<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...............to ..............
Commission file number 0-82
NORTH CAROLINA NATURAL GAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 56-0646235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 Rowan Street, Fayetteville, North Carolina 28302
(Address of principal executive offices)
(Zip Code)
(910) 483-0315
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $2.50 par value 6,338,298
Class Number of Shares
Page 1 of 15
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
ASSETS
March 31, September 30,
1994 1993
--------- ------------
Gas Utility Plant $234,784 $224,946
Less-Accumulated Depreciation
and Amortization (75,894) (72,403)
-------- --------
Utility Plant, net 158,890 152,543
-------- --------
Nonutility Property 5,039 4,644
Less-Accumulated Depreciation (2,285) (2,196)
-------- --------
Nonutility Plant, net 2,754 2,448
-------- --------
Current Assets:
Cash 2,000 1,591
Restricted Temporary Cash Investments 8,174 4,863
Accounts Receivable, Less Reserve 21,697 12,796
Recoverable Purchased Gas Costs 617 6,396
Inventories, at Average Cost -
Gas in Storage 4,396 7,170
Materials, Supplies & Merchandise 3,291 3,286
Deferred Gas Cost-Unbilled Volumes 2,741 638
Other Current Assets 1,869 1,753
-------- --------
Total Current Assets 44,785 38,493
-------- --------
Investment in Exploration Ventures 180 180
Deferred Charges and Other Assets 433 514
-------- --------
Total Assets $207,042 $194,178
======== ========
(The accompanying notes are an integral part of these balance sheets.)
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NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
CAPITALIZATION AND LIABILITIES
March 31, September 30,
1994 1993
-------- ------------
Capitalization:
Stockholders' Investment:
Common Stock, Par Value $2.50;
Shares Outstanding 03/31/94, 6,338;
09/30/93, 6,301 $ 15,846 $ 15,752
Capital in Excess of Par Value 24,930 24,142
Retained Earnings 48,508 41,050
-------- --------
Total Stockholders' Investment 89,284 80,944
-------- --------
Long-Term Debt 39,000 39,000
-------- --------
Total Capitalization 128,284 119,944
-------- --------
Current Liabilities:
Current Maturities of Long-Term Debt 6,088 6,088
Notes Payable 12,000 15,500
Accounts Payable 16,165 14,723
Restricted Supplier Refunds 8,174 4,863
Taxes Payable 5,359 2,428
Other Current Liabilities 6,136 5,781
-------- --------
Total Current Liabilities 53,922 49,383
-------- --------
Other Credits:
Deferred Income Taxes 16,168 20,363
Unamortized Investment Tax Credits 3,210 3,325
Net Regulatory Liability Related
to Income Taxes 4,347 -
Other 1,111 1,163
-------- --------
Total Other Credits 24,836 24,851
-------- --------
Total Capitalization and Liabilities $207,042 $194,178
======== ========
(The accompanying notes are an integral part of these balance sheets.)
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NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $62,615 $53,916
Cost of Gas 41,535 34,061
------- -------
Gross Margin 21,080 19,855
------- -------
Operating Expenses and Taxes:
Operations and Maintenance 4,864 4,585
Depreciation 1,825 1,706
General Taxes 2,654 2,257
Income Taxes 4,061 3,916
------- -------
Total Operating Expenses and Taxes 13,404 12,464
------- -------
Operating Income 7,676 7,391
Other Income, Net 633 481
Utility Interest Charges 1,008 1,220
------- -------
Net Income $7,301 $6,652
======= =======
Average Common Shares Outstanding 6,326 5,964
======= ======
Earnings Per Share $1.15 $1.12
======= ======
Dividends Declared Per Share $.29 $.27
======= ======
(The accompanying notes are an integral part of these statements.)
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NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Six Months Ended March 31, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $104,697 $105,312
Cost of Gas 68,481 71,242
-------- --------
Gross Margin 36,216 34,070
-------- --------
Operating Expenses and Taxes:
Operations and Maintenance 9,800 9,227
Depreciation 3,627 3,384
General Taxes 4,565 4,318
Income Taxes 6,117 5,657
-------- --------
Total Operating Expenses and Taxes 24,109 22,586
-------- --------
Operating Income 12,107 11,484
Other Income, Net 950 694
Utility Interest Charges 2,063 2,325
-------- --------
Net Income $10,994 $9,853
======== ========
Average Common Shares Outstanding 6,314 5,705 (a)
======== ========
Earnings Per Share $1.74 $1.73
======== ========
Dividends Declared Per Share $.56 $.52
======== ========
(a) Average common shares outstanding for the six months ended March 31,
1993 have been adjusted for the three-for-two stock split in the form
of a stock dividend effective October 30, 1992.
(The accompanying notes are an integral part of these statements.)
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NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Twelve Months Ended March 31, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $172,531 $171,457
Cost of Gas 116,339 118,112
-------- --------
Gross Margin 56,192 53,345
-------- --------
Operating Expenses and Taxes:
Operations and Maintenance 18,958 18,015
Depreciation 7,134 6,508
General Taxes 7,623 7,491
Income Taxes 6,762 6,344
-------- --------
Total Operating Expenses and Taxes 40,477 38,358
-------- --------
Operating Income 15,715 14,987
Other Income, Net 565 443
Utility Interest Charges 4,162 4,507
-------- --------
Net Income $12,118 $10,923
======== ========
Average Common Shares Outstanding 6,300 5,567(a)
======== ========
Earnings Per Share $1.92 $1.96
======== ========
Dividends Declared Per Share $1.10 $1.02
======== ========
(a) Average common shares outstanding for the twelve months ended March 31,
1993 have been adjusted for the three-for-two stock split in the form of a
stock dividend effective October 30, 1992.
(The accompanying notes are an integral part of these statements.)
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NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended March 31, 1994 and 1993
(in thousands)
1994 1993
------- ------
Cash Flows from Operating Activities:
Net Income $10,994 $9,853
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,851 3,565
Change in deferred income taxes and
other credits, net 421 385
Change in other current assets and liabilities 2,155 (6,064)
Other (429) (151)
------- -------
Net cash provided by operating activities 16,992 7,588
------- -------
Cash Flows From Investing Activities:
Property additions (10,444) (8,790)
Other, net 16 9
------- -------
Net cash used in investing activities (10,428) (8,781)
------- -------
Cash Flows From Financing Activities:
Decrease in notes payable (3,500) (14,500)
Cash dividends paid (3,536) (3,053)
Issuance of common stock through dividend
reinvestment and employee stock purchase plans 881 750
Issuance of common stock through public offering - 17,763
Issuance of common stock through key employee
stock option plan - 68
------- -------
Net cash provided by (used in) financing
activities (6,155) 1,028
------- ------
Net increase (decrease) in cash and
and temporary cash investments 409 (165)
Cash and temporary cash investments,
beginning of period 1,591 1,113
------- -------
Cash and temporary cash investments,
end of period $2,000 $948
======= =======
Interest, net of amounts capitalized $2,236 $2,547
Income taxes, net of refunds 3,027 5,110
(The accompanying notes are an integral part of these statements.)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994
Note 1: The condensed financial statements included in this report reflect
only normal recurring adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the periods shown. Because
of the seasonal nature of the Company's business, the results of operations
for the six-month period ended March 31, 1994 are not necessarily indicative
of the results for the full year. These financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not misleading.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's latest annual report on Form 10-K for the fiscal year ended
September 30, 1993.
Note 2: Long-Term Debt at March 31, 1994:
Amount Due
Within
Issue One Year Total
- - ----- --------- ---------
9.21% Debentures, Series C, due 11/15/11 $ - $25,000,000
8 3/4% Debentures, Series B, due 06/15/01 2,000,000 16,000,000
12 7/8% Debentures, Series A, due 09/01/96 4,088,000 4,088,000
---------- -----------
Long-Term Debt $6,088,000 $45,088,000
========== ===========
Note 3: During the six months ended March 31, 1994, the Company received
additional supplier refunds from Transco and Columbia of $3,241,000. Upon
order of the NCUC, the Company has invested all of these funds in U.S.
Treasury securities until such time as the Commission orders the funds
transferred to an Expansion Fund administered by the Commission pursuant to
legislation passed in July 1991 which encourages the expansion of Natural
Gas service into unserved areas of the State, including substantial portions
of the Company's franchised service territory. At March 31, 1994,
$8,174,000 of temporary cash investments are restricted for transfer to
the Expansion Fund which was established for the Company by Order of the NCUC
dated February 8, 1993. On April 30, 1993, the Company transferred $3.8
million to the Expansion Fund administered by the Commission pursuant to the
Order.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) Material Changes in Financial Condition
The Company has bank lines of credit available in the amount of $32
million plus the cost of gas in storage. At March 31, 1994, loans totaling
$12 million were outstanding under the lines of credit compared to $15.5
million outstanding at September 30, 1993.
Construction spending was $10.4 million for the six months ended March
31, 1994 compared to $8.8 million for the same period in 1993. Construction
expenditures for the remainder of the fiscal year 1994 are budgeted at $14.9
million. Management believes that the Company's lines of credit and cash
provided from operating activities will be sufficient to satisfy the
Company's anticipated short-term cash requirements during the remainder of
fiscal year 1994.
(2) Material Changes in Results of Operations
Net income increased $649,000, $1,141,000, and $1,195,000,
respectively, for the three months, six months and twelve months periods ended
March 31, 1994 compared to the same periods last year. The higher earnings
were due primarily to (1) strong growth in the Company's margin that resulted
from customer growth and increased throughput to residential, commercial,
industrial process and municipal customers, (2) increased earnings on
nonutility operations, and (3) lower utility interest charges.
Gross margin increased $1,225,000, $2,146,000, and $2,847,000,
respectively, for the three months, six months and twelve months ended March
31, 1994 compared to the 1993 periods. Factors contributing to the increased
margin in these periods were increased volumes of gas sold and transported to
higher margin residential, commercial, non-IST industrial and municipal
customers, continued strong growth in residential and commercial customers
resulting in substantial increases in monthly fixed charge revenues and
additional revenues related to extremely cold weather conditions in
mid-January. During the three-day period January 18-20, 1994, the Company
interrupted service to all of its interruptible customers due to abnormally
low temperatures in its service area. Many customers were unable to switch
to an alternative fuel and thus incurred overrun penalties of $550,000 in
addition to their regular tariff rate charges from the Company. Also, three
of the municipal customers increased their contract demand levels effective
January 1, 1994 resulting in an additional $132,000 of revenue to the Company
during the quarter ended March 31, 1994.
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The chart below compares the Company's throughput volumes by market
segment in thousands of dekatherms (Mdt) for the three months, six months, and
twelve months periods:
THROUGHPUT VOLUMES (Mdt) BY MARKET SEGMENT
3 Months 6 Months 12 Months
--------------- -------------- -------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
Core Market
(Non-IST) 12,279 11,782 20,899 19,987 34,402 32,651
IST Customers
(those with #6
oil as
alternative
fuel) 2,734 3,033 6,054 6,199 13,257 14,293
------ ------ ------ ------ ------ ------
Total 15,013 14,815 26,953 26,186 47,659 46,944
====== ====== ====== ====== ====== ======
Core market volume increases, caused primarily by customer growth, for
the three month, six month and twelve month periods resulted in additional
margin for the Company. Changes in IST volumes have no impact on the
Company's realized margin as the IST ratemaking mechanism stabilizes the
Company's margin at the level approved in the Company's last general rate
case.
The following table shows the throughput in terms of sales and
transportation volumes:
THROUGHPUT VOLUMES (Mdt) BY TYPE OF SERVICE
3 Months 6 Months 12 Months
-------------- -------------- ----------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
Sales 13,420 12,262 22,050 23,192 36,271 40,299
Transportation 1,593 2,553 4,903 2,994 11,388 6,645
------ ------ ------ ------ ------ ------
Total 15,013 14,815 26,953 26,186 47,659 46,944
====== ====== ====== ====== ====== ======
While operating revenues were up $8,699,000 for the three months ended
March 31, 1994 compared to the three months ended March 31, 1993, they were
up only $1,074,000 for the twelve months and were down $615,000 for the six
months ended March 31, 1994 compared to the same periods last year. Factors
causing increased revenues in all three periods were customer growth,
increased throughput volumes, generally higher commodity gas prices during
the twelve months period, increased pipeline fixed charges resulting from
the implementation of FERC Order 636 effective November 1, 1993 for both
Transco and Columbia, and the additional revenues from overrun penalties and
municipal contract demand increases discussed on Page 9. For the three months
period, operating revenues were also favorably impacted by mix changes,
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<PAGE> 11
including more sales to residential and commercial customers at higher rates
and a shift of 960,000 dt from transportation service to sales service by
certain industrial and municipal customers. The mix changes were primarily
the result of colder weather, especially in January, and the net addition of
approximately 5,400 residential and commercial customers from March 1993 to
March 1994, an increase of almost 6%.
The primary factor causing decreases in revenues during the six months
and twelve months periods ended March 31, 1994 compared to the same periods
last year was a mix change to greater transportation volumes and lower sales
volumes as shown in the table, "Throughput Volumes (Mdt) By Type of Service"
on Page 10. The commodity cost of gas associated with transportation volumes
is paid directly to the customer's supplier and is, therefore, not incurred
nor billed by the Company. For the six months period, the
transportation/sales mix change, together with lower commodity gas prices
during the first quarter ended December 31, 1993, more than offset the
factors increasing revenues. For the twelve months period, even with a
shift of 4,743,000 dt from sales to transportation service, total revenues
increased slightly because gas prices were higher during the other nine
months of the year. The Company's Purchased Gas Adjustment Clause (PGA)
allows the Company to recover from its customers all actual gas costs
prudently incurred, with adjustments for over or under recovered amounts
recorded in deferred gas cost accounts for subsequent collection from or
refund to customers, as the case may be.
Cost of gas increased $7,474,000 for the three months period ended March
31, 1994 as compared to the same period last year. This increase was caused
by increased purchases related to higher sales volumes, higher commodity
prices during the quarter and higher fixed charges from pipelines and
producers.
Cost of gas decreased $2,761,000 and $1,773,000, respectively, for the
six months and twelve months period ended March 31, 1994 as compared to the
same periods last year. These decreases were caused primarily by reduced
quantities purchased due to the lower sales volumes, somewhat offset by the
generally higher commodity prices except during the October-December 1993
quarter when prices were lower than the prices in the same quarter last year.
Operations and maintenance expenses increased $279,000, $573,000, and
$943,000, respectively, for the three months, six months and twelve months
ended March 31, 1994 compared to the same periods last year. These increases
were primarily due to increases in wages, salaries and employee benefits,
including increased group health insurance costs from adopting FAS 106
accounting effective October 1, 1993, and higher costs including additional
personnel associated with adding new customers.
Depreciation expense increased in the three months, six months and
twelve months periods compared to the same periods last year due to the
addition of utility plant in service, primarily transmission and distribution
plant, related to system expansion and customer growth.
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General taxes increased in all periods compared to the same periods last
year. The primary tax included in this category is the state gross receipts
tax which is based on revenue and, therefore, it basically tracks the change
in revenues. For the three months ended March 31, 1994, the gross receipts
tax accounted for $278,000 of the $397,000 increase in general taxes. Also
included in the general tax category are payroll and property taxes which
were up in all three periods in line with increases in salaries and wages and
gas utility plant in service, respectively.
Income taxes increased $145,000, $460,000, and $418,000, for the three
month, six month and twelve month periods, respectively, from the same periods
last year. These increases were due primarily to increased operating income
and lower utility interest charges.
Other income, net, increased in all periods as compared to the same
period last year. Increases were caused by increased profits from the
Company's merchandise, jobbing, and LP operations associated with customer and
volume growth and reduced operating costs on a per unit basis.
Utility interest charges decreased in all periods as compared to last
year. The decreases were due primarily to lower interest rates on short-term
bank loans, reductions in refunds payable to customers which carry a
NCUC-mandated 10% interest rate, and a decrease in long-term debt due to
sinking fund payments.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in the Rights of the Company's Security Holders
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Company's third largest customer in terms of volumes of natural gas
deliveries is the Public Works Commission of the City of Fayetteville (PWC),
an electric and water utility. For the 12 months ended March 31, 1994, the
Company delivered 2,309,000 dt of natural gas at its lowest tariff rate to
PWC's Butler-Warner Generation Plant for the purpose of generating
electricity, primarily during the summer season months (April-October).
PWC's wholesale electric supplier, from whom PWC purchases most of its power,
is Carolina Power & Light Company (CP&L). On March 10, 1994, PWC and CP&L
executed a long-term Power Supply and Coordination Agreement (PSCA) which,
among other things, provides that CP&L shall have responsibility for
determining when PWC's Butler-Warner Generation Plant shall operate, as CP&L
will include Butler-Warner in its overall economic dispatch of power plants
it owns or controls.
CP&L has filed the PSCA with the FERC and has requested an effective date
of June 1, 1994. The FERC must approve the PSCA before it can become
effective. If the FERC approves the PSCA as filed, the possibility exists
that PWC's Butler-Warner plant could be dispatched for significantly fewer
hours than it has operated in the past few years. If that possibility occurs,
the Company's transportation of natural gas to PWC would decline
significantly, thus reducing future revenues and margins up to approximately
$1.1 million if the entire PWC load were lost.
As FERC has not yet approved the PSCA and because the Company has no
other reliable information as to how CP&L would operate the Butler-Warner
plant, management of the Company can not predict the outcome of this matter.
However, management believes it is likely that some - but not all - of the
existing PWC load will be lost, the timing and amount of which is uncertain
and will remain so until such time that the PSCA is in effect.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH CAROLINA NATURAL GAS CORPORATION
--------------------------------------
(Registrant)
Date: May 11, 1994 /s/ Gerald A. Teele
---------------------------------------
Gerald A. Teele
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: May 11, 1994 /s/ Charles W. Siska, Jr.
--------------------------------------
Charles W. Siska, Jr.
Controller
(Principal Accounting Officer)
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