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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 December 31, 1993
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 6,312,504
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
December 31, September 30,
1993 1993
------------ -------------
Gas Utility Plant $230,134 $224,946
Less-Accumulated Depreciation
and Amortization (74,150) (72,403)
--------- ---------
Utility Plant, net 155,984 152,543
--------- ---------
Nonutility Property 4,937 4,644
Less-Accumulated Depreciation (2,253) (2,196)
--------- ---------
Nonutility Plant, net 2,684 2,448
--------- ---------
Current Assets:
Cash 607 1,592
Restricted Temporary Cash Investments 5,428 4,863
Accounts Receivable, Less Reserve 21,463 12,796
Recoverable Purchased Gas Costs 4,469 6,396
Inventories, at Average Cost -
Gas in Storage 8,278 7,170
Materials, Supplies & Merchandise 3,846 3,286
Deferred Gas Cost-Unbilled Volumes 4,485 638
Other Current Assets 1,868 1,752
--------- ---------
Total Current Assets 50,444 38,493
--------- ---------
Investment in Exploration Ventures 187 180
Deferred Charges and Other Assets 461 514
--------- ---------
Total Assets $209,760 $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
December 31, September 30,
1993 1993
------------ -------------
Capitalization:
Stockholders' Investment:
Common Stock, Par Value $2.50;
Shares Outstanding 12/31/93, 6,313;
09/30/93, 6,301 $15,782 $15,752
Capital in Excess of Par Value 24,408 24,142
Retained Earnings 43,041 41,050
--------- ---------
Total Stockholders' Investment 83,231 80,944
--------- ---------
Long-Term Debt 39,000 39,000
--------- ---------
Total Capitalization 122,231 119,944
--------- ---------
Current Liabilities:
Current Maturities of Long-Term Debt 6,088 6,088
Notes Payable 24,000 15,500
Accounts Payable 17,066 14,723
Restricted Supplier Refunds 5,428 4,863
Taxes Payable 5,144 2,428
Other Current Liabilities 5,153 5,781
--------- ---------
Total Current Liabilities 62,879 49,383
--------- ---------
Other Credits:
Deferred Income Taxes 15,825 20,363
Unamortized Investment Tax Credits 3,274 3,325
Net Regulatory Liability Related to
Income Taxes 4,416 -
Other 1,135 1,163
--------- ---------
Total Other Credits 24,650 24,851
--------- ---------
Total Capitalization and Liabilities $209,760 $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 December 31, 1993 and 1992
(in thousands except per share amounts)
1993 1992
------ ------
Operating Revenues $42,082 $51,396
Cost of Gas 26,946 37,181
-------- --------
Gross Margin 15,136 14,215
-------- --------
Operating Expenses and Taxes:
Operations and Maintenance 4,935 4,642
Depreciation 1,802 1,678
General Taxes 1,912 2,061
Income Taxes 2,056 1,741
-------- --------
Total Operating Expenses and Taxes 10,705 10,122
-------- --------
Operating Income 4,431 4,093
Other Income, Net 317 213
Utility Interest Charges 1,055 1,105
-------- -------
Net Income $3,693 $3,201
======== ========
Average Common Shares Outstanding 6,303 5,451 (a)
======== =======
Earnings Per Share $.59 $.59
======== =======
Dividend Declared Per Share $.27 $.25
======== =======
(a) Average common shares outstanding for the three months ended
December 31, 1992 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 December 31, 1993 and 1992
(in thousands except per share amounts)
1993 1992
--------- ---------
Operating Revenues $163,832 $164,640
Cost of Gas 108,865 112,721
--------- ---------
Gross Margin 54,967 51,919
--------- ---------
Operating Expenses and Taxes:
Operations and Maintenance 18,678 18,132
Depreciation 7,015 6,328
General Taxes 7,226 7,284
Income Taxes 6,618 5,598
--------- ---------
Total Operating Expenses and Taxes 39,537 37,342
--------- ---------
Operating Income 15,430 14,577
Other Income, Net 413 417
Utility Interest Charges 4,374 4,749
--------- ---------
Net Income $11,469 $10,245
========= =========
Average Common Shares Outstanding 6,196 5,430 (a)
========= =========
Earnings Per Share $1.85 $1.89
========= =========
Dividends Declared Per Share $1.08 $1.00
========= =========
(a) Average common shares outstanding for the twelve months ended
December 31, 1992 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 Three Months Ended December 31, 1993 and 1992
(in thousands)
1993 1992
-------- --------
Cash Flows from Operating Activities:
Net Income $3,693 $3,201
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,914 1,749
Change in deferred income taxes and
other credits, net 210 192
Change in other current assets
and liabilities (7,939) (14,278)
Other (395) (75)
-------- --------
Net cash provided by (used in)
operating activities (2,517) (9,211)
-------- --------
Cash Flows From Investing Activities:
Property additions (5,515) (4,525)
Other, net (151) (26)
-------- --------
Net cash used in investing activities (5,666) (4,551)
-------- --------
Cash Flows From Financing Activities:
Increase in notes payable 8,500 15,000
Cash dividends paid (1,701) (1,362)
Issuance of common stock through
dividend reinvestment and employee
stock purchase plans 295 267
-------- --------
Net cash provided by financing activities 7,094 13,905
-------- --------
Net increase (decrease) in cash
and temporary cash investments (1,089) 143
Cash and temporary cash investments,
beginning of period 1,696 1,113
-------- --------
Cash and temporary cash investments,
end of period $607 $1,256
======== ========
Cash paid for:
Interest, net of amounts capitalized $1,903 $2,029
Income taxes, net of refunds 54 2,651
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
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
period ended December 31, 1993 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 December 31, 1993:
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: In December, 1987 the Financial Accounting Standards
Board issued a new standard on accounting for income taxes. In
February, 1992 revised Standard No. 109 was issued which modified
certain technical aspects of the original standard. The Company
has adopted the new standard effective October 1, 1993. This
adoption resulted in an adjustment which reduced deferred income
taxes by $4.4 million. The adoption of this new standard did not
affect net income because the Company will prospectively reduce
its future revenue requirements related to the reduction in the
federal income tax rate as the temporary differences reverse.
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The tax effects of temporary differences in the carrying amounts
of assets and liabilities in the Financial Statements and their
respective tax bases that give rise to deferred tax assets and
liabilities are as follows:
10/01/93 12/31/93
---------- ----------
Deferred Tax Liabilities:
Accelerated Depreciation $18,037 $18,323
Property Basis Differences 2,725 2,768
------- -------
Total Deferred Tax Liabilities $20,762 $21,091
------- -------
Deferred Tax Assets:
Unamortized Investment Tax Credits $ 1,325 $ 1,311
Regulatory Liability 1,796 1,768
Other 2,153 2,187
------- -------
Total Deferred Tax Assets $ 5,274 $ 5,266
------- -------
Net Deferred Tax Liabilities $15,488 $15,825
======= =======
Note 4: The Company provides certain health care and life
insurance benefits for current and retired employees, and
substantially all employees may remain eligible for these benefits
when they retire. Until October 1, 1993, the Company accounted for
these benefits on a cash basis consistent with current ratemaking
treatment. On October 1, 1993 the Company adopted FASB Standard
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," requiring accounting for these benefits on an
accrual basis using a single actuarial method which spreads the
expected cost of such benefits to each year of an employee's
service until the employee becomes fully eligible to receive these
benefits. On a prospective basis, the resulting transition
obligation related to past employee service of approximately $5.3
million will be recognized over 20 years. The Company's total
fiscal 1994 cost of health care and life insurance benefits under
Standard No. 106 will be $484,537 more than under the cash basis of
accounting. Significant assumptions used in estimating these costs
include (1) discount rate of 8%, (2) annual salary increases of 6%,
and (3) medical cost trend rate of 12.5% (reduced by 1% annually
until 1997 and 1/2% annually until the year 2005 to 5.5%
ultimately). The North Carolina Utilities Commission, in rate
cases where Standard No. 106 accounting has been presented, has
expressed its preference for the accrual basis of accounting and,
accordingly, the Company expects that in their next rate case the
regulatory treatment of these costs under Standard No. 106 will
be the same as the accrual method adopted in fiscal year 1994.
Note 5: During the three months ended December 31, 1993, the
Company received additional supplier refunds from Transco of
$528,900. Upon order of the NCUC, the Company has invested all of
these funds in U.S. Treasury securities until such time as the
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Commission orders the funds transferred to an Expansion Fund to be
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 December 31, 1993,
$5,428,000 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 a February 8, 1993 Order
of the Commission.
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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 December 31, 1993,
loans totaling $24 million were outstanding under the lines of
credit compared to $22.5 million outstanding at September 30, 1992.
Construction spending was $5.5 million for the three months
ended December 31, 1993 compared to $4.5 million for the same
period in 1992. Construction expenditures for the remainder of the
fiscal year 1994 are budgeted at $19.2 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 $492,000 and $1,224,000, respectively,
for the three months and twelve months periods ended December 31,
1993 as 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 electric power
generation customers, and (2) lower utility interest charges.
Gross margin increased $921,000 and $3,048,000, respectively,
for the three month and twelve month periods compared to the same
periods last year. Factors contributing to the increased margin in
these periods were increases in volumes of gas sold and transported
to higher margin residential, commercial, non-IST industrial and
municipal customers, and continued strong growth in residential and
commercial customers resulting in substantial increases in monthly
fixed charge revenues.
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The chart below compares the Company's throughput volumes by
market segment in thousands of dekatherms (Mdt) for the three month
and twelve month periods:
THROUGHPUT VOLUMES (Mdt) BY MARKET SEGMENT
-----------------------------------------------
3 Months 12 Months
---------------- ----------------
1993 1992 1993 1992
------ ------ ------ ------
Core Market 8,637 8,212 33,926 31,432
(Non-IST)
IST Customers
(those with #6 oil
as alternative fuel) 3,303 3,159 13,535 14,854
------ ------ ------ ------
Total 11,940 11,371 47,461 46,286
====== ====== ====== ======
Core market volume increases, caused primarily by customer
growth, for the three 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 12 Months
---------------- ----------------
1993 1992 1993 1992
------ ------ ------ ------
Sales 8,630 10,930 35,113 41,002
Transportation 3,310 441 12,348 5,284
------ ------ ------ ------
Total 11,940 11,371 47,461 46,286
====== ====== ====== ======
Operating revenues decreased $9,314,000 and $808,000,
respectively, for the three months and twelve months periods
period ended December 31, 1993 compared to the same periods last
year. The decreases were caused by certain industrial and
municipal customers switching from bundled sales service from the
Company to transportation service. The commodity cost of gas
associated with transportation volumes is paid directly to the
customers' supplier and is, therefore, not incurred nor billed by
the Company.
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Cost of gas decreased $10,235,000 and $3,856,000, respectively,
for the three month and twelve month periods as compared to last
year. These decreases were caused primarily by the shift to more
transportation service and fewer sales, somewhat offset by higher
commodity prices in calendar year 1993 compared to 1992.
Operations and maintenance expenses increased $293,000, and
$546,000, respectively, for the three months and twelve months
ended December 31, 1993 compared to the same periods last year.
These increases were primarily due to increases in wages, salaries
and employee benefits and higher costs including additional
personnel associated with adding new customers, and for the twelve
months, increases in compressor fuel due to growth in throughput
volumes, uncollectible accounts expenses and maintenance of mains.
Depreciation expense increased in the three 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.
General taxes decreased in both 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, the change in general taxes basically tracks the change
in revenues.
Income taxes increased $315,000 and $1,020,000 for the three
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, along with the
increase in the federal tax rate to 35% from 34% effective January
1, 1993.
Other income, net, increased $104,000 for the three months ended
December 31, 1993 as compared to the same period last year. This
increase was caused by increased profits from the Company's
merchandise and jobbing operations and income generated by
subsidiaries compared to a loss in the 1992 quarter.
Utility interest charges decreased in both 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 in calendar
years 1993 and 1992.
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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
(a) Date of the meeting or of the action without a meeting:
January 11, 1994
(b) Whether the meeting was an annual or a special meeting:
Annual Meeting
(c) Names of each director elected at the meeting and the
number of votes cast for, against or withheld, and
abstentions:
James E.S. Hynes For: 4,366,656
Against or Withheld: 24,951
Abstentions: 2,406
Richard F. Waid For: 4,365,367
Against or Withheld: 26,240
Abstentions: 2,406
Calvin B. Wells For: 4,366,492
Against or Withheld: 25,115
Abstentions: 2,406
(d) Name of each other director whose term of office as
director continued after the meeting:
George T. Clark, Jr.
Paul A. DelaCourt
C. Felix Harvey
Hector MacLean
Donald W. McCoy
William H. Prestage
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(e) Brief description of each matter voted upon and the
number of votes cast for, against or withheld, and
abstentions:
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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SIGNATURES
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)
/s/ Gerald A. Teele
Date: February 14, 1994
-------------------------------
Gerald A. Teele
Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ Charles W. Siska, Jr.
Date: February 14, 1994
-------------------------------
Charles W. Siska, Jr.
Controller
(Principal Accounting Officer)
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