Reporting Format

The FRS data system is designed to permit review of the functional performance of major energy-producing companies in total, as well as by specific functions and geographic areas of operation. The financial reporting schedules obtain data on revenues, cost, and profits, thereby indicating financial flows and performance characteristics. In addition, Form EIA-28 is used to collect balance sheet data (e.g., accumulated property, plant, and equipment, etc.), along with data on new investment in these accounts. To complement the financial data, statistical schedules are included to trace physical activity patterns and to evaluate several physical/financial relationships.

In greater detail, the structure of the reporting package is as follows:

1. Financial Reporting

a. The starting point is the three basic financial statements required by the Securities and Exchange Commission (SEC) Form 10-K:

i. Consolidating Statement of Income (Schedule 5110)

ii. Selected Consolidating Financial Data (Balance Sheets) (Schedule 5120)

iii. Consolidated Statement of Cash Flows (Schedule 5131)

b. Corporate-wide financial information is first disaggregated by functional lines (segments) on Schedule 5110 and 5120 as follows:

i. Petroleum

ii. Coal

iii. Other Energy (includes Nuclear)

iv. Nonenergy (includes Chemicals)

c. Nonenergy data is collected to describe corporate resource investment strategies and to allow aggregation of the FRS detailed schedules into. the consolidated company amounts.

2. Operating and Statistical Information

a. For each type of energy activity, complementary operating information is obtained through the following schedules:

i. Petroleum (5211-5246) ii. Coal (5341)

b. The schedules are designed to correspond to the financial information so that level of effort in the financial sense can be compared to physical results.

3. Complementary Schedules

a. Examine corporate research and development funding priorities (Schedule 5111)

b. Reveal impact of tax policy on financial results of reporting companies (Schedule 5112)

c. Monitor raw material acquisition and refined product disposition strategies of FRS companies (5211-5212)

d. Trace changes in reserves for petroleum (including natural gas) (5246) and coal (5341).

Petroleum Segment Overview

The petroleum line of business is further disaggregated into segments.294 These segments are presented as though each were a separate entity, with certain

initially chosen from the top 50 publicly owned U.S. crude oil producers, in 1976, who had at least 1 percent of either the production or the reserves of oil, gas, coal, or uranium in the United States or 1 percent of refining capacity or petroleum product sales in the United States. General Electric (GE) was originally included in the group, because of its interest in Pathfinder Mines Corporation (Pathfinder), which was a uraniumproducing company. However, GE did not file Form EIA-28 because Pathfinders's financial statements were not consolidated into the financial statements of GE as a FRS reporting company. Pathfinder was not included in the FRS database.

Mergers, acquisitions and spinoffs together with the selection criteria applied to 1991 data resulted in the list of companies shown in the tabulation on the following page.

Data Quality Assurance Program

The data quality assurance program encompasses EIA's efforts to ensure the quality and integrity of FRS data. These efforts are evidenced by the design of the form and by the procedures applied to verify the data, i.e., the machine programmed checks and desk audit.

Forms Design

The Securities and Exchange Commission (SEC) Form 10-K contains financial statements audited by independent certified public accountants. These financial statements, and the entire text of the annual report and Form 10-K, are reviewed by the SEC staff in order to provide the investing public with assurances that data filed on Form 10-K are accurate and are in accordance with generally accepted accounting principles and SEC Regulations.

In order to take advantage of the SEC review and the audit by certified public accountants, the FRS Form EIA-28 is designed in a multitier structure. This structure presents both the Form 10-K figures and statistics and the more detailed data required by the FRS system. The top FRS tier corresponds to Form 10-K; the second tier is the first tier disaggregated into the different sources of energy (e.g., petroleum, coal, etc.); and the third tier is the second tier disaggregated into the specific functional line-of-business segments within petroleum. (See the Petroleum Segment Overview section at the beginning of this appendix, which describes the FRS segments in detail.) The fourth tier provides further detail within the individual segments,

for example, the details of petroleum raw materials purchased and sold. Therefore, the lower tiers can be aggregated to each successively higher tier until the consolidated Form 10-K figures are reached. In this way, the more detailed FRS data is tied to the aggregated figures already reported publicly to the SEC and to individual company shareholders.

Review Procedures

Detailed machine editing and desk review procedures have been established for the incoming FRS data. The result of each review is the issuance of a letter to the reporting company containing questions regarding data elements. The reporting companies respond to each question, either by explaining the item or by amending any incorrect schedule. Amended schedules are reprocessed like the original with the full range of desk and machine checks. The result of this process is an internally consistent database which has been reconciled to the SEC Form 10-K, and from which the output reports can be compiled.

ascertain that the amounts within a certain section of a schedule equal the amounts of the same description within a different schedule. The cross-reference checks are performed to ensure accuracy and consistency between different schedules. For example, the amount reported on Schedule 5210 for the U.S. production segment charges for depreciation, depletion and amortization is cross-referenced to ensure the same amount is reported on Schedule 5120. Since the number and type of errors noted during these checks is an indicator of respondent understanding of the form, existing and potential problems are identified. The FRS review staff can then focus most of their attention on specific companies and areas where data accuracy may be more of a problem.

Desk Review Procedures

This is the detailed comparison of the data submitted to the FRS system to information contained in the Form 10-K report and the annual report to shareholders as well as other publicly available information.

As stated previously, the Form 10-K report and the annual report contain financial information that has been audited by independent certified public accountants. This financial information along with textual and statistical information has also been reviewed by the SEC staff, which includes not only accountants, lawyers, and financial analysts, but also petroleum and mineral resource engineers. Hence, the data contained in these documents is considered a valuable reference in connection with the quality of FRS data.

The data contained in each respondent's submission is compared to the Form 10-K and the annual report material using a detailed review program. Each review program step is performed by trained auditors supervised by CPA's with experience in auditing medium to large public companies.

These comparisons involve checking elements in both the financial and physical information areas (e.g., production, reserves, refinery statistics, etc.). Direct comparisons are made of specific data elements of the FRS form with corresponding items on Form 10-K or in the annual report. Indirect comparisons deal with information that is mentioned in Form 10-K and the annual report but which is not quantified sufficiently for direct matching with FRS data. For example, if a respondent's annual report discussed an investment in coal, appropriate entries would be expected on the FRS schedule for coal.

The FRS desk review procedures also include two other types of comparisons. The first type of comparison is made against prior year FRS data of the reporting company as well as current average data for all FRS reporting companies. These These procedures assure consistency and reasonableness across reporting years.

The second type of desk review involves comparison to other related data series. Information contained in the FRS system is compared to data available from other DOE systems and published data, such as state mining surveys.

The FRS desk review procedures described above often lead to the formulation of a set of questions which are issued to the reporting companies each year. Response to these questions generates substantial interchange between the energy company staffs and the FRS staff. From this interchange the company personnel acquire a better understanding of the unique aspects of the FRS system. The FRS staff learns more about each reporting company, the industry and how each company's accounting and reporting practices might affect the published FRS aggregate data.

Statistical Disclosure Avoidance Procedures

Procedures to prevent the disclosure of "individually identifiable energy information" have been applied to each table in this report. These tables provide summary, rather than company, level information. In most cases, the level of summarization is for all FRS companies. In certain cases, subcategories have been established that break the reports into size or other descriptive classes. Each table has been screened to ensure that no statistical disclosure will occur.

A large number of summary computer reports, generated from a single selected database, provide the basis for these tables. In conjunction with the summary reports, a parallel set of cell count reports were produced that tabulate for each report cell the number of nonzero values that were aggregated to produce the summary value. The cell count reports were then reviewed to identify whether potential disclosure problems would result from having an insufficient number of reporters or from having values that primarily represent dominant companies in a particular energy sector or activity.

If potential disclosure problems were identified, the tables were restructured to combine values or groups of

individual cells in the tables so that the resulting tables were essentially disclosure free.

Financial Analysis Guide

Indicators of Financial Performance

To depict the activities of the FRS companies classified by the various energy industries, several indicators have been selected to show the amounts and geographic distribution of production, profits, cash generated, accumulated investment, and annual new investment. These indicators are compared across segments, across functions within segments, and geographically. They are the same, or similar, to indicators which have been in regular use by financial analysts and economists for many years. However, to avoid potential misunderstandings, a discussion follows of the measures used, their significance, and their limitations.

All of these measures are based upon the existing framework of financial reporting now used by industry, which relies on Generally Accepted Accounting Principles (GAAP). GAAP is the set of accounting principles by which industry reflects the financial results of operations, cash flows and financial position of individual business enterprises. The two primary problems one must contend with in using present GAAP-based data is that not all companies use the same GAAP accounting methods (e.g., full cost versus successful efforts in petroleum) and GAAP is based upon historical cost accounting principles (inflationary distortions and market values are not reflected). Both of these can cause cause a degree of noncomparability of reported data, across companies in the case of accounting methods, and through time in the case of historical cost accounting. In spite of these problems, the data are still regarded as meaningful, especially for trend analysis. (For a further discussion of these two problems see the Accounting Practices section of this appendix.)

The financial measure of the production and distribution of raw materials and refined products is operating revenues, or sales. Under GAAP this measure is based on arms-length transactions with third parties. However, in the FRS system the concept of sales has been extended to include sales from one segment to another. In such an approach, one segment's sales become another segment's costs, which must be eliminated in consolidation. The establishment of the FRS segments, the definition of sales (trading function), and the nontraceable and eliminations categories are discussed more fully in the Accounting Practices section of this appendix.