and equipment consisted primarily of a building and miscellaneous equipment. The building is a former co-generation plant which is in the process of being redesigned for electric generation. All property, plant and equipment has been recorded at fair value as of the date of the acquisition. Depreciation is computed using the Modified Accelerated Cost Recovery System over the following estimated useful lives: Years ----- Building 39 Office and Industrial Equipment 7 - 15 Operating Revenues and Utility Expenses The former co-generation plant has boilers which generate steam for a manufacturer adjacent to the plant. As an interim solution until the power plant is made operational, the manufacturer owns the boilers while Power operates the boilers for the manufacturer. The manufacturer reimburses Power for its utility costs plus a 10% service charge. Power records the 10% service charge and the reimbursement of utility costs as operating revenues. NFR Power, Inc. Notes to Financial Statements (Continued) Income Taxes NFG and its domestic subsidiaries, which includes Power, file a consolidated federal income tax return. The Company determines its federal income tax liability in accordance with the intercompany tax allocation agreement between NFG and its subsidiaries. Pursuant to this agreement, tax benefits relating to net operating losses are recognized as amounts are receivable from NFG upon utilization of such losses in the consolidated federal income tax return. Statement of Cash Flows For purposes of the Statement of Cash Flows, Power considers all highly liquid debt instruments purchased with a maturity of generally three months or less to be cash equivalents. Power did not pay any income taxes or interest during the year ended September 30, 1999. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. Note 3: Notes Payable - Intercompany Notes Payable - Intercompany consisted of the following at September 30, 1999: Demand Note Payable to NFR $125,931 Line of Credit with NFR 198,077 -------- $324,008 -------- The Demand Note and amounts drawn from the Line of Credit are variable rate debt. The interest rate on both was approximately 5.5% at September 30, 1999. The Line of Credit is for a maximum amount of $1.0 million. Note 4: Subsequent Event (Unaudited) In March 2000, Power purchased a 50% interest in Seneca Energy II, LLC (Seneca Energy) for $2.6 million. Seneca Energy is in the business of generating and selling electricity to a public utility. Seneca Energy generates the electricity by using methane NFR Power, Inc. Notes to Financial Statements (Continued) gas obtained from a landfill in Seneca Falls, New York, which is owned by an outside party. To finance this investment, Power received a $5.0 million capital contribution from NFG in February 2000. This capital contribution was recorded as an addition to Paid in Capital on Power's balance sheet. The excess proceeds, after making the investment, were used to repay the amounts borrowed from NFR under the Demand Note and Line of Credit discussed above in Note 3: Notes Payable - Intercompany. Upon repayment, the Line of Credit with NFR was cancelled and a new Line of Credit of up to $5.0 million was established with NFG.