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Item 1. Financial Statements

2023-02-03 compared with 2022-08-05 · 153 added, 301 removed, 511 unchanged (47% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

(Thousands of U.S.

1 unchanged sentence

Operating Revenues:

Utility and Energy Marketing Revenues $ 179,888 $ 126,933 $ 785,664 $ 587,247

Utility Revenues $ 311,619 $ 236,684

Exploration and Production and Other Revenues 276,973 244,281

4 unchanged sentences

Operation and Maintenance:

Utility and Energy Marketing 46,403 42,577 146,523 139,521

Utility 50,352 46,644

Exploration and Production and Other 26,874 45,619

2 unchanged sentences

Depreciation, Depletion and Amortization 96,600 88,578

Impairment of Oil and Gas Producing Properties — — — 76,152

404,489 336,898

Gain on Sale of Assets 12,736 — 12,736 51,066

Operating Income 254,370 209,659

10 unchanged sentences

Dividends on Common Stock ( 43,598 ) ( 41,604 )

Balance at June 30 $ 1,472,395 $ 1,145,700 $ 1,472,395 $ 1,145,700

Balance at December 31 $ 1,713,176 $ 1,281,963

Earnings Per Common Share:

10 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

(Thousands of U.S.

1 unchanged sentence

Net Income Available for Common Stock $ 169,689 $ 132,392

Other Comprehensive Income (Loss), Before Tax:

Other Comprehensive Income, Before Tax:

Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period

2 unchanged sentences

159,342 162,588

Other Post-Retirement Adjustment for Regulatory Proceeding — — ( 7,351 ) —

Other Comprehensive Income (Loss), Before Tax 98,287 ( 188,369 ) ( 94,729 ) ( 170,744 )

Other Comprehensive Income, Before Tax 456,935 325,720

Income Tax Expense (Benefit) Related to Unrealized Gain (Loss) on Derivative Financial Instruments Arising During the Period

2 unchanged sentences

43,571 44,500

Income Tax Expense (Benefit) Related to Other Post-Retirement Adjustment for Regulatory Proceeding — — ( 1,544 ) —

Income Taxes – Net 124,948 89,149

Other Comprehensive Income (Loss) 71,386 ( 136,474 ) ( 69,271 ) ( 123,705 )

Comprehensive Income (Loss) $ 179,544 $ ( 49,999 ) $ 338,608 $ 152,980

Other Comprehensive Income 331,987 236,571

Comprehensive Income $ 501,676 $ 368,963

See Notes to Condensed Consolidated Financial Statements

13 unchanged sentences

Gas Stored Underground 23,780 32,364

Materials, Supplies and Emission Allowances 39,634 53,560

Materials and Supplies - at average cost 43,599 40,637

Unrecovered Purchased Gas Costs 78,739 99,342

49 unchanged sentences

Other Regulatory Liabilities 191,499 188,803

Pension and Other Post-Retirement Liabilities 4,732 7,526

Other Post-Retirement Liabilities 2,998 3,065

Asset Retirement Obligations 161,221 161,545

6 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended

Three Months Ended

(Thousands of U.S.

3 unchanged sentences

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Gain on Sale of Assets ( 12,736 ) ( 51,066 )

Impairment of Oil and Gas Producing Properties — 76,152

Depreciation, Depletion and Amortization 96,600 88,578

Deferred Income Taxes 53,457 44,122

Premium Paid on Early Redemption of Debt — 15,715

Stock-Based Compensation 5,575 5,487

Reduction of Other Post-Retirement Regulatory Liability ( 18,533 ) —

Other 4,078 4,675

13 unchanged sentences

Capital Expenditures ( 233,473 ) ( 213,491 )

Net Proceeds from Sale of Oil and Gas Producing Properties 254,439 —

Net Proceeds from Sale of Timber Properties — 104,582

Sale of Fixed Income Mutual Fund Shares in Grantor Trust 10,000 30,000

2 unchanged sentences

FINANCING ACTIVITIES

Changes in Notes Payable to Banks and Commercial Paper 241,500 ( 30,000 )

Net Proceeds from Issuance of Long-Term Debt — 495,267

Proceeds from Issuance of Short-Term Note Payable to Bank 250,000 —

Net Change in Other Short-Term Notes Payable to Banks and Commercial Paper ( 60,000 ) 7,500

Reduction of Long-Term Debt ( 150,000 ) —

1 unchanged sentence

Net Repurchases of Common Stock ( 6,694 ) ( 8,859 )

Net Cash Provided by (Used in) Financing Activities 107,412 ( 175,659 )

Net Increase in Cash, Cash Equivalents, and Restricted Cash 466,908 99,181

Net Cash Used in Financing Activities ( 10,146 ) ( 42,846 )

Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash 108,357 ( 41,073 )

Cash, Cash Equivalents, and Restricted Cash at October 1 137,718 120,138

Cash, Cash Equivalents, and Restricted Cash at June 30 $ 587,046 $ 119,722

Cash, Cash Equivalents, and Restricted Cash at December 31 $ 246,075 $ 79,065

Supplemental Disclosure of Cash Flow Information

1 unchanged sentence

Non-Cash Capital Expenditures $ 110,314 $ 81,010

Non-Cash Contingent Consideration for Asset Sale $ 12,571 $ —

See Notes to Condensed Consolidated Financial Statements

12 unchanged sentences

The consolidated financial statements for the year ended September 30, 2023 will be audited by the Company's independent registered public accounting firm after the end of the fiscal year.

The earnings for the nine months ended June 30, 2022 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2022.

The earnings for the three months ended December 31, 2022 should not be taken as a prediction of earnings for the entire fiscal year ending September 30, 2023.

Most of the business of the Utility segment is seasonal in nature and is influenced by weather conditions.

3 unchanged sentences

The components, as reported on the Company’s Consolidated Balance Sheets, of the total cash, cash equivalents, and restricted cash presented on the Statement of Cash Flows are as follows (in thousands):

Nine Months Ended

June 30, 2022 Nine Months Ended

June 30, 2021

June 30, 2022 Balance at October 1, 2021 Balance at

June 30, 2021 Balance at October 1, 2020

Three Months Ended

December 31, 2022 Three Months Ended

December 31, 2021

December 31, 2022 Balance at October 1, 2022 Balance at

December 31, 2021 Balance at October 1, 2021

Cash and Temporary Cash Investments $ 244,475 $ 46,048 $ 79,065 $ 31,528

8 unchanged sentences

The allowance, the majority of which is in the Utility segment, is determined based on historical experience, the age of customer accounts, other specific information about customer accounts, and the economic and regulatory environment.

Account balances are charged off against the allowance twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered.

Activity in the allowance for uncollectible accounts for the nine months ended June 30, 2022 and 2021 are as follows (in thousands):

Balance at Beginning of Period Additions Charged to Costs and Expenses Discounts on Purchased Receivables Net Accounts Receivable Written-Off Balance at End of Period

Nine Months Ended June 30, 2022

Account balances are charged off against the allowance approximately twelve months after the account is final billed or when it is anticipated that the receivable will not be recovered.

Activity in the allowance for uncollectible accounts for the three months ended December 31, 2022 and 2021 are as follows (in thousands):

Balance at Beginning of Period Additions Charged to Costs and Expenses Discounts on Purchased Receivables Net Accounts Receivable Recovered (Written-Off) Balance at End of Period

Three Months Ended December 31, 2022

Allowance for Uncollectible Accounts $ 40,228 $ 5,035 $ 228 $ ( 1,566 ) $ 43,925

Nine Months Ended June 30, 2021

Three Months Ended December 31, 2021

Allowance for Uncollectible Accounts $ 31,639 $ 3,742 $ 161 $ 57 $ 35,599

2 unchanged sentences

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 $ 21.8 million at June 30, 2022, is reduced to zero by September 30 of each year as the inventory is replenished.

Materials, Supplies and Emission Allowances.

The components of the Company's materials, supplies and emission allowances are as follows (in thousands):

At June 30, 2022 At September 30, 2021

Materials and Supplies - at average cost $ 39,634 $ 34,880

Emission Allowances — 18,680

$ 39,634 $ 53,560

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 $ 17.7 million at December 31, 2022, is reduced to zero by September 30 of each year as the inventory is replenished.

Property, Plant and Equipment.

3 unchanged sentences

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.

The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $ 1.8 billion and $ 1.9 billion at June 30, 2022 and September 30, 2021, respectively.

The Company's capitalized costs relating to oil and gas producing activities, net of accumulated depreciation, depletion and amortization, were $ 2.1 billion and $ 1.9 billion at December 31, 2022 and September 30, 2022, respectively.

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 $ 105.5 million and $ 103.8 million at June 30, 2022 and September 30, 2021, respectively.

Such costs amounted to $ 67.5 million and $ 66.0 million at December 31, 2022 and September 30, 2022, respectively.

All costs related to unproved properties are reviewed quarterly to determine if impairment has occurred.

5 unchanged sentences

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 non-cash impairment is required to be charged to earnings in that quarter.

At June 30, 2022, the ceiling exceeded the book value of the oil and gas properties by approximately $ 2.4 billion.

The estimated future net cash flows were decreased by $ 757.6 million for hedging under the ceiling test at June 30, 2022.

At December 31, 2022, the ceiling exceeded the book value of the oil and gas properties by approximately $ 3.3 billion.

The estimated future net cash flows were decreased by $ 954.3 million for hedging under the ceiling test at December 31, 2022.

The principal assets of the Utility, Pipeline and Storage and Gathering segments, consisting primarily of gas distribution pipelines, transmission pipelines, storage facilities, gathering lines and compressor stations, are recorded at historical cost.

There were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at June 30, 2022.

There were no indications of any impairments to property, plant and equipment in the Utility, Pipeline and Storage and Gathering segments at December 31, 2022.

Accumulated Other Comprehensive Loss.

The components of Accumulated Other Comprehensive Loss and changes for the nine months ended June 30, 2022 and 2021, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):

The components of Accumulated Other Comprehensive Loss and changes for the three months ended December 31, 2022 and 2021, net of related tax effect, are as follows (amounts in parentheses indicate debits) (in thousands):

Gains and Losses on Derivative Financial Instruments Funded Status of the Pension and Other Post-Retirement Benefit Plans Total

Three Months Ended June 30, 2022

Balance at April 1, 2022 $ ( 584,812 ) $ ( 69,442 ) $ ( 654,254 )

Other Comprehensive Gains and Losses Before Reclassifications

( 145,322 ) — ( 145,322 )

Amounts Reclassified From Other Comprehensive Income 216,708 — 216,708

Balance at June 30, 2022 $ ( 513,426 ) $ ( 69,442 ) $ ( 582,868 )

Nine Months Ended June 30, 2022

Three Months Ended December 31, 2022

Balance at October 1, 2022 $ ( 572,163 ) $ ( 53,570 ) $ ( 625,733 )

1 unchanged sentence

216,216 — 216,216

Amounts Reclassified From Other Comprehensive Loss 429,377 — 429,377

Other Post-Retirement Adjustment for Regulatory Proceeding — ( 5,807 ) ( 5,807 )

Balance at June 30, 2022 $ ( 513,426 ) $ ( 69,442 ) $ ( 582,868 )

Three Months Ended June 30, 2021

Balance at April 1, 2021 $ ( 12,096 ) $ ( 89,892 ) $ ( 101,988 )

Other Comprehensive Gains and Losses Before Reclassifications

( 145,986 ) — ( 145,986 )

Amounts Reclassified From Other Comprehensive Loss 9,512 — 9,512

Balance at June 30, 2021 $ ( 148,570 ) $ ( 89,892 ) $ ( 238,462 )

Nine Months Ended June 30, 2021

Amounts Reclassified From Other Comprehensive Income 115,771 — 115,771

Balance at December 31, 2022 $ ( 240,176 ) $ ( 53,570 ) $ ( 293,746 )

Three Months Ended December 31, 2021

Balance at October 1, 2021 $ ( 449,962 ) $ ( 63,635 ) $ ( 513,597 )

1 unchanged sentence

118,483 — 118,483

Amounts Reclassified From Other Comprehensive Loss 12,393 — 12,393

Balance at June 30, 2021 $ ( 148,570 ) $ ( 89,892 ) $ ( 238,462 )

During the quarter ended March 31, 2022, the PaPUC concluded a regulatory proceeding that addressed the recovery of other post-employment benefit (“OPEB”) expenses in Distribution Corporation's Pennsylvania service territory.

As a result of that proceeding, Distribution Corporation suspended regulatory accounting for OPEB expenses in Pennsylvania and a regulatory deferral of $ 7.4 million ($ 5.8 million after tax) related to the funded status of Distribution Corporation’s other post-retirement benefit plans in Pennsylvania was reclassified to accumulated other comprehensive loss.

For further discussion of this regulatory proceeding, refer to Note 11 — Regulatory Matters under the heading “Pennsylvania Jurisdiction.”

Amounts Reclassified From Other Comprehensive Income 118,088 — 118,088

Balance at December 31, 2021 $ ( 213,391 ) $ ( 63,635 ) $ ( 277,026 )

Reclassifications Out of Accumulated Other Comprehensive Loss.

The details about the reclassification adjustments out of accumulated other comprehensive loss for the nine months ended June 30, 2022 and 2021 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):

The details about the reclassification adjustments out of accumulated other comprehensive loss for the three months ended December 31, 2022 and 2021 are as follows (amounts in parentheses indicate debits to the income statement) (in thousands):

Details About Accumulated Other Comprehensive Loss Components Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Loss Affected Line Item in the Statement Where Net Income is Presented

Three Months Ended

June 30, Nine Months Ended June 30,

2022 2021 2022 2021

Gains (Losses) on Derivative Financial Instrument Cash Flow Hedges:

6 unchanged sentences

The components of the Company’s Other Current Assets are as follows (in thousands):

At June 30, 2022 At September 30, 2021

At December 31, 2022 At September 30, 2022

Prepayments $ 19,828 $ 17,757

Prepaid Property and Other Taxes 14,564 14,321

State Income Taxes Receivable 3,032 1,502

Prepaid State Income Taxes 5,608 5,933

Regulatory Assets 21,117 21,358

2 unchanged sentences

The components of the Company’s Other Accruals and Current Liabilities are as follows (in thousands):

At June 30, 2022 At September 30, 2021

At December 31, 2022 At September 30, 2022

Accrued Capital Expenditures $ 71,421 $ 64,720

2 unchanged sentences

Liability for Royalty and Working Interests 43,122 86,206

Federal Income Taxes Payable 154 154

Non-Qualified Benefit Plan Liability 17,474 17,474

4 unchanged sentences

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 had outstanding were SARs, restricted stock units and performance shares.

For the quarter and nine months ended June 30, 2022, 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.

SARs, restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share.

There were 873 securities and 6,990 securities excluded as being antidilutive for the quarter and nine months ended June 30, 2022, respectively.

There were 334,335 securities and 333,445 securities excluded as being antidilutive for the quarter and nine months ended June 30, 2021, respectively.

For purposes of determining earnings per common share, the potentially dilutive securities the Company had outstanding were restricted stock units and performance shares.

For the quarter ended December 31, 2022, 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.

Restricted stock units and performance shares that are antidilutive are excluded from the calculation of diluted earnings per common share.

There were 1,987 securities and 8,732 securities excluded as being antidilutive for the quarters ended December 31, 2022 and December 31, 2021, respectively.

Stock-Based Compensation.

The Company granted 195,397 performance shares during the nine months ended June 30, 2022.

The weighted average fair value of such performance shares was $ 65.39 per share for the nine months ended June 30, 2022.

The Company granted 202,259 performance shares during the quarter ended December 31, 2022.

The weighted average fair value of such performance shares was $ 64.28 per share for the quarter ended December 31, 2022.

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.

1 unchanged sentence

The performance shares do not entitle the participant to receive dividends during the vesting period.

The performance shares granted during the nine months ended June 30, 2022 include awards that must meet a performance goal related to either relative return on capital over a three-year performance cycle ("ROC performance shares"), methane intensity and greenhouse gas emissions reductions over a three-year performance cycle ("ESG performance shares") or relative shareholder return over a three-year performance cycle ("TSR performance shares").

The performance shares granted during the quarter ended December 31, 2022 include awards that must meet a performance goal related to either relative return on capital over a three-year performance cycle ("ROC performance shares"), methane intensity and greenhouse gas emissions reductions over a three-year performance cycle ("ESG performance shares") or relative shareholder return over a three-year performance cycle ("TSR performance shares").

The performance goal related to the ROC performance shares over the three-year 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”).

5 unchanged sentences

reductions in the rates of intensity of methane emissions for each of the Company's operating segments, and reduction of the consolidated Company's total greenhouse gas emissions.

The Company's Compensation Committee set specific target levels for methane intensity rates and total greenhouse gas emissions, and the performance goal is intended to incentivize and reward performance that helps position the Company to meet or exceed its 2030 methane intensity and greenhouse gas reduction targets.

The Company's Compensation Committee set specific target levels for methane intensity rates and total greenhouse gas emissions, and the performance goal is intended to incentivize and reward performance to the extent management achieves methane intensity and greenhouse gas reduction targets making progress towards the Company's 2030 goals.

The number of these ESG performance shares that will vest and be paid out will depend upon the number of methane intensity segment targets achieved and whether the Company meets the total greenhouse gas emissions target.

6 unchanged sentences

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 128,950 restricted stock units during the nine months ended June 30, 2022.

The weighted average fair value of such restricted stock units was $ 54.10 per share for the nine months ended June 30, 2022.

The Company granted 115,073 restricted stock units during the quarter ended December 31, 2022.

The weighted average fair value of such restricted stock units was $ 59.69 per share for the quarter ended December 31, 2022.

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 restricted stock units do not entitle the participant to receive dividends during the vesting period.

The accounting for 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.

The fair value at the date of grant of the restricted stock units (represented by the market value of Company common stock on the date of the award) must be reduced by the present value of forgone dividends over the vesting term of the award.

The fair value of restricted stock units on the date of award is recorded as compensation expense over the vesting period.

Note 2 – Asset Acquisitions and Divestitures

On June 30, 2022, the Company completed the sale of Seneca’s California assets, all of which are in the Exploration and Production segment, to Sentinel Peak Resources California LLC for a total sale price of $ 253.5 million, consisting of $ 240.9 million in cash and contingent consideration valued at $ 12.6 million at closing.

Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar 2023 and 2025, not to exceed $ 10 million per year, with the amount of each annual payment calculated as $ 1.0 million for each $ 1 per barrel that the ICE Brent Average for each calendar year exceeds $ 95 per barrel up to $ 105 per barrel.

The sale price, which reflected an effective date of April 1, 2022, was reduced for production revenues less expenses that were retained by Seneca from the effective date to the closing date.

The Company pursued this sale given the strong commodity price environment and the Company's strategic focus in the Appalachian Basin.

Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar year 2023 and calendar year 2025, not to exceed $ 10 million per year, with the amount of each annual payment calculated as $ 1.0 million for each $ 1 per barrel that the ICE Brent Average for each calendar year exceeds $ 95 per barrel up to $ 105 per barrel.

The sale price, which reflected an effective date of April 1, 2022, was reduced for production revenues less expenses that were retained by Seneca from the effective date to the closing date.

Under the full cost method of accounting for oil and natural gas properties, $ 220.7 million of the sale price at closing was accounted for as reduction of capitalized costs since the disposition did not alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center.

3 unchanged sentences

This obligation amounted to $ 50.1 million and was accounted for as a reduction of capitalized costs under the full cost method of accounting.

On December 10, 2020, the Company completed the sale of substantially all timber properties in Pennsylvania to Lyme Emporium Highlands III LLC and Lyme Allegheny Land Company II LLC for net proceeds of $ 104.6 million.

At September 30, 2020, these assets, amounting to $ 53.4 million, which previously were recorded as Net Property, Plant and Equipment, were presented as Assets Held for Sale, Net on the Consolidated Balance Sheet.

These assets were a component of the Company’s All Other category and did not have a major impact on the Company’s operations or financial results.

After purchase price adjustments and transaction costs, a gain of $ 51.1 million was recognized on the sale of these assets.

Since the sale did not represent a strategic shift in focus for the Company, the financial results associated with operating these assets as well as the gain on sale have not been reported as discontinued operations.

The sale of the timber properties completed a reverse like-kind exchange pursuant to Section 1031 of the Internal Revenue Code, as amended (“Reverse 1031 Exchange”).

On July 31, 2020, the Company completed its acquisition of certain upstream assets and midstream gathering assets in Pennsylvania from SWEPI LP, a subsidiary of Royal Dutch Shell plc (“Shell”) for total consideration of $ 506.3 million.

The purchase and sale agreement with Shell was structured, in part, as a Reverse 1031 Exchange.

In connection with the Reverse 1031 Exchange, the Company, through a subsidiary, assigned the rights to acquire legal title to certain oil and natural gas properties to a Variable Interest Entity ("VIE") formed by an exchange accommodation titleholder.

From July 31, 2020 to December 10, 2020, a subsidiary of the Company operated the properties pursuant to a lease agreement with the VIE.

As the Company was deemed to be the primary beneficiary of the VIE, the VIE was included in the consolidated financial statements of the Company.

Upon completion of the sale of the timber properties on December 10, 2020, the affected properties were conveyed to the Company and the VIE structure was terminated.

Refer to Note B – Asset Acquisitions and Divestitures of the Company’s 2021 Form 10-K for additional information concerning the Company’s acquisition of certain upstream assets and midstream gathering assets from Shell.

Note 3 – Revenue from Contracts with Customers

The following tables provide a disaggregation of the Company's revenues for the quarter and nine months ended June 30, 2022 and 2021, presented by type of service from each reportable segment.

Quarter Ended June 30, 2022 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

Production of Natural Gas $ 492,698 $ — $ — $ — $ — $ — $ 492,698

Production of Crude Oil 58,292 — — — — — 58,292

Natural Gas Processing 1,016 — — — — — 1,016

Natural Gas Gathering Service — — 55,931 — — ( 53,069 ) 2,862

Natural Gas Transportation Service — 74,826 — 22,019 — ( 19,173 ) 77,672

Natural Gas Storage Service — 21,084 — — — ( 9,024 ) 12,060

Natural Gas Residential Sales — — — 138,297 — — 138,297

Natural Gas Commercial Sales — — — 17,643 — — 17,643

Natural Gas Industrial Sales — — — 784 — — 784

Other ( 996 ) ( 362 ) — 243 — ( 175 ) ( 1,290 )

Total Revenues from Contracts with Customers 551,010 95,548 55,931 178,986 — ( 81,441 ) 800,034

Alternative Revenue Programs — — — 962 — — 962

Derivative Financial Instruments ( 298,372 ) — — — — — ( 298,372 )

Total Revenues $ 252,638 $ 95,548 $ 55,931 $ 179,948 $ — $ ( 81,441 ) $ 502,624

Nine Months Ended June 30, 2022 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

Production of Natural Gas $ 1,189,940 $ — $ — $ — $ — $ — $ 1,189,940

Production of Crude Oil 150,276 — — — — — 150,276

Natural Gas Processing 3,029 — — — — — 3,029

Natural Gas Gathering Service — — 160,759 — — ( 150,696 ) 10,063

Natural Gas Transportation Service — 213,766 — 91,276 — ( 55,031 ) 250,011

Natural Gas Storage Service — 63,334 — — — ( 27,302 ) 36,032

Natural Gas Residential Sales — — — 604,336 — — 604,336

Natural Gas Commercial Sales — — — 84,833 — — 84,833

Natural Gas Industrial Sales — — — 4,124 — — 4,124

Other 6,454 2,195 — ( 5,903 ) 6 ( 468 ) 2,284

Total Revenues from Contracts with Customers 1,349,699 279,295 160,759 778,666 6 ( 233,497 ) 2,334,928

Alternative Revenue Programs — — — 7,243 — — 7,243

Derivative Financial Instruments ( 591,271 ) — — — — — ( 591,271 )

Total Revenues $ 758,428 $ 279,295 $ 160,759 $ 785,909 $ 6 $ ( 233,497 ) $ 1,750,900

Quarter Ended June 30, 2021 (Thousands)

The following tables provide a disaggregation of the Company's revenues for the three months ended December 31, 2022 and 2021, presented by type of service from each reportable segment.

Quarter Ended December 31, 2022 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

8 unchanged sentences

Natural Gas Industrial Sales — — — 1,638 — — 1,638

Natural Gas Marketing — — — — 1 ( 2 ) ( 1 )

Other 2,774 168 — ( 259 ) — ( 283 ) 2,400

3 unchanged sentences

Total Revenues $ 276,973 $ 97,655 $ 56,413 $ 311,681 $ — $ ( 83,863 ) $ 658,859

Nine Months Ended June 30, 2021 (Thousands)

Quarter Ended December 31, 2021 (Thousands)

Revenues By Type of Service Exploration and Production Pipeline and Storage Gathering Utility All Other Corporate and Intersegment Eliminations Total Consolidated

8 unchanged sentences

Natural Gas Industrial Sales — — — 1,147 — — 1,147

Natural Gas Marketing — — — — 651 ( 22 ) 629

Other 2,145 1,281 — ( 2,000 ) 6 ( 152 ) 1,280

20 unchanged sentences

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 June 30, 2022 and September 30, 2021.

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 June 30, 2022

Recurring Fair Value Measures At fair value as of December 31, 2022

(Thousands of Dollars) Level 1 Level 2 Level 3 Netting

3 unchanged sentences

Derivative Financial Instruments:

Over the Counter Swaps – Gas — 9,091 — ( 6,881 ) 2,210

Over the Counter No Cost Collars – Gas — 13,915 — ( 12,274 ) 1,641

17 unchanged sentences

Derivative Financial Instruments:

Over the Counter Swaps – Gas and Oil — 1,802 — ( 1,802 ) —

Over the Counter Swaps – Gas — 5,177 — ( 4,178 ) 999

Contingent Consideration for Asset Sale — 8,176 — — 8,176

Foreign Currency Contracts — 128 — ( 128 ) —

4 unchanged sentences

Derivative Financial Instruments:

Over the Counter Swaps – Gas and Oil — 601,551 — ( 1,802 ) 599,749

Over the Counter Swaps – Gas $ — $ 517,464 $ — $ ( 4,178 ) $ 513,286

Over the Counter No Cost Collars – Gas — 270,453 — — 270,453

5 unchanged sentences

Derivative Financial Instruments

The derivative financial instruments reported in Level 2 at June 30, 2022 include natural gas price swap agreements, natural gas no cost collars, and foreign currency contracts, all of which are used in the Company’s Exploration and Production segment.

The derivative financial instruments reported in Level 2 at September 30, 2021 consist of the same type of instruments in addition to crude oil price swap agreements.

The use of crude oil price swap agreements was discontinued during the quarter ended June 30, 2022 in conjunction with the sale of the Exploration and Production segment's California assets.

Hedging collateral deposits of $ 154.5 million (at June 30, 2022) and $ 88.6 million (at September 30, 2021), which were associated with the price swap agreements, no cost collars and foreign currency contracts, have been reported in Level 1.

The fair value of the Level 2 price swap agreements and no cost collars 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 derivative financial instruments reported in Level 2 at December 31, 2022 and September 30, 2022 include natural gas price swap agreements, natural gas no cost collars, and foreign currency contracts, all of which are used in the Company’s Exploration and Production segment.

Hedging collateral deposits of $ 1.6 million (at December 31, 2022) and $ 91.7 million (at September 30, 2022), which were associated with the price swap agreements, no cost collars and foreign currency contracts, have been reported in Level 1.

The fair value of the Level 2 price swap agreements and no cost collars is based on an internal cash flow model that uses observable inputs (i.e.

SOFR based discount rates for the price swap agreements 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 authoritative guidance 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 June 30, 2022, the Company determined that nonperformance risk associated with the price swap agreements, no cost collars and foreign currency contracts would have no material impact on its financial position or results of operation.

At December 31, 2022, the Company determined that nonperformance risk associated with the price swap agreements, no cost collars and foreign currency contracts 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.

Derivative financial instruments reported in Level 2 at June 30, 2022 also includes the contingent consideration associated with the sale of the Exploration and Production segment's California assets on June 30, 2022, which is discussed at Note 2 – Asset Acquisitions and Divestitures and at Note 5 – Financial Instruments.

The fair value of the contingent consideration was calculated using a Monte Carlo simulation model that uses observable inputs, including ICE Brent closing price as of the valuation date, initial and max trigger price, volatility, risk free rate, time of maturity and counterparty risk.

For the quarters ended June 30, 2022 and June 30, 2021, there were no assets or liabilities measured at fair value and classified as Level 3.

Derivative financial instruments reported in Level 2 at December 31, 2022 also includes the contingent consideration associated with the sale of the Exploration and Production segment's California assets on June 30, 2022, which is discussed at Note 2 – Asset Acquisitions and Divestitures and at Note 5 – Financial Instruments.

The fair value of the contingent consideration was calculated using a Monte Carlo simulation model that uses observable inputs, including the ICE Brent closing price as of the valuation date, initial and max trigger price, volatility, risk free rate, time of maturity and counterparty risk.

For the quarters ended December 31, 2022 and December 31, 2021, there were no assets or liabilities measured at fair value and classified as Level 3.

Note 5 – Financial Instruments

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Based on these criteria, the fair market value of long-term debt, including current portion, was as follows (in thousands):

June 30, 2022 September 30, 2021

December 31, 2022 September 30, 2022

Amount Fair Value Carrying

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The components of the Company's Other Investments are as follows (in thousands):

At June 30, 2022 At September 30, 2021

At December 31, 2022 At September 30, 2022

Life Insurance Contracts $ 42,333 $ 42,171

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On June 30, 2022, the Company completed the sale of Seneca’s California assets.

The Company has determined that this contingent consideration meets the definition of a derivative under the authoritative accounting guidance.

The fair value of this contingent consideration was estimated to be $ 12.6 million at June 30, 2022.

Future changes in the fair value of this contingent consideration will be marked-to-market each reporting period, with changes in fair value recognized in Other Income (Deductions) on the Consolidated Statement of Income.

The Company has presented its net derivative assets and liabilities as “Fair Value of Derivative Financial Instruments” on its Consolidated Balance Sheets at June 30, 2022 and September 30, 2021.

Changes in the fair value of this contingent consideration are marked-to-market each reporting period, with changes in fair value recognized in Other Income (Deductions) on the Consolidated Statement of Income.

The fair value of this contingent

consideration was estimated to be $ 8.4 million and $ 8.2 million at December 31, 2022 and September 30, 2022, respectively.

A $ 0.2 million mark-to-market adjustment was recorded during the quarter ended December 31, 2022.

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, 2022 and September 30, 2022.

Cash Flow Hedges

For derivative financial instruments that are designated and qualify as a cash flow hedge, the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the period or periods during which the hedged transaction affects earnings.

As of June 30, 2022, the Company had 462.3 Bcf of natural gas commodity derivative contracts (swaps and no cost collars) outstanding.

As of June 30, 2022, the Company was hedging a total of $ 53.4 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts.

As of June 30, 2022, the Company had $ 703.8 million ($ 513.4 million after-tax) of net hedging losses included in the accumulated other comprehensive loss balance.

As of December 31, 2022, the Company had 389.0 Bcf of natural gas commodity derivative contracts (swaps and no cost collars) outstanding.

As of December 31, 2022, the Company was hedging a total of $ 54.7 million of forecasted transportation costs denominated in Canadian dollars with foreign currency forward contracts.

As of December 31, 2022, the Company had $ 327.8 million ($ 240.2 million after-tax) of net hedging losses included in the accumulated other comprehensive income (loss) balance.

It is expected that $ 180.6 million ($ 132.4 million after-tax) of such unrealized losses will be reclassified into the Consolidated Statement of Income within the next 12 months as the underlying hedged transactions are recorded in earnings.

The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the

Three Months Ended June 30, 2022 and 2021 (Thousands of Dollars)

Three Months Ended December 31, 2022 and 2021 (Thousands of Dollars)

Derivatives in Cash Flow Hedging Relationships Amount of Derivative Gain or (Loss) Recognized in Other Comprehensive Income (Loss) on

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Three Months Ended

June 30, Location of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the

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 Amount of Derivative Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet into the Consolidated Statement of Income for the

Three Months Ended

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Total $ 297,593 $ 163,132 $ ( 159,342 ) $ ( 162,588 )

The Effect of Derivative Financial Instruments on the Statement of Financial Performance for the

Nine Months Ended June 30, 2022 and 2021 (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)

Nine Months Ended

(Loss) Reclassified from

Accumulated Other

Comprehensive Income (Loss) on

the Consolidated Balance Sheet

into the Consolidated Statement of

Income for the

Nine Months Ended

2022 2021 2022 2021

Commodity Contracts $ ( 677,942 ) $ ( 191,642 ) Operating Revenue $ ( 591,271 ) (1)

Foreign Currency Contracts ( 616 ) 3,792 Operating Revenue 91 245

Total $ ( 678,558 ) $ ( 187,850 ) $ ( 591,180 ) $ ( 17,106 )

(1) On June 30, 2022, the Company completed the sale of Seneca's California assets.

Because of this sale, the Company terminated its remaining crude oil derivative contracts and discontinued hedge accounting for such contracts.

A loss of $ 44.6 million was reclassified from Accumulated Other Comprehensive Income (Loss) on the Consolidated Balance Sheet to Operating Revenues on the Consolidated Statement of Income for the three and nine months ended June 30, 2022.

This loss is included in the reported reclassification amounts.

The Company has over-the-counter swap positions, no cost collars and applicable foreign currency forward contracts with eighteen counterparties.

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.

As of June 30, 2022, sixteen of the eighteen counterparties to the Company’s outstanding derivative instrument contracts (specifically the over-the-counter swaps, over-the-counter no cost collars 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.

The Company has over the-counter swap positions, no cost collars and applicable foreign currency forward contracts with fifteen counterparties of which one is in a net gain position.

The Company had $ 3.8 million of credit exposure with the counterparty in a gain position at December 31, 2022.

As of December 31, 2022, no collateral was received from the counterparties by the Company.

The Company's gain position on such derivative financial instruments had not exceeded the established thresholds at which the counterparties would be required to post collateral, nor had the counterparties' credit ratings declined to levels at which the counterparties were required to post collateral.

As of December 31, 2022, thirteen of the fifteen counterparties to the Company’s outstanding derivative financial contracts (specifically the over-the-counter swaps, over-the-counter no cost collars 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

A decline in the Company’s credit rating, in and of itself, would not cause the Company to be required to post or 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 with a credit-risk contingency feature were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then hedging collateral deposits or an increase to such deposits could be required.

At June 30, 2022, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $ 517.8 million according to the Company’s internal model (discussed in Note 4 – Fair Value Measurements), and the Company posted $ 154.5 million in hedging collateral deposits.

If the Company’s outstanding derivative financial contracts with a credit-risk contingency feature were in a liability position (or if the liability were larger) and/or the Company’s credit rating declined, then hedging collateral deposits or an increase to such deposits could be required.

At December 31, 2022, the fair market value of the derivative financial instrument liabilities with a credit-risk related contingency feature was $ 224.9 million according to the Company’s internal model (discussed in Note 4 – Fair Value Measurements), and the Company posted $ 1.6 million in hedging collateral deposits.

Depending on the movement of commodity prices in the future, it is possible that these liability positions could swing into asset positions, at which point the Company would be exposed to credit risk on its derivative financial instruments.

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Note 6 – Income Taxes

The effective tax rates for the quarters ended June 30, 2022 and June 30, 2021 were 23.3 % and 26.0 %, respectively.

The effective tax rates for the nine months ended June 30, 2022 and June 30, 2021 were 24.9 % and 26.5 %, respectively.

The decrease in the effective tax rate for both the quarter and nine months ended June 30, 2022 was primarily due to the realization of the Enhanced Oil Recovery credit in fiscal 2022 that was not available during fiscal 2021.

As a result of the sale of the Company's California assets as described in Note 2 – Asset Acquisitions and Divestitures, the remaining deferred tax assets related to the California net operating loss and tax credit carryforwards, which are currently offset with a full valuation allowance, were written off.

The deferred tax assets and valuation allowance were written off as the Company determined that there was a remote possibility for use as the Company no longer has California operations.

See the table below for the impact to the valuation allowance resulting from the sale (in thousands):

Balance at October 1, 2021 $ 57,645

Adjustment Related to Sale of California Assets and Current Year Activity ( 28,747 )

Balance at June 30, 2022 $ 28,898

Subsequent to the end of the third quarter of fiscal 2022, on July 8, 2022, House Bill 1342 was signed into law in Pennsylvania.

The law reduces the corporate income tax rate to 8.99 % for fiscal 2024.

Starting with fiscal 2025, the rate is reduced by 0.5 % annually until it reaches 4.99 % for fiscal 2032.

Due to the reduced state income tax rate, Pennsylvania deferred income taxes will be remeasured using the new rates.

The anticipated income tax benefit resulting from the reduced tax rate of approximately $ 25 million to $ 30 million will be recorded during the fourth quarter of fiscal 2022.

The effective tax rate was 25.3 % for both of the quarters ended December 31, 2022 and December 31, 2021.

During the quarter ended December 31, 2022, the Company was unable to utilize the Enhanced Oil Recovery tax credit, which it was able to utilize during the quarter ended December 31, 2021.

However, the effective tax rate remained the same for both periods as the Company continues to record a benefit of the reduction in the Pennsylvania state income tax rate that was enacted in July 2022.

Note 7 – Capitalization

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(Thousands, except per share amounts)

Balance at April 1, 2022 91,449 $ 91,449 $ 1,018,784 $ 1,407,683 $ ( 654,254 )

Net Income Available for Common Stock 108,158

Dividends Declared on Common Stock ($ 0.475 Per Share) ( 43,446 )

Other Comprehensive Income, Net of Tax 71,386

Share-Based Payment Expense (1)

Common Stock Issued Under Stock and Benefit Plans 17 17 76

Balance at June 30, 2022 91,466 $ 91,466 $ 1,022,954 $ 1,472,395 $ ( 582,868 )

Balance at October 1, 2022 91,478 $ 91,478 $ 1,027,066 $ 1,587,085 $ ( 625,733 )

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Dividends Declared on Common Stock ($ 0.475 Per Share) ( 43,598 )

Other Comprehensive Loss, Net of Tax ( 69,271 )

Other Comprehensive Income, Net of Tax 331,987

Share-Based Payment Expense (1)

Common Stock Issued (Repurchased) Under Stock and Benefit Plans 309 309 ( 6,545 )

Balance at June 30, 2022 91,466 $ 91,466 $ 1,022,954 $ 1,472,395 $ ( 582,868 )

Balance at April 1, 2021 91,164 $ 91,164 $ 1,009,075 $ 1,100,718 $ ( 101,988 )

Net Income Available for Common Stock 86,475

Dividends Declared on Common Stock ($ 0.455 Per Share) ( 41,493 )

Other Comprehensive Loss, Net of Tax ( 136,474 )

Share-Based Payment Expense (1)

Common Stock Issued Under Stock and Benefit Plans 9 9 432

Balance at June 30, 2021 91,173 $ 91,173 $ 1,012,703 $ 1,145,700 $ ( 238,462 )

Balance at December 31, 2022 91,787 $ 91,787 $ 1,025,639 $ 1,713,176 $ ( 293,746 )

Balance at October 1, 2021 91,182 $ 91,182 $ 1,017,446 $ 1,191,175 $ ( 513,597 )

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Dividends Declared on Common Stock ($ 0.455 Per Share) ( 41,604 )

Other Comprehensive Loss, Net of Tax ( 123,705 )

Other Comprehensive Income, Net of Tax 236,571

Share-Based Payment Expense (1)

Common Stock Issued (Repurchased) Under Stock and Benefit Plans 255 255 ( 8,664 )

218 218 ( 2,430 )

Balance at June 30, 2021 91,173 $ 91,173 $ 1,012,703 $ 1,145,700 $ ( 238,462 )

Balance at December 31, 2021 91,437 $ 91,437 $ 1,013,821 $ 1,281,963 $ ( 277,026 )

(1) Paid in Capital includes compensation costs associated with performance shares and/or restricted stock awards.

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Common Stock.

During the nine months ended June 30, 2022, the Company issued 27,722 original issue shares of common stock as a result of SARs exercises, 123,589 original issue shares of common stock for restricted stock units that vested and 265,607 original issue shares of common stock for performance shares that vested.

The Company also issued 21,949 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, including the reinvestment of dividends for certain non-employee directors who elected to defer their shares pursuant to the dividend reinvestment feature of the Company's Deferred Compensation Plan for Directors and Officers during the nine months ended June 30, 2022.

During the three months ended December 31, 2022, the Company issued 12,055 original issue shares of common stock as a result of SARs exercises, 113,531 original issue shares of common stock for restricted stock units that vested and 278,687 original issue shares of common stock for performance shares that vested.

The Company also issued 7,230 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, including the reinvestment of dividends for certain non-

employee directors who elected to defer their shares pursuant to the dividend reinvestment feature of the Company's Deferred Compensation Plan for Directors and Officers during the three months ended December 31, 2022.

Holders of stock-based compensation awards will often tender shares of common stock to the Company for payment of applicable withholding taxes.

During the nine months ended June 30, 2022, 154,847 shares of common stock were tendered to the Company for such

During the three months ended December 31, 2022, 102,761 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.

Current Portion of Long-Term Debt at June 30, 2022 consists of $ 500.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes that mature in March 2023.

None of the Company's long-term debt as of September 30, 2021 had a maturity date within the following twelve-month period.

Short-Term Borrowings and Debt Restrictions.

On February 28, 2022, the Company entered into a Credit Agreement (as amended from time to time, the "Credit Agreement") with a syndicate of twelve banks.

The Credit Agreement replaced the previous Fourth Amended and Restated Credit Agreement and a previous 364-Day Credit Agreement.

The Credit Agreement provides a $ 1.0 billion unsecured committed revolving credit facility with an initial maturity date of February 26, 2027.

On May 3, 2022, the Company entered into Amendment No.

1 to the Credit Agreement with the same twelve banks under the initial Credit Agreement.

The amendment modifies the definition of consolidated capitalization, for purposes of calculating the debt to capitalization ratio under the Credit Agreement, to exclude, beginning with the quarter ending June 30, 2022, all unrealized gains or losses on commodity-related derivative financial instruments and up to $ 10 million in unrealized gains or losses on other derivative financial instruments included in Accumulated Other Comprehensive Income (Loss) within Total Comprehensive Shareholders' Equity on the Company’s balance sheet.

Short-Term Borrowings.

On June 30, 2022, the Company entered into a new 364-Day Credit Agreement (the "364-Day Credit Agreement") with a syndicate of five banks, all of which are also lenders under the Credit Agreement.

The 364-Day Credit Agreement provides an additional $ 250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023.

Under the delayed draw mechanism of the 364-Day Credit Agreement, the Company may, through September 28, 2022, make up to three elections to borrow funds under the facility, provided that the Company may extend the period to make such elections to October 28, 2022.

The Company elected to draw $ 250.0 million under the facility on October 27, 2022.

The Company is using the proceeds for general corporate purposes, which included the redemption in November 2022 of $ 150.0 million of the Company's outstanding long-term debt maturing in March 2023.

Current Portion of Long-Term Debt.

The Current Portion of Long-Term Debt at December 31, 2022 consists of $ 350.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes that mature in March 2023.

The Current Portion of Long-Term Debt at September 30, 2022 consisted of $ 500.0 million of 3.75 % notes and $ 49.0 million of 7.395 % notes.

The Company redeemed $ 150.0 million of the 3.75 % notes on November 25, 2022 using a portion of the proceeds from short-term borrowings, as discussed above.

Note 8 – Commitments and Contingencies

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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 June 30, 2022, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites will be approximately $ 3.8 million.

The Company's liability for such clean-up costs has been recorded in Other Liabilities on the Consolidated Balance Sheet at June 30, 2022.

At December 31, 2022, the Company has estimated its remaining clean-up costs related to former manufactured gas plant sites will be approximately $ 4.0 million.

The Company's liability for such clean-up costs has been recorded in Other Liabilities on the Consolidated Balance Sheet at December 31, 2022.

The Company expects to recover its environmental clean-up costs through rate recovery over a period of approximately one year and is currently not aware of any material additional exposure to environmental liabilities.

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The Company remains committed to the project and, on June 29, 2022, received an extension of time from FERC, until December 31, 2024, to construct the project.

As of June 30, 2022, the Company has spent approximately $ 55.8 million on the project, all of which is recorded on the balance sheet.

As of December 31, 2022, the Company has spent approximately $ 55.9 million on the project, all of which is recorded on the balance sheet.

The Company is involved in other litigation and regulatory matters arising in the normal course of business.

1 unchanged sentence

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.

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.

Note 9 – Business Segment Information

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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 2022 Form 10-K.

A listing of segment assets at June 30, 2022 and September 30, 2021 is shown in the tables below.

Quarter Ended June 30, 2022 (Thousands)

A listing of segment assets at December 31, 2022 and September 30, 2022 is shown in the tables below.

Quarter Ended December 31, 2022 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

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$ 91,192 $ 29,476 $ 24,738 $ 23,817 $ 169,223 $( 280 ) $ 746 $ 169,689

Nine Months Ended June 30, 2022 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

Revenue from External Customers

$ 758,428 $ 196,579 $ 10,063 $ 785,664 $ 1,750,734 $ — $ 166 $ 1,750,900

Intersegment Revenues $ — $ 82,716 $ 150,696 $ 245 $ 233,657 $ 6 $( 233,663 ) $ —

Segment Profit:

Net Income (Loss) $ 189,987 $ 77,236 $ 69,887 $ 79,800 $ 416,910 $( 7 ) $( 9,024 ) $ 407,879

(Thousands) Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

Segment Assets:

At June 30, 2022 $ 2,716,219 $ 2,371,621 $ 870,204 $ 2,247,229 $ 8,205,273 $ 235 $( 93,422 ) $ 8,112,086

At December 31, 2022 $ 2,531,218 $ 2,355,063 $ 894,564 $ 2,392,682 $ 8,173,527 $ 1,681 $( 40,294 ) $ 8,134,914

At September 30, 2022 $ 2,507,541 $ 2,394,697 $ 878,796 $ 2,299,473 $ 8,080,507 $ 2,036 $( 186,281 ) $ 7,896,262

Quarter Ended June 30, 2021 (Thousands)

Quarter Ended December 31, 2021 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

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Net Income (Loss) $ 62,369 $ 25,168 $ 23,137 $ 22,130 $ 132,804 $( 7 ) $( 405 ) $ 132,392

Nine Months Ended June 30, 2021 (Thousands)

Exploration and Production Pipeline and Storage Gathering Utility Total Reportable Segments All Other Corporate and Intersegment Eliminations Total Consolidated

Revenue from External Customers

$ 621,116 $ 175,881 $ 1,610 $ 586,618 $ 1,385,225 $ 1,174 $ 272 $ 1,386,671

Intersegment Revenues $ — $ 82,651 $ 144,317 $ 271 $ 227,239 $ 22 $( 227,261 ) $ —

Segment Profit:

Net Income $ 46,213 $ 71,060 $ 61,677 $ 59,922 $ 238,872 $ 37,617 $ 196 $ 276,685

Note 10 – Retirement Plan and Other Post-Retirement Benefits

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Retirement Plan Other Post-Retirement Benefits

Three Months Ended June 30, 2022 2021 2022 2021

Service Cost $ 2,190 $ 2,466 $ 332 $ 400

Interest Cost 5,707 5,422 2,267 2,326

Expected Return on Plan Assets ( 13,074 ) ( 14,537 ) ( 7,340 ) ( 7,241 )

Amortization of Prior Service Cost (Credit) 134 158 ( 107 ) ( 107 )

Amortization of (Gains) Losses 6,601 9,203 ( 1,903 ) 212

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

3,470 2,772 5,351 6,639

Net Periodic Benefit Cost (Income) $ 5,028 $ 5,484 $ ( 1,400 ) $ 2,229

Retirement Plan Other Post-Retirement Benefits

Nine Months Ended June 30, 2022 2021 2022 2021

Three Months Ended December 31, 2022 2021 2022 2021

Service Cost $ 1,297 $ 2,190 $ 147 $ 332

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Employer Contributions.

During the nine months ended June 30, 2022, the Company contributed $ 19.3 million to its tax-qualified, noncontributory defined-benefit retirement plan (Retirement Plan) and $ 2.7 million to its VEBA trusts for its other post-retirement benefits.

In the remainder of 2022, the Company expects to contribute approximately $ 1.1 million to the Retirement Plan.

In the remainder of 2022, the Company expects to contribute approximately $ 0.2 million to its VEBA trusts.

The Company did not make any contributions to its tax-qualified, noncontributory defined benefit retirement plan (Retirement Plan) or its VEBA trusts for its other post-retirement benefits during the three months ended December 31, 2022, and does not anticipate making any such contributions during the remainder of fiscal 2023.

Note 11 – Regulatory Matters

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The order provided for a return on equity of 8.7 %, and directed the implementation of an earnings sharing mechanism to be in place beginning on April 1, 2018.

The order also authorized the Company to recover approximately $ 15 million annually for pension and other post-employment benefit ("OPEB") expenses from customers.

Because the Company’s future pension and OPEB costs were projected to be satisfied with existing funds held in reserve, in July, Distribution Corporation made a filing with the NYPSC to effectuate a pension and OPEB surcredit to customers to offset these amounts being collected in base rates effective October 1, 2022.

On September 16, 2022, the NYPSC issued an order approving the filing.

The surcredit will remain in effect until modified by the NYPSC in another proceeding, or until December 31, 2024, whichever is earlier.

With the implementation of this surcredit, Distribution Corporation will no longer be funding the Retirement Plan or its VEBA trusts in its New York jurisdiction.

On August 13, 2021, the NYPSC issued an order extending the date through which qualified pipeline replacement costs incurred by the Company can be recovered using the existing system modernization tracker for two years (until March 31, 2023).

The extension is contingent on the Company not filing a base rate case that would result in new rates becoming effective prior to April 1, 2023.

In response to the novel coronavirus (COVID-19) pandemic, various legislative actions and NYPSC Staff requests resulted in the Company suspending service terminations and disconnections.

All legislative prohibitions have expired and the Company has agreed to refrain from terminating residential customers (1) with a pending application for arrears payments through the Emergency Rental Assistance Program administered by the Office of Temporary Disability and (2) participating in the Company’s Statewide Low Income Program (EAP) through September 1, 2022.

On December 9, 2022, the Company filed a petition with the NYPSC to effectuate a system improvement tracker through which qualified pipeline replacement costs would be tracked and recovered, and to recover certain deferred costs associated with the existing system modernization tracker, effective April 1, 2023.

That petition has been noticed for public comment and a determination is pending.

On January 19, 2023, the NYPSC issued an order in its Effects of COVID-19 on Utility Service (20-M-0266) and Energy Affordability for Low Income Utility Customers (14-M-0565) proceedings whereby a Phase 2 Utility Arrears Relief Program was authorized.

Specifically, the order directed Distribution Corporation and certain other New York utilities to, among other things, address arrears on residential non-energy affordability program ratepayer accounts that did not receive a credit under the NYPSC’s Phase 1 program and small commercial ratepayer accounts by issuing a one-time bill credit to such customers to reduce or eliminate accrued arrears through May 1, 2022.

The credits shall be processed within 90 days of the

effective date of the order, provided that residential non-EAP customers who had their service disconnected for non-payment in 2022 shall be allowed the opportunity to have their service reinstated in order to receive the credit through June 30, 2023.

The order further directs utilities to suspend residential service terminations for non-payment while arrears credits are applied to accounts through March 1, 2023, or 30 days after credits have been applied, whichever is later.

The order authorizes the utilities to recover the Phase 2 costs (the arrears credits and associated carrying charges) through a surcharge.

Utilities proposed various offsets to Phase 2 program costs, and Distribution Corporation has proposed certain offsets as part of an uncollectible expense reconciliation proposal.

Distribution Corporation will make a filing with the NYPSC seeking approval of its uncollectible expense reconciliation mechanism no later than 30 days from the January 19, 2023 effective date of the order.

Application of the proposed offsets and collection periods will be determined when the NYPSC rules on the uncollectible expense reconciliation filing.

Pennsylvania Jurisdiction

Distribution Corporation’s current delivery rates in its Pennsylvania jurisdiction were approved by the PaPUC on November 30, 2006 as part of a settlement agreement that became effective January 1, 2007.

The rate settlement does not specify any requirement to file a future rate case.

On July 22, 2021, Distribution Corporation filed a supplement to its current Pennsylvania tariff proposing to reduce base rates effective October 1, 2021 by $ 7.7 million in order to stop collecting other post-employment benefit (“OPEB”) expenses from customers, to begin to refund to customers overcollected OPEB expenses in the amount of $ 50.0 million, to suspend all regulatory accounting for OPEB expenses and record the cumulative amount of OPEB income previously deferred as a regulatory liability, and to make certain other adjustments to further reduce Distribution Corporation’s regulatory liability associated with OPEB expenses.

The PaPUC issued an order approving this tariff supplement on September 15, 2021 and new rates went into effect on October 1, 2021.

On September 21, 2021, a complaint was filed in the proceeding.

While new rates, including associated refunds, went into effect on October 1, 2021, the Company decided to wait for resolution of the complaint before suspending regulatory accounting for OPEB expenses and recording the cumulative amount of OPEB income previously deferred as a regulatory liability in its consolidated financial statements.

The PaPUC assigned the matter to an Administrative Law Judge who, on January 6, 2022, issued a Recommended Decision approving a settlement reached by parties to the complaint proceeding.

Under the terms of the settlement, customer refunds of overcollected OPEB expenses increased from $ 50.0 million to $ 54.0 million.

The Recommended Decision was approved by the PaPUC on February 24, 2022.

Accordingly, the Company suspended regulatory accounting for OPEB expenses at that time and recorded an $ 18.5 million adjustment during the quarter ended March 31, 2022 to reduce its regulatory liability for previously deferred OPEB income amounts through September 30, 2021 and to increase Other Income (Deductions) on the consolidated financial statements by a like amount.

The refunds specified in the tariff supplement are being funded entirely by grantor trust assets held by the Company, most of which are included in a fixed income mutual fund that is a component of Other Investments on the Company’s Consolidated Balance Sheet.

On October 28, 2022, Distribution Corporation made a filing with the PaPUC seeking an increase in its annual base rate operating revenues of $ 28.1 million with a proposed effective date of December 27, 2022.

The Company is also proposing, among other things, to implement a weather normalization adjustment (WNA) mechanism and a new energy efficiency and conservation pilot program for residential customers.

On December 8, 2022, the PaPUC issued an order suspending the filing until July 27, 2023 by operation of law unless directed otherwise by the PaPUC.

The matter has been assigned to an administrative law judge and remains pending.

Effective October 1, 2021, pursuant to a tariff supplement filed with the PaPUC, Distribution Corporation reduced base rates by $ 7.7 million in order to stop collecting OPEB expenses from customers.

It also began to refund customers overcollected OPEB expenses in the amount of $ 50.0 million.

Certain other matters in the tariff supplement were unresolved.

These matters were resolved with the PaPUC’s approval of an Administrative Law Judge’s Recommended Decision on February 24, 2022.

Concurrent with that decision, the Company discontinued regulatory accounting for OPEB expenses and recorded an $ 18.5 million adjustment during the quarter ended March 31, 2022 to reduce its regulatory liability for previously deferred OPEB income amounts through September 30, 2021 and to increase Other Income (Deductions) on the consolidated financial statements by a like amount.

The Company also increased customer refunds of overcollected OPEB expenses from $ 50.0 million to $ 54.0 million.

All refunds specified in the tariff supplement are being funded entirely by grantor trust assets held by the Company, most of which are included in a fixed income mutual fund that is a component of Other Investments on the Company’s Consolidated Balance Sheet.

With the elimination of OPEB expenses in base rates, Distribution Corporation is no longer funding the grantor trust or its VEBA trusts in its Pennsylvania jurisdiction.

3 unchanged sentences

Empire’s 2019 rate settlement provides that Empire must make a rate case filing no later than May 1, 2025.

Note 12 – Leases

In October 2021, the Company executed two lease contracts for drilling rig services in Pennsylvania with lease terms of greater than one year .

The first of the new lease contracts commenced in December 2021 with estimated lease payments of $ 8.4 million over the lease term, and the second commenced in January 2022 with estimated lease payments of $ 11.9 million over the lease term.

Both leases have been recognized on the Consolidated Balance Sheet at June 30, 2022.

A right-of-use operating lease asset of $ 12.6 million is recorded in Deferred Charges for both leases with the current portion of the operating lease liability ($ 12.4 million) recorded in Other Accruals and Current Liabilities and the noncurrent portion of the operating lease liability ($ 0.2 million) recorded in Other Liabilities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements