Capitalization and Short-Term Borrowings

Summary of Changes in Common Stock Equity



	Common Stock			Paid In Capital		Earnings Reinvested in the Business				Accumulated Other Comprehensive Income (Loss)
	Shares	Amount
	(Thousands, except per share amounts)
Balance at September 30, 2014	84,157	$	84,157	$	716,144	$	1,614,361			$	(3,979	)
Net Income (Loss) Available for Common Stock						(379,427		)
Dividends Declared on Common Stock ($1.56 Per Share)						(131,734		)
Other Comprehensive Income, Net of Tax										97,351
Share-Based Payment Expense(2)				2,207
Common Stock Issued Under Stock and Benefit Plans(1)	437	437		25,923
Balance at September 30, 2015	84,594	84,594		744,274		1,103,200				93,372
Net Income (Loss) Available for Common Stock						(290,958		)
Dividends Declared on Common Stock ($1.60 Per Share)						(135,881		)
Other Comprehensive Loss, Net of Tax										(99,012		)
Share-Based Payment Expense(2)				4,843
Common Stock Issued Under Stock and Benefit Plans(1)	525	525		22,047
Balance at September 30, 2016	85,119	85,119		771,164		676,361				(5,640		)
Net Income Available for Common Stock						283,482
Dividends Declared on Common Stock ($1.64 Per Share)						(140,090		)
Cumulative Effect of Adoption of Authoritative Guidance for Stock-Based Compensation						31,916
Other Comprehensive Loss, Net of Tax										(24,483		)
Share-Based Payment Expense(2)				10,902
Common Stock Issued Under Stock and Benefit Plans	424	424		14,580
Balance at September 30, 2017	85,543	$	85,543	$	796,646	$	851,669		(3)	$	(30,123	)


(1)	Paid in Capital includes tax benefits of $1.9 million and $9.1 million for September 30, 2016 and 2015, respectively, related to stock-based compensation.


(2)	Paid in Capital includes compensation costs associated with stock option, SARs, performance share and/or restricted stock awards. The expense is included within Net Income Available For Common Stock, net of tax benefits.


(3)	The availability of consolidated earnings reinvested in the business for dividends payable in cash is limited under terms of the indentures covering long-term debt. At September 30, 2017, $707.5 million of accumulated earnings was free of such limitations.

Common Stock

The Company has various plans which allow shareholders, employees and others to purchase shares of the Company common stock. The National Fuel Gas Company Direct Stock Purchase and Dividend Reinvestment Plan allows shareholders to reinvest cash dividends and make cash investments in the Company’s common stock and provides investors the opportunity to acquire shares of the Company common stock without the payment of any brokerage commissions in connection with such acquisitions. The 401(k) Plans allow employees the opportunity to invest in the Company common stock, in addition to a variety of other investment alternatives. Generally, at the discretion of the Company, shares purchased under these plans are either original issue shares purchased directly from the Company or shares purchased on the open market by an independent agent. During 2017, the Company issued 180,247 original issue shares of common stock for the Direct Stock Purchase and Dividend Reinvestment Plan and 103,602 original issue shares of common stock for the Company's 401(k) plans.

During 2017, the Company issued 45,912 original issue shares of common stock as a result of stock option and SARs exercises, 80,530 original issue shares of common stock for restricted stock units that vested and 43,484 original issue shares of common stock for performance shares that vested. 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 2017, 53,564 shares of common stock were tendered to the Company for such purposes. The Company considers all shares tendered as cancelled shares restored to the status of authorized but unissued shares, in accordance with New Jersey law.

The Company also has a director stock program under which it issues shares of Company common stock to the non-employee directors of the Company who receive compensation under the Company’s 2009 Non-Employee Director Equity Compensation Plan, as partial consideration for the directors’ services during the fiscal year. Under this program, the Company issued 24,028 original issue shares of common stock during 2017.

Shareholder Rights Plan

In 1996, the Company’s Board of Directors adopted a shareholder rights plan (Plan). The Plan has been amended several times since it was adopted and is now embodied in an Amended and Restated Rights Agreement effective December 4, 2008, a copy of which was included as an exhibit to the Form 8-K filed by the Company on December 4, 2008.

Pursuant to the Plan, the holders of the Company’s common stock have one right (Right) for each of their shares. Each Right is initially evidenced by the Company’s common stock certificates representing the outstanding shares of common stock.

The Rights have anti-takeover effects because they will cause substantial dilution of the Company’s common stock if a person (an Acquiring Person) attempts to acquire the Company on terms not approved by the Board of Directors.

The Rights become exercisable upon the occurrence of a Distribution Date as described below, but after a Distribution Date, Rights that are owned by an Acquiring Person will be null and void. At any time following a Distribution Date, each holder of a Right may exercise its right to receive, upon payment of an amount calculated under the Rights Agreement, common stock of the Company (or, under certain circumstances, other securities or assets of the Company) having a value equal to two times the amount paid to exercise the Right. However, the Rights are subject to redemption or exchange by the Company prior to their exercise as described below.

A Distribution Date would occur upon the earlier of (i) ten days after the public announcement that a person or group has acquired, or obtained the right to acquire, beneficial ownership of the Company’s common stock or other voting stock (including Synthetic Long Positions as defined in the Plan) having 10% or more of the total voting power of the Company’s common stock and other voting stock or (ii) ten days after the commencement or announcement by a person or group of an intention to make a tender or exchange offer that would result in that person acquiring, or obtaining the right to acquire, beneficial ownership of the Company’s common stock or other voting stock having 10% or more of the total voting power of the Company’s common stock and other voting stock.

In certain situations after a person or group has acquired beneficial ownership of 10% or more of the total voting power of the Company’s stock as described above, each holder of a Right will have the right to receive, upon exercise of the Right, common stock of the acquiring company having a value equal to two times the amount paid to exercise the Right. These situations would arise if the Company is acquired in a merger or other business combination or if 50% or more of the Company’s assets or earning power is sold or transferred.

At any time prior to the end of the business day on the tenth day following the Distribution Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.005 per Right, payable in cash or stock. A decision to redeem the Rights requires the vote of 75% of the Company’s full Board of Directors. Also, at any time following the Distribution Date, 75% of the Company’s full Board of Directors may vote to exchange the Rights, in whole or in part, at an exchange rate of one share of common stock, or other property deemed to have the same value, per Right, subject to certain adjustments.

Upon exercise of the Rights, the Company may need additional regulatory approvals to satisfy the requirements of the Rights Agreement. The Rights will expire on July 31, 2018, unless earlier than that date, they are exchanged or redeemed or the Plan is amended to extend the expiration date.

Stock Option and Stock Award Plans

The Company has various stock option and stock award plans which provide or provided for the issuance of one or more of the following to key employees: incentive stock options, nonqualified stock options, SARs, restricted stock, restricted stock units, performance units or performance shares.

Stock-based compensation expense for the years ended September 30, 2017, 2016 and 2015 was approximately $10.8 million, $4.8 million and $2.1 million, respectively. Stock-based compensation expense is included in operation and maintenance expense on the Consolidated Statements of Income. The total income tax benefit related to stock-based compensation expense during the years ended September 30, 2017, 2016 and 2015 was approximately $4.4 million, $1.9 million and $0.9 million, respectively. A portion of stock-based compensation expense is subject to capitalization under IRS uniform capitalization rules. Stock-based compensation of $0.1 million, $0.1 million and $0.1 million was capitalized under these rules during the years ended September 30, 2017, 2016 and 2015, respectively. The tax benefit recognized from stock-based compensation exercises and vestings was $0.5 million for the year ended September 30, 2017.

Stock Options

Transactions involving option shares for all plans are summarized as follows:



	Number of Shares Subject to Option		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding at September 30, 2016	19,000		$	39.48
Granted in 2017	—		$	—
Exercised in 2017	(19,000	)	$	39.48
Forfeited in 2017	—		$	—
Outstanding at September 30, 2017	—		$	—	—	$	—
Option shares exercisable at September 30, 2017	—		$	—	—	$	—
Shares available for future grant at September 30, 2017(1)	2,182,243


(1)	Includes shares available for options, SARs, restricted stock and performance share grants.

The total intrinsic value of stock options exercised during the years ended September 30, 2017, 2016 and 2015 totaled approximately $0.3 million, $4.1 million, and $5.1 million, respectively. For 2017, 2016 and 2015, the amount of cash received by the Company from the exercise of such stock options was approximately $0.8 million, $8.0 million, and $5.6 million, respectively. The Company last granted stock options in fiscal 2007 and all stock options have been fully vested since fiscal 2010.

SARs

Transactions involving SARs for all plans are summarized as follows:



	Number of Shares Subject To Option		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding at September 30, 2016	1,590,988		$	48.19
Granted in 2017	—		$	—
Exercised in 2017	(82,077	)	$	39.77
Forfeited in 2017	—		$	—
Expired in 2017	(3,000	)	$	52.10
Outstanding at September 30, 2017	1,505,911		$	48.64	2.52	$	13,144
SARs exercisable at September 30, 2017	1,505,911		$	48.64	2.52	$	13,144

The Company did not grant any SARs during the years ended September 30, 2016 and 2015. The Company’s SARs include both performance based and non-performance based SARs, but the performance conditions associated with the performance based SARs at the time of grant have all been subsequently met. The SARs are considered equity awards under the current authoritative guidance for stock-based compensation. The accounting for SARs is the same as the accounting for stock options.

The total intrinsic value of SARs exercised during the years ended September 30, 2017, 2016 and 2015 totaled approximately $1.6 million, $0.4 million, and $2.0 million, respectively. For the years ended September 30, 2017, 2016 and 2015, 5,000 SARs, 113,082 SARs and 157,386 SARs, respectively, became fully vested. The total fair value of the SARs that became vested during each of the years ended September 30, 2017, 2016 and 2015 was approximately $0.1 million, $1.2 million and $1.7 million, respectively.

Restricted Share Awards

Transactions involving restricted share awards for all plans are summarized as follows:



	Number of Restricted Share Awards	Weighted Average Fair Value per Award
Outstanding at September 30, 2016	20,000	$	47.46
Granted in 2017	—	$	—
Vested in 2017	—	$	—
Forfeited in 2017	—	$	—
Outstanding at September 30, 2017	20,000	$	47.46

The Company did not grant any restricted share awards (non-vested stock as defined by the current accounting literature) during the years ended September 30, 2016 and 2015. As of September 30, 2017, unrecognized compensation expense related to restricted share awards totaled approximately $0.3 million, which will be recognized over a weighted average period of 3.1 years.

Vesting restrictions for the 20,000 outstanding shares of non-vested restricted stock at September 30, 2017 will lapse in 2021.

Restricted Stock Units

Transactions involving non-performance based restricted stock units for all plans are summarized as follows:



	Number of Restricted Stock Units		Weighted Average Fair Value per Award
Outstanding at September 30, 2016	239,151		$	49.67
Granted in 2017	87,143		$	52.13
Vested in 2017	(80,530	)	$	53.38
Forfeited in 2017	(12,565	)	$	53.75
Outstanding at September 30, 2017	233,199		$	48.99

The Company also granted 101,943 and 88,899 non-performance based restricted stock units during the years ended September 30, 2016 and 2015, respectively. The weighted average fair value of such non-performance based restricted stock units granted in 2016 and 2015 was $35.89 per share and $64.04 per share, respectively. As of September 30, 2017, unrecognized compensation expense related to non-performance based restricted stock units totaled approximately $4.7 million, which will be recognized over a weighted average period of 2.2 years.

Vesting restrictions for the non-performance based restricted stock units outstanding at September 30, 2017 will lapse as follows: 2018 — 73,819 units; 2019 — 65,265 units; 2020 — 52,641 units; 2021 - 27,976 units; and 2022 - 13,498 units.

Performance Shares

Transactions involving performance shares for all plans are summarized as follows:



	Number of Performance Shares		Weighted Average Fair Value per Award
Outstanding at September 30, 2016	438,234		$	44.98
Granted in 2017	184,148		$	56.39
Vested in 2017	(43,484	)	$	69.13
Forfeited in 2017	(51,150	)	$	60.74
Outstanding at September 30, 2017	527,748		$	45.44

The Company also granted 309,996 and 107,044 performance shares during the years ended September 30, 2016 and 2015, respectively. The weighted average grant date fair value of such performance shares granted in 2016 and 2015 was $30.71 per share and $65.26 per share, respectively. As of September 30, 2017, unrecognized compensation expense related to performance shares totaled approximately $10.1 million, which will be recognized over a weighted average period of 1.7 years. Vesting restrictions for the outstanding performance shares at September 30, 2017 will lapse as follows: 2018 - 88,132 shares; 2019 - 255,468 shares; and 2020 - 184,148 shares.

Half of the performance shares granted during the year ended September 30, 2017 must meet a performance goal related to relative return on capital over the performance cycle of October 1, 2016 to September 30, 2019. In addition, half of the performance shares granted during the year ended September 30, 2016 must meet a performance goal related to relative return on capital over the performance cycle of October 1, 2015 to September 30, 2018, and half of the performance shares granted during the year ended September 30, 2015 must meet a performance goal related to relative return on capital over the performance cycle of October 1, 2014 to September 30, 2017. The performance goals over their respective performance cycles for these performance shares granted during 2017, 2016 and 2015 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 year ended September 30, 2017 must meet a performance goal related to relative total shareholder return over the performance cycle of October 1, 2016 to September 30, 2019. In addition, the other half of the performance shares granted during the year ended September 30, 2016 must meet a performance goal related to relative total shareholder return over the performance cycle of October 1, 2015 to September 30, 2018, and the other half of the performance shares granted during the year ended September 30, 2015 must meet a performance goal related to relative total shareholder return over the performance cycle of October 1, 2014 to September 30, 2017. The performance goals over their respective performance cycles for these total shareholder return performance shares ("TSR performance shares") granted during 2017, 2016 and 2015 is the Company’s three-year total shareholder return relative to the three-year total shareholder return of the other companies in the Report Group. Three-year shareholder return for a given company will be based on the data reported for that company (with the starting and ending stock prices over the performance cycle calculated as the average closing stock price for the prior calendar month and with dividends reinvested in that company’s securities at each ex-dividend date) in the Bloomberg database. The number of these TSR performance shares that will vest and be paid will depend upon the Company’s performance relative to the Report Group and not upon the absolute level of return achieved by the Company. The fair value price at the date of grant for the TSR performance shares is determined using a Monte Carlo simulation technique, which includes a reduction in value for the present value of forgone dividends over the vesting term of the award. This price is multiplied by the number of TSR performance shares awarded, the result of which is recorded as compensation expense over the vesting term of the award. In calculating the fair value of the award, the risk-free interest rate is based on the yield of a Treasury Note with a term commensurate with the remaining term of the TSR performance shares. The remaining term is based on the remainder of the performance cycle as of the date of grant. The expected volatility is based on historical daily stock price returns. For the TSR performance shares, it was assumed that there would be no forfeitures, based on the vesting term and the number of grantees. The following assumptions were used in estimating the fair value of the TSR performance shares at the date of grant:



	Year Ended September 30
	2017		2016		2015
Risk-Free Interest Rate	1.54	%	1.26	%	1.01	%
Remaining Term at Date of Grant (Years)	2.79		2.79		2.78
Expected Volatility	22.6	%	20.5	%	20.1	%
Expected Dividend Yield (Quarterly)	N/A		N/A		N/A

Redeemable Preferred Stock

As of September 30, 2017, there were 10,000,000 shares of $1 par value Preferred Stock authorized but unissued.

Long-Term Debt

The outstanding long-term debt is as follows:



	At September 30
	2017		2016
	(Thousands)
Medium-Term Notes(1):
7.4% due March 2023 to June 2025	$	99,000	$	99,000
Notes(1)(3)(4):
3.75% to 8.75% due April 2018 to September 2027	2,300,000		2,000,000
Total Long-Term Debt	2,399,000		2,099,000
Less Unamortized Discount and Debt Issuance Costs	15,319		12,748
Less Current Portion(2)	300,000		—
	$	2,083,681	$	2,086,252


(1)	The Medium-Term Notes and Notes are unsecured.


(2)	Current Portion of Long-Term Debt at September 30, 2017 consisted of $300.0 million of 6.50% notes scheduled to mature in April 2018. The Company redeemed these notes on October 18, 2017 for $307.0 million, plus accrued interest. The call premium was recorded to Unamortized Debt Expense on the Consolidated Balance Sheet in October 2017.


(3)	The holders of these notes may require the Company to repurchase their notes at a price equal to 101% of the principal amount in the event of both a change in control and a ratings downgrade to a rating below investment grade.


(4)	The interest rate payable on $300.0 million of 3.95% notes will be subject to adjustment from time to time, with a maximum of 2.00%, if certain change of control events involving a material subsidiary result in a downgrade of the credit rating assigned to the notes to below investment grade (or if the credit rating assigned to the notes is subsequently upgraded).

On September 18, 2017, the Company issued $300.0 million of 3.95% notes due September 15, 2027. After deducting underwriting discounts, commissions and other debt issuance costs, the net proceeds to the Company amounted to $295.2 million. The proceeds of this debt issuance were used to redeem $300.0 million of 6.50% notes in October 2017.

As of September 30, 2017, the aggregate principal amounts of long-term debt maturing during the next five years and thereafter are as follows: $300.0 million in 2018, $250.0 million in 2019, zero in 2020 and 2021, $500.0 million in 2022, and $1,349.0 million thereafter.

Short-Term Borrowings

The Company historically has obtained short-term funds either through bank loans or the issuance of commercial paper. On September 9, 2016, the Company entered into a Third Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of what now numbers 13 banks. This Credit Agreement provides a $750.0 million multi-year unsecured committed revolving credit facility through December 5, 2019. The Credit Agreement also provided a $500.0 million 364-day unsecured committed revolving credit facility with 11 of the 13 banks, which expired on September 8, 2017 and was not subsequently renewed. The Company also has a number of individual uncommitted or discretionary lines of credit with certain financial institutions for general corporate purposes. Borrowings under the uncommitted lines of credit are made at competitive market rates. The uncommitted credit lines are revocable at the option of the financial institutions and are reviewed on an annual basis. The Company anticipates that its uncommitted lines of credit generally will be renewed or substantially replaced by similar lines. The total amount available to be issued under the Company’s commercial paper program is $500.0 million. At September 30, 2017, the commercial paper program was backed by the Credit Agreement.

The Company did not have any outstanding commercial paper or short term notes payable to banks at September 30, 2017 and 2016.

Debt Restrictions

The Credit Agreement provides that the Company's debt to capitalization ratio will not exceed .675 at the last day of any fiscal quarter through September 30, 2017, or .65 at the last day of any fiscal quarter from October 1, 2017 through December 5, 2019. At September 30, 2017, the Company’s debt to capitalization ratio (as calculated under the facility) was .58. The constraints specified in the Credit Agreement would have permitted an additional $1.15 billion in short-term and/or long-term debt to be outstanding (further limited by the indenture covenants discussed below) before the Company’s debt to capitalization ratio exceeded .675.

A downgrade in the Company’s credit ratings could increase borrowing costs, negatively impact the availability of capital from banks, commercial paper purchasers and other sources, and require the Company's subsidiaries to post letters of credit, cash or other assets as collateral with certain counterparties. If the Company is not able to maintain investment-grade credit ratings, it may not be able to access commercial paper markets. However, the Company expects that it could borrow under its credit facilities or rely upon other liquidity sources, including cash provided by operations.

The Credit Agreement contains a cross-default provision whereby the failure by the Company or its significant subsidiaries to make payments under other borrowing arrangements, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement. In particular, a repayment obligation could be triggered if (i) the Company or any of its significant subsidiaries fails to make a payment when due of any principal or interest on any other indebtedness aggregating $40.0 million or more, or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $40.0 million or more to cause, such indebtedness to become due prior to its stated maturity. As of September 30, 2017, the Company had no debt outstanding under the Credit Agreement.

Under the Company’s existing indenture covenants, at September 30, 2017, the Company would have been permitted to issue up to a maximum of $126.0 million in additional long-term indebtedness at then current market interest rates in addition to being able to issue new indebtedness to replace maturing debt. However, if the Company were to experience a significant loss in the future (for example, as a result of an impairment of oil and gas properties), it is possible, depending on factors including the magnitude of the loss, that these indenture covenants would restrict the Company's ability to issue additional long-term unsecured indebtedness for a period of up to nine calendar months, beginning with the fourth calendar month following the loss. This would not preclude the Company from issuing new indebtedness to replace maturing debt. The Company's present liquidity position is believed to be adequate to satisfy known demands.

The Company’s 1974 indenture pursuant to which $98.7 million (or 4.1%) of the Company’s long-term debt (as of September 30, 2017) was issued, contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to repay the debt outstanding under the indenture. In particular, a repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or interest on any debt under any other indenture or agreement, or (ii) to perform any other term in any other such indenture or agreement, and the effect of the failure causes, or would permit the holders of the debt to cause, the debt under such indenture or agreement to become due prior to its stated maturity, unless cured or waived.