<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 December 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 28301-4993
(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 6,382,141
----------------------------- ----------------
Class Number of Shares
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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,
1994 1994
----------- -------------
Gas Utility Plant $251,709 $243,877
Less-Accumulated Depreciation and
Amortization (80,804) (79,034)
------- -------
Utility Plant, net 170,905 164,843
------- -------
Nonutility Property 5,482 5,285
Less-Accumulated Depreciation (2,492) (2,417)
------- -------
Nonutility Plant, net 2,990 2,868
------- -------
Current Assets:
Cash 822 158
Restricted Temporary Cash Investments 2,870 9,282
Accounts Receivable, Less Reserve 18,399 11,795
Recoverable Purchased Gas Costs - 1,505
Inventories, at Average Cost -
Gas in Storage 8,889 8,091
Materials, Supplies & Merchandise 4,174 4,049
Deferred Gas Cost-Unbilled Volumes 2,724 473
Other Current Assets 632 387
------- -------
Total Current Assets 38,510 35,740
------- -------
Investment in Exploration Ventures 89 90
Deferred Charges and Other Assets 1,954 1,546
------- -------
Total Assets $214,448 $205,087
======= =======
(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,
1994 1994
----------- -------------
Capitalization:
Stockholders' Investment:
Common Stock, Par Value $2.50;
Shares Outstanding 12/31/94, 6,382;
09/30/94, 6,367 $15,955 $15,916
Capital in Excess of Par Value 25,760 25,499
Retained Earnings 46,454 44,984
------- -------
Total Stockholders' Investment 88,169 86,399
------- -------
Long-Term Debt 37,000 37,000
------- -------
Total Capitalization 125,169 123,399
------- -------
Current Liabilities:
Current Maturities of Long-Term Debt 2,000 2,000
Notes Payable 32,000 26,000
Accounts Payable 15,167 9,675
Restricted Supplier Refunds 2,870 9,282
Refunds Payable to Customers 638 -
Taxes Payable 3,837 1,685
Other Current Liabilities 5,212 5,990
------- -------
Total Current Liabilities 61,724 54,632
------- -------
Other Credits:
Deferred Income Taxes 18,732 18,279
Unamortized Investment Tax Credits 3,070 3,122
Regulatory Liability Related to Income Taxes 3,854 3,923
Postretirement Benefit Liability (FASB 106) 819 634
Other 1,080 1,098
------- -------
Total Credits 27,555 27,056
------- -------
Total Capitalization and Liabilities $214,448 $205,087
======= =======
(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, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $34,415 $42,082
Cost of Gas 19,979 26,946
------ ------
Gross Margin 14,436 15,136
------ ------
Operating Expenses and Taxes:
Operations and Maintenance 4,964 4,935
Depreciation 1,931 1,802
General Taxes 1,642 1,912
Income Taxes 1,810 2,056
------ ------
Total Operating Expenses and Taxes 10,347 10,705
------ ------
Operating Income 4,089 4,431
Other Income, Net 294 317
Utility Interest Charges 1,067 1,055
------ ------
Net Income $3,316 $3,693
====== ======
Average Common Shares Outstanding 6,369 6,303
====== ======
Earnings Per Share $0.52 $0.59
====== ======
Dividends Declared Per Share $0.29 $0.27
====== ======
(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 Twelve Months Ended December 31, 1994 and 1993
(in thousands except per share amounts)
1994 1993
------ ------
Operating Revenues $152,669 $163,832
Cost of Gas 98,273 108,865
------- -------
Gross Margin 54,396 54,967
------- -------
Operating Expenses and Taxes:
Operations and Maintenance 19,507 18,678
Depreciation 7,502 7,015
General Taxes 7,254 7,226
Income Taxes 6,072 6,618
------- -------
Total Operating Expenses and Taxes 40,335 39,537
------- -------
Operating Income 14,061 15,430
Other Income, Net 779 413
Utility Interest Charges 4,067 4,374
------- -------
Net Income $10,773 $11,469
======= =======
Average Common Shares Outstanding 6,348 6,196
======= =======
Earnings Per Share $1.70 $1.85
======= =======
Dividends Declared Per Share $1.16 $1.08
======= =======
(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, 1994 and 1993
(in thousands)
1994 1993
----- ------
Cash Flows From Operating Activities:
Net Income $3,316 $3,693
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,031 1,914
Change in deferred income taxes and
deferred investment tax credits, net 334 210
Change in other current assets
and liabilities (1,326) (7,939)
Other 165 (395)
------ ------
Net cash provided by (used in)
operating activities 4,520 (2,517)
------ ------
Cash Flows From Investing Activities:
Property additions (8,221) (5,515)
Other, net (90) (151)
------ ------
Net cash used in investing activities (8,311) (5,666)
------ ------
Cash Flows From Financing Activities:
Increase in notes payable 6,000 8,500
Cash dividends paid (1,846) (1,701)
Issuance of common stock through dividend
reinvestment and employee stock purchase
plans 300 295
------ ------
Net cash provided by financing activities 4,454 7,094
------ ------
Net increase (decrease) in cash and
and temporary cash investments 663 (1,089)
Cash and temporary cash investments,
beginning of period 158 1,696
------ ------
Cash and temporary cash investments, end of period $821 $607
====== ======
Interest, net of amounts capitalized $2,081 $1,903
Income taxes, net of refunds 1 54
(The accompanying notes are an integral part of these statements.)
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 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 three-month period ended December 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, 1994.
Note 2: Long-Term Debt at December 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 14,000,000
---------- ----------
Long-Term Debt $ 2,000,000 $39,000,000
========== ==========
Note 3: During the three months ended December 31, 1994, the Company received
additional supplier refunds from Transco and Columbia of $134,010. 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 December 31, 1994, $2,869,639.85
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 and October 19, 1994, respectively, the
Company transferred $3.8 million and $6.6 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
$40 million plus the cost of gas in storage. At December 31, 1994, loans
totaling $32 million were outstanding under the lines of credit compared to
$26 million outstanding at September 30, 1994.
Construction spending was $8.2 million for the three months ended
December 31, 1994 compared to $5.5 million for the same period in 1993.
Construction expenditures for the remainder of the fiscal year 1995 are
projected at $20.5 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 1995. However, it is likely that the Company will
issue long-term debt in 1995 in order to reduce the amount of short-term
debt outstanding.
(2) Material Changes in Results of Operations
Net income decreased $377,000 and $696,000, respectively, for the
three and twelve month periods ended December 31, 1994 as compared to the
same periods last year. The primary reason for the decline in both periods
was attributable to one customer who elected to buy more power from an
electric utility rather than using natural gas to generate power as it did
in the 1993 periods. Additionally, affecting the three-months period was
higher depreciation expense and a small increase in interest expense. The
twelve-month period was also affected by increased depreciation expense and
increases in operating and maintenance expenses.
Gross margin decreased $700,000 and $571,000, respectively, for the
three and twelve month periods ended December 31, 1994 as compared to the
same periods last year. The decline in volumes delivered to one customer
for electric power generation adversely affected margin in both periods.
Additionally, warmer weather in the quarter resulted in reduced sales volumes
to residential and commercial customers by 228,000 dts. Partially offsetting
these decreases were Weather Normalization Adjustment in the Company's rates
and customer growth. Decreased margin in the twelve months period was also
affected by reduced sales volumes to industrial customers partially offset
by increased sales to residential and commercial customers during the
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first calendar quarter of the year due to extremely cold weather in
mid-January.
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
-------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
Core Market
(Non-IST) 7,876 8,637 32,559 33,926
IST Customers
(those with #6 oil
as alternative fuel) 4,084 3,303 14,462 13,535
------ ------ ------ ------
Total 11,960 11,940 47,021 47,461
====== ====== ====== ======
Core market volume decreased in both periods primarily due to reduced
sales volumes to the electric utility and warmer weather mentioned above.
Partially offsetting this reduction was customer growth during both periods.
Changes in IST volumes have no impact on the Company's realized margin as the
IST ratemaking mechanism stabilizes margin at the level approved in the
Company's last general rate case. Natural gas prices declined during the 1994
summer as #6 oil prices increased, thus enabling the Company to regain some
volumes from customers who had been burning #6 oil.
The following table shows the throughput in terms of sales and
transportation volumes:
THROUGHPUT VOLUMES (Mdt) BY TYPE OF SERVICE
3 Months 12 Months
---------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
Sales 7,733 8,630 32,593 35,113
Transportation 4,227 3,310 14,428 12,348
------ ------ ------ ------
Total 11,960 11,940 47,021 47,461
====== ====== ====== ======
Operating revenues decreased $7,667,000 and $11,163,000, respectively,
for the three months and twelve months ended December 31, 1994. The primary
factors causing the decrease in revenues were (1) a mix change to greater
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transportation volumes and lower sales volumes as shown in the table,
"Throughput Volumes (Mdt) By Type of Service", on page 9, and (2) a significant
decline in natural gas market prices, especially during the last four months
of 1994. 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.
Cost of gas decreased $6,967,000, and $10,592,000, respectively, for
the three month and twelve month periods ended December 31, 1994 as compared
to the same periods last year. The decreases for these periods were caused
primarily by gas commodity price decreases of 36%, and 11%, respectively, for
the three month and twelve month periods. The change in mix to fewer sales
volumes and more transportation volumes also reduced gas costs. Additionally,
the Company executed capacity release transactions which reduced gas costs
by $502,000 and $1,702,000, respectively, for the three month and twelve
month periods.
Operations and maintenance expenses increased $29,000 and $829,000,
respectively, for the three and twelve month periods compared to the same
periods last year. Affecting both periods were increased distribution
operations expenses, higher wages and employee benefits, and higher costs
associated with the addition of nearly 8,000 new customers. However, warmer
weather caused reductions in operating expenses of the Company's compressor
and LNG storage facility which offset most of the increase in other expenses
in the quarter. The increase in the twelve months period was primarily due
to increased distribution operations expenses associated with customer growth
as mentioned above, increased post retirement benefit expenses brought about
by the adoption of FASB 106 and also greater uncollectible accounts expenses.
Partially offsetting these expenses were declines in sales promotion
activities and maintenance expenses on the Company's transmission and
distribution systems.
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 $270,000 in the three months period and
increased $28,000 for the twelve months period 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 twelve months period, 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 $246,000 and $546,000, respectively, for the
three and twelve month periods ended December 31, 1994 as compared to the
same period last year. The decreases were caused by decreased operating
income primarily related to decreased gross margins.
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Other income, net decreased $23,000 for the three months period while
increasing $366,000 for the twelve months period ending December 31, 1994 as
compared to the same periods last year. The small decrease in the three
months period was a result of decreased sales in the Company's L.P. Gas
operations caused by warmer weather, offset partially by increases in the
Company's merchandising operations. The increase in the twelve months
period was primarily due to a nonrecurring writedown of the value of certain
nonutility assets in 1993.
Utility interest charges increased $12,000 for the three months
period and decreased $307,000 for the twelve months period as compared to
the same periods last year. Affecting both periods were decreases in
interest on long-term debt due to sinking fund payments and increased
allowance for funds used during construction (AFUDC) due to more construction
work in progress for system strengthening and expansion projects. Totally
offsetting these decreases in the three months period, and partially
offsetting these decreases in the twelve months period, were (1) an increase
in short-term debt interest expense due to more bank loans outstanding and
higher short-term interest rates; and (2) increases in refunds payable to
customers (which carry a NCUC-mandated 10% interest rate) compared to the
same periods last year.
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<PAGE> 12
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 10, 1995
(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:
George T. Clark, Jr. For: 5,300,174
Against or Withheld: 75,000
Abstentions: 14,828
Robert T. Johnson For: 5,326,041
Against or Withheld: 49,133
Abstentions: 14,828
William H. Prestage For: 5,333,318
Against or Withheld: 41,856
Abstentions: 14,828
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<PAGE> 13
(d) Name of each other director whose term of office as
director continued after the meeting:
Paul A. DelaCourt
C. Felix Harvey
James E.S. Hynes
Hector MacLean
Richard F. Waid
Calvin B. Wells
(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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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: February 10, 1995 /s/ Gerald A. Teele
----------------- ------------------------------------
Gerald A. Teele
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: February 10, 1995 /s/ Charles W. Siska, Jr.
----------------- ------------------------------------
Charles W. Siska, Jr.
Controller
(Principal Accounting Officer)
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NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
INDEX OF EXHIBITS
The following exhibit is filed as part of this Form 10-Q for the
period ended December 31, 1994.
Exhibit
Number
-------
27 - Financial Data Schedule
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<PERIOD-END> DEC-31-1994
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