<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 June 30, 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 6,352,145
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
June 30, September 30,
1994 1993
-------- -----------
Gas Utility Plant $239,076 $224,946
Less-Accumulated Depreciation
and Amortization (77,558) (72,403)
------- -------
Utility Plant, net 161,518 152,543
------- -------
Nonutility Property 5,203 4,644
Less-Accumulated Depreciation (2,348) (2,196)
------- ------
Nonutility Plant, net 2,855 2,448
------- ------
Current Assets:
Cash 1,831 1,591
Restricted Temporary Cash Investments 9,168 4,863
Accounts Receivable, Less Reserve 12,342 12,796
Recoverable Purchased Gas Costs 863
Inventories, at Average Cost -
Gas in Storage 5,799 7,170
Materials, Supplies & Merchandise 3,541 3,286
Deferred Gas Cost-Unbilled Volumes 859 638
Other Current Assets 1,852 1,753
------- -------
Total Current Assets 36,255 38,493
------- -------
Investment in Exploration Ventures 110 180
Deferred Charges and Other Assets 400 514
------- -------
Total Assets $201,138 $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
June 30, September 30,
1994 1993
-------- -------------
Capitalization:
Stockholders' Investment:
Common Stock, Par Value $2.50;
Shares Outstanding 06/30/94, 6,352;
09/30/93, 6,301 $15,880 $15,752
Capital in Excess of Par Value 25,209 24,142
Retained Earnings 46,798 41,050
------- -------
Total Stockholders' Investment 87,887 80,944
------- -------
Long-Term Debt 37,000 39,000
------- -------
Total Capitalization 124,887 119,944
------- -------
Liabilities:
Current Maturities of Long-Term Debt 6,088 6,088
Notes Payable 14,100 15,500
Accounts Payable 12,006 14,723
Restricted Supplier Refunds 9,168 4,863
Taxes Payable 3,767 2,428
Other Current Liabilities 6,017 5,781
------- -------
Total Current Liabilities 51,146 49,383
------- -------
Other Credits:
Deferred Income Taxes 16,428 20,363
Unamortized Investment Tax Credits 3,172 3,325
Net Regulatory Liability Related to
Income Taxes 4,278 -
Other 1,227 1,163
------- -------
Total Other Credits 25,105 24,851
------- -------
Total Capitalization and Liabilities $201,138 $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 June 30, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $29,523 $38,638
Cost of Gas 20,259 28,535
------ ------
Gross Margin 9,264 10,103
------ ------
Operating Expenses and Taxes:
Operations and Maintenance 4,594 4,622
Depreciation 1,860 1,742
General Taxes 1,571 1,588
Income Taxes 90 298
------ ------
Total Operating Expenses and Taxes 8,115 8,250
------ ------
Operating Income 1,149 1,853
Other Income (Loss), Net (20) (83)
Utility Interest Charges 1,001 1,070
------ ------
Net Income $128 $700
====== ======
Average Common Shares Outstanding 6,341 6,280
====== ======
Earnings Per Share $.02 $.11
====== ======
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 Nine Months Ended June 30, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $134,220 $143,950
Cost of Gas 88,740 99,777
------- -------
Gross Margin 45,480 44,173
------- -------
Operating Expenses and Taxes:
Operations and Maintenance 14,393 13,849
Depreciation 5,487 5,126
General Taxes 6,137 5,906
Income Taxes 6,207 5,955
------- -------
Total Operating Expenses and Taxes 32,224 30,836
------- -------
Operating Income 13,256 13,337
Other Income, Net 930 611
Utility Interest Charges 3,064 3,395
------- -------
Net Income $11,122 $10,553
======= =======
Average Common Shares Outstanding 6,323 5,897 (a)
======= =======
Earnings Per Share $1.76 $1.79
======= =======
Dividends Declared Per Share $.85 $.79
======= ======
(a) Average common shares outstanding for the nine months ended June 30,
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 June 30, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $163,415 $175,761
Cost of Gas 108,063 122,458
------- -------
Gross Margin 55,352 53,303
------- -------
Operating Expenses and Taxes:
Operations and Maintenance 18,927 18,552
Depreciation 7,253 6,699
General Taxes 7,606 7,493
Income Taxes 6,555 6,039
------- -------
Total Operating Expenses and Taxes 40,341 38,783
------- -------
Operating Income 15,011 14,520
Other Income, Net 628 398
Utility Interest Charges 4,093 4,421
------- -------
Net Income $11,546 $10,497
======= =======
Average Common Shares Outstanding 6,315 5,781 (a)
======= =======
Earnings Per Share $1.83 $1.82
======= =======
Dividends Declared Per Share $1.12 $1.04
======= =======
(a) Average common shares outstanding for the twelve months ended June 30,
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 Flow (Unaudited)
For the Nine Months Ended June 30, 1994 and 1993
(in thousands)
1994 1993
-------- --------
Cash Flows From Operating Activities:
Net Income $11,122 $10,553
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 5,735 5,386
Change in deferred income taxes and
other credits, net 575 842
Change in other current assets and liabilities 5,640 (1,941)
Other (81) (241)
------- -------
Net cash provided by operating activities 22,991 14,599
------- -------
Cash Flows From Investing Activities:
Property additions (15,019) (12,002)
Other, net (154) (288)
------- -------
Net cash used in investing activities (15,173) (12,290)
------- -------
Cash Flows From Financing Activities:
Decrease in notes payable (1,400) (14,500)
Retirement of long-term debt (2,000) (2,000)
Cash dividends paid (5,374) (4,749)
Issuance of common stock through dividend
reinvestment and employee stock purchase plans 1,195 1,076
Issuance of common stock through public offering - 17,763
Issuance of common stock through key employee
stock option plan - 131
------- -------
Net cash used in financing activities (7,579) (2,279)
------- -------
Net increase in cash and temporary
cash investments 239 30
Cash and temporary cash investments,
beginning of period 1,592 1,113
------- -------
Cash and temporary cash investments,
end of period $1,831 $1,143
======= =======
Interest, net of amounts capitalized $3,933 $4,457
Income taxes, net of refunds 4,622 6,332
(The accompanying notes are an integral part of these statements.)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 three-month and nine-month periods ended June 30, 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 June 30, 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 14,000,000
12 7/8% Debentures, Series A, due 09/01/96 4,088,000 * 4,088,000
--------- ----------
Long-Term Debt $6,088,000 $43,088,000
========= ==========
*The Company plans to extinguish this debt on September 1, 1994.
Note 3: During the nine months ended June 30, 1994, the Company received
additional supplier refunds from Transco and Columbia of $4,187,000. 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 June 30, 1994, $9,168,000
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.
On July 29, 1994, the North Carolina Supreme Court upheld the
constitutionality of the July 1991 legislation and affirmed the Order of the
NCUC establishing the Expansion Fund.
-8-
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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 June 30, 1994, loans totaling
$14.1 million were outstanding under the lines of credit compared to $12.0
million outstanding at March 31, 1994 and $15.5 million outstanding at
September 30, 1993.
Construction spending was $4.6 million for the three months ended June
30, 1994 compared to $3.2 million for the same period in 1993. Construction
expenditures for the remainder of the fiscal year 1994 are projected at
$6 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 decreased $572,000 for the three months period ended June
30, 1994 as compared to the same period last year. The primary reasons for
this decrease were (1) abnormally warmer weather reducing sales to weather
sensitive residential and commercial customers at highest margins after the
Weather Normalization Adjustment period ended, and (2) a decline in
transportation volumes to a large industrial and an electric utility customer
both of which are non-IST customers.
Net income increased $569,000, and $1,049,000, respectively, for the
nine and twelve months periods ended June 30, 1994 compared to the 1993
periods. The higher earnings were primarily due to (1) growth in the
Company's margin that resulted from customer growth and increased throughput
to residential and commercial customers, (2) increased earnings on nonutility
operations, and (3) lower utility interest charges. The nine and twelve
month periods were also affected by the three months decrease as explained
above.
Gross margin decreased $839,000 for the three months period ended June
30, 1994 as compared to the same period last year due to the decline in
throughput for the quarter. The warmer weather in the quarter resulted in
reduced sale volumes to residential and commercial customers by 457,000 dt.
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Gross margin increased $1,307,000, and $2,049,000, respectively, for
the nine months and twelve months ended June 30, 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 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. Partially offsetting gross margin
increases in the nine and twelve months periods was the decease in the
current quarter as described on Page 9.
The chart below compares the Company's throughput volumes by market
segment in thousands of dekatherms (Mdt) for the three months, nine months,
and twelve months periods:
THROUGHPUT VOLUMES (Mdt) BY MARKET SEGMENT
3 Months 9 Months 12 Months
-------------- -------------- -------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
Core Market
(Non-IST) 6,523 7,035 27,421 27,022 33,890 33,107
IST Customers
(those with #6
oil as
alternative
fuel) 3,669 3,555 9,724 9,755 13,370 13,942
------ ------ ------ ------ ------ ------
Total 10,192 10,590 37,145 36,777 47,260 47,049
====== ====== ====== ====== ====== ======
Core market volume increased, caused primarily by customer growth, for
the nine months and twelve months 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 9 Months 12 Months
-------------- -------------- --------------
1994 1993 1994 1993 1994 1993
---- ---- ---- ---- ---- ----
Sales 6,266 8,607 28,316 31,800 33,929 39,567
Transportation 3,926 1,983 8,829 4,977 13,331 7,482
------ ------ ------ ------ ------ ------
Total 10,192 10,590 37,145 36,777 47,260 47,049
====== ====== ====== ====== ====== ======
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Operating revenues decreased $9,115,000, $9,730,000, and $12,346,000,
respectively, for the three months, nine months, and twelve months ended
June 30, 1994. The primary factor causing the decrease in revenues during
the three months, nine months and twelve months periods ended June 30, 1994
as 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 by the customer
directly to the customer's supplier and is, therefore, not incurred nor billed
by the Company. In addition, for the three months ended June 30, 1994,
natural gas commodity prices were significantly lower than prior year quarter.
Cost of gas decreased $8,276,000, $11,037,000, and $14,395,000,
respectively, for the three months, nine months and twelve months periods
ended June 30, 1994 as compared to the same periods last year. These
decreases for all periods were caused primarily by (1) reduced quantities
purchased due to the lower sales volumes, and (2) commodity cost decreases
of 22%, 6%, and 3%, respectively, for the three months, nine months, and
twelve months ended June 30, 1994. During the current quarter, the Company
executed capacity release transactions which reduced gas costs by $526,000.
Operations and maintenance expenses decreased $28,000 for the three
months and increased $544,000 and $375,000, respectively, for the nine and
twelve months periods compared to the same periods last year. Affecting all
periods were declines in sales promotion activities and maintenance expenses
on the Company's transmission and distribution systems. The decrease in the
three months was also affected by an adjustment to the bad debt provision in
1993 that did not recur in the 1994 period. The nine months and twelve
months amounts increased primarily because of increases in wages, employee
benefits, and higher costs including additional personnel associated with
adding new customers.
Depreciation expense increased in all periods as compared to the same
period last year due to the addition of utility plant in service, primarily
transmission and distribution plant, related to system expansion and
customer growth.
General taxes decreased $17,000 in the three month period and increased
$231,000, and $113,000, respectively, for the nine months and twelve months
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 revenues and,
therefore, it basically tracks the change in revenues. However, in the nine
and twelve months periods, increased property tax provisions related to
increased plant investments caused the increase in general taxes despite a
decrease in gross receipts tax.
Income taxes decreased $208,000 for the three months period ended June
30, 1994 as compared to the same period last year. This decrease was caused
by decreased operating income primarily related to decreased gross margins.
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Income taxes increased $252,000, and $516,000, respectively, for the
nine months and twelve months compared to the same periods last year. These
increases were caused by an increase in operating income and a reduction in
utility interest charges.
Other income, net, increased in all periods as compared to the same
periods last year. Increases were caused by increased profits from the
Company's merchandise and jobbing operations associated with customer and
volume growth and reduced operating costs on a per unit basis. The nine
months and twelve months periods were affected by increased profits from the
Company's LP gas operations. In addition, during the current quarter NCNG
Exploration Corporation realized a $58,000 pretax gain on the sale of its
exploration properties.
Utility interest charges decreased in all periods as compared to the same
periods last year for several reasons. Affecting all periods were decreases
in interest on long-term debt due to sinking fund payments and a reduction in
refunds payable to customers which carry a NCUC-mandated 10% interest rate.
The three months and nine months periods were also affected by increased
allowance for funds used during construction (AFUDC) due to more construction
work in progress for system strengthening and expansion projects. Partially
offsetting decreases in interest expenses for the quarter was interest on
short-term debt due to more debt outstanding and higher short-term rates
compared to the 1993 quarter. For the nine months and twelve months periods
ended June 30, 1994, interest on short-term debt was lower than the comparable
periods ended June 30, 1993, because of $17.7 million of proceeds from the
issuance of common stock in a public offering in February 1993 which reduced
short-term debt outstanding from that point forward.
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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
As previously reported on May 11, 1994 in the Company's Form 10-Q
for the quarterly period ended March 31, 1994, the Company's third largest
customer in terms of volumes of natural gas deliveries has been 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 dekatherms (dt) of natural gas 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 and Light Company (CP&L).
During the current quarter, the Federal Energy Regulatory Commission (FERC)
accepted for filing the long-term Power Supply and Coordination Agreement
(PSCA) between PWC and CP&L which, among other things, provides that CP&L
shall have the responsibility for deciding 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.
The PSCA became effective June 1, 1994 and during June 1994, PWC used
199,310 dt of natural gas compared to 269,358 dt for June 1993. This had
the effect of reducing the Company's margin in the quarter ended June 30,
1994 by approximately $30,000 compared to the prior year's quarter.
For the month of July and to date in August 1994, PWC's Butler-Warner
Generation Plant has been dispatched significantly less than in prior years
due to the operation of the PSCA and because of much milder weather in the
Fayetteville area during the summer of 1994 compared to the summer of 1993.
Based on results to date, Management estimates that the reduction in margins
for the quarter ending September 30, 1994 will be approximately $400,000 due
to the decline in natural gas transported to the PWC Butler-Warner Generation
Plant.
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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: August 12, 1994 /s/ Gerald A. Teele
-------------------------------------------------
Gerald A. Teele
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1994 /s/ Charles W. Siska, Jr.
-------------------------------------------------
Charles W. Siska, Jr.
Controller
(Principal Accounting Officer)
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