<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, 1998
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 10,070,116
- --------------------------------- ----------------------------------
Class Number of Shares
<PAGE>2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
ASSETS
March 31, September 30,
1998 1997
(unaudited) (audited)
---------- ---------------
Gas Utility Plant
In service $ 310,825 $ 303,652
Less-Accumulated depreciation and amortization (109,746) (104,268)
---------- ---------------
201,079 199,384
Construction work in progress 13,279 4,176
---------- ---------------
Utility Plant, net 214,358 203,560
---------- ---------------
Nonutility Property 7,413 6,744
Less-Accumulated depreciation (2,587) (2,504)
----------- ---------------
Nonutility Property, net 4,826 4,240
----------- ---------------
Current Assets
Cash and temporary cash investments 6,677 962
Restricted cash and temporary cash investments 4,422 4,606
Accounts receivable, less reserve 24,929 17,359
Recoverable purchased gas costs - 1,020
Inventories, at average cost -
Gas in storage 5,365 8,799
Materials and supplies 5,217 3,386
Merchandise 1,470 1,351
Deferred gas cost-unbilled volumes 1,423 647
Prepaid income taxes - 4,521
Other current assets 414 339
---------- -------------
Total Current Assets 49,917 42,990
----------- -------------
Investment in joint ventures 384 301
Deferred charges and other assets 2,276 2,160
---------- -------------
Total Assets $ 271,761 $ 253,251
========== =============
(The accompanying notes are an integral part of these balance sheets.)
<PAGE>3
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
CAPITALIZATION AND LIABILITIES
March 31, September 30,
1998 1997
(unaudited) (audited)
------------- -------------
Capitalization
Stockholders' investment:
Common stock, par value $2.50;
24,000 shares authorized;
shares issued and outstanding: 03/31/98-10,068;
09/30/97-10,001 $ 25,169 $ 25,003
Capital in excess of par value 33,445 32,173
Retained earnings 66,676 56,047
------------- ------------
Total Stockholders' Investment 125,290 113,223
------------- ------------
Long-term debt 61,000 61,000
------------- ------------
Total Capitalization 186,290 174,223
------------ ------------
Current Liabilities
Current maturities of long-term debt 2,000 2,000
Notes payable 10,000 15,000
Accounts payable 18,878 16,923
Refunds payable 4,258 -
Customer deposits 2,430 2,081
Restricted supplier refunds 4,422 4,606
Accrued interest 2,157 2,294
Accrued income and other taxes 4,564 1,840
Other current liabilities 3,665 2,598
------------ ------------
Total Current Liabilities 52,374 47,342
------------ ------------
Other Credits
Deferred income taxes 23,169 22,709
Regulatory liability related to income taxes, net 2,129 2,232
Unamortized investment tax credits 2,426 2,523
Postretirement and postemployment benefit liability 3,215 2,979
Other 2,158 1,243
------------ ----------
Total Other Credits 33,097 31,686
------------ ----------
Total Capitalization and Liabilities $ 271,761 $ 253,251
============ ==========
(The accompanying notes are an integral part of these balance sheets.)
<PAGE>4
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Three Months Ended March 31, 1998 and 1997
(in thousands except per share amounts)
1998 1997
------------ -----------
Operating Revenues $ 57,549 $ 69,381
Cost of Gas 29,330 42,195
------------ -----------
Gross Margin 28,219 27,186
------------ -----------
Operating Expenses and Taxes:
Operations and Maintenance 6,571 6,636
Depreciation 2,822 2,485
General Taxes 2,589 2,900
Income Taxes 5,475 5,279
------------ -----------
Total Operating Expenses and Taxes 17,457 17,300
------------ -----------
Operating Income 10,762 9,886
Other Income, net 802 2,039
------------- -----------
Income Before Utility Interest Charges 11,564 11,925
Utility Interest Charges 1,416 1,019
------------- -----------
Net Income $ 10,148 $ 10,906
============= ===========
Average Common Shares Outstanding (Note 2) 10,051 9,919
============= ===========
Basic Earnings Per Share (Notes 2 and 5) $ 1.01 $ 1.10
============= ===========
Diluted Earnings Per Share (Notes 2 and 5) $ 1.01 $ 1.10
============= ============
Dividends Declared Per Share (Note 2) $ 0.250 $ 0.233
============= ===========
(The accompanying notes are an integral part of these statements.)
<PAGE>5
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Six Months Ended March 31, 1998 and 1997
(in thousands except per share amounts)
1998 1997
----------- ----------
Operating Revenues $ 116,007 $ 122,836
Cost of Gas 67,097 75,785
----------- ----------
Gross Margin 48,910 47,051
----------- ----------
Operating Expenses and Taxes:
Operations and Maintenance 12,939 12,469
Depreciation 5,577 4,942
General Taxes 5,214 5,176
Income Taxes 8,339 8,298
----------- ----------
Total Operating Expenses and Taxes 32,069 30,885
----------- ----------
Operating Income 16,841 16,166
Other Income, net 1,281 2,455
----------- ----------
Income Before Utility Interest Charges 18,122 18,621
Utility Interest Charges 2,605 2,225
----------- ----------
Net Income $ 15,517 $ 16,396
=========== ==========
Average Common Shares Outstanding (Note 2) 10,029 9,892
=========== ==========
Basic Earnings Per Share (Notes 2 and 5) $ 1.55 $ 1.66
=========== ==========
Diluted Earnings Per Share (Notes 2 and 5) $ 1.55 $ 1.66
=========== ==========
Dividends Declared Per Share (Note 2) $ 0.483 $ 0.450
============ ==========
(The accompanying notes are an integral part of these statements.)
<PAGE>6
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
For the Twelve Months Ended March 31, 1998 and 1997
(in thousands except per share amounts)
1998 1997
------------ ----------
Operating Revenues $ 174,874 $ 199,130
Cost of Gas 99,809 126,504
----------- -----------
Gross Margin 75,065 72,626
----------- -----------
Operating Expenses and Taxes:
Operations and Maintenance 25,922 24,937
Depreciation 10,710 9,764
General Taxes 8,500 8,951
Income Taxes 9,370 9,129
------------ -----------
Total Operating Expenses and Taxes 54,502 52,781
------------ -----------
Operating Income 20,563 19,845
Other Income, net 936 2,528
------------ -----------
Income Before Utility Interest Charges 21,499 22,373
Utility Interest Charges 4,783 4,595
------------ -----------
Net Income $ 16,716 $ 17,778
============ ===========
Average Common Shares Outstanding (Note 2) 10,000 9,892
============ ===========
Basic Earnings Per Share (Notes 2 and 5) $ 1.67 $ 1.80
============ ===========
Diluted Earnings Per Share (Notes 2 and 5) $ 1.67 $ 1.80
============ ===========
Dividends Declared Per Share (Note 2) $ 0.949 $ 0.883
============ ===========
(The accompanying notes are an integral part of these statements.)
<PAGE>7
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended March 31, 1998 and 1997
(in thousands)
1998 1997
----------- ----------
Cash Flows From Operating Activities:
Net Income $ 15,517 $ 16,396
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,622 5,064
Change in deferred income taxes and
deferred investment tax credits, net 318 (72)
Change in other current assets and liabilities 9,646 (1,511)
Other 215 282
----------- ----------
Net cash provided by operating activities 31,318 20,159
----------- ----------
Cash Flows From Investing Activities:
Property additions (17,701) (17,571)
Proceeds from Expansion Fund 631 -
Other, net (83) (446)
------------ ---------
Net cash used in investing activities (17,153) (18,017)
------------ ---------
Cash Flows From Financing Activities:
Increase (decrease) in notes payable (5,000) 1,000
Cash dividends paid (4,847) (4,452)
Issuance of common stock through dividend reinvestment,
employee stock purchase, and key employee stock
option plans 1,397 1,718
------------ ---------
Net cash used in financing activitities (8,450) (1,734)
------------ ---------
Net increase in cash and temporary cash investments 5,715 408
Cash and temporary cash investments,
beginning of period 962 1,117
------------ ---------
Cash and temporary cash investments, end of period $ 6,677 $ 1,525
============ =========
Cash paid for:
Interest, net of amounts capitalized $ 2,544 $ 2,630
Income taxes, net of refunds 850 8,429
(The accompanying notes are an integral part of these statements.)
PAGE>8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
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, 1998 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 annual report for the fiscal year
ended September 30, 1997.
Note 2: On January 13, 1998, the Company's Board of Directors approved a three-
for-two stock split in the form of a stock dividend effective February 20,
1998, for Stockholders of record January 26, 1998. All shares issued and
outstanding, as well as per share information for all periods prior to the
effective date, have been adjusted to reflect the stock split.
Note 3: At March 31, 1998, the Company had $4.4 million in restricted supplier
refunds, none of which were received in the current quarter. Upon order of
the North Carolina Utilities Commission (NCUC), the Company has invested
all of these funds in U. S. Treasury securities until such time as the NCUC
orders the funds transferred to an Expansion Fund (the Fund). The Fund is
administered by the NCUC pursuant to legislation passed in July 1991, and
it encourages the expansion of natural gas service into unserved areas of
the State, including substantial portions of the Company's franchised
service territory. On April 30, 1993, October 19, 1994, and November 12,
1996, respectively, the Company transferred $3.8 million, $6.6 million, and
$3.9 million to the Fund. At March 31, 1998, a total of $16.6 million is in
the Fund and is available to the Company only upon application to the NCUC
for an expansion project approved by the NCUC.
On August 28, 1995, the Company was granted approval by the NCUC to extend
natural gas service into Duplin and Onslow Counties using expansion fund
dollars totaling $12.4 million. Due to delays caused by environmental
studies, the estimated costs to complete the project increased $5.4
million.The Company has applied to the NCUC for an additional $4.3 million
from the Fund to cover the increase in negative net present value of the
project. On August 5, 1997, November 4, 1997, and February 26, 1998
the Company, upon approval by the NCUC, received payments of $455,435,
$295,388 and $335,838, respectively, from the Fund for that project.
<PAGE>9
On April 29, 1998, the Company filed an application with
the NCUC to provide natural gas service to Bertie and Martin counties using
the Fund. The main extension project would run approximately 34 miles from
Ahoskie, NC to Hamilton, NC and cost $9.7 million. The negative net present
value of the project requested from the Fund is $5.2 million.
Note 4: On May 15, 1996, the Company filed with the NCUC to recover net customer
costs of $3,005,000 from exploration and development activities. The
recovery is a result of a true-up of distribution of costs and revenue
benefits from the Company's past exploration and drilling programs. On
February 7, 1997, the NCUC issued its Final Order granting a pretax
recovery of $1,879,853. The Commission's Order approved, in all material
respects, the Stipulation of Settlement reached by the Company and the
Public Staff. Due to the uncertainty of recovery, prior to the Final
Order no asset or gain was recorded in the Company's financial statements.
As a result of the above, the Company realized an $.11 increase in
earnings per share in the three, six and twelve month periods ended
March 31, 1997.
Note 5: In February 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128,"Earnings Per Share." SFAS No. 128 requires the
Company to change the method used to compute earnings per share (EPS).
Primary EPS has been replaced with Basic EPS. Under the new requirement for
calculating Basic EPS, the dilutive effect of stock options has been
excluded. SFAS No. 128 also replaced fully diluted EPS with diluted EPS.
Diluted EPS gives effect to all dilutive potential common shares that were
outstanding during the period. The adoption of SFAS No. 128 had no effect
on the Basic and Diluted EPS for the three, six and twelve month periods
ended March 31, 1998 and 1997.
<PAGE>10
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(1) Material Changes in Financial Condition
Current cash requirements are financed primarily through internally
generated cash, the issuance of new common stock through dividend reinvestment,
employee stock purchase and key employee stock option plans along with committed
bank lines of credit totaling $36.0 million. At March 31, 1998, loans totaling
$10.0 million were outstanding under the lines of credit compared to $15.0
million outstanding at September 30, 1997.
The Company's business is seasonal in nature as fluctuations in weather
dictate injecting and withdrawing from Company storage and billings to
residential and commercial customers. Injections of natural gas into storage and
a reduction in customer billings occur during the periods of warm weather (April
through October). Withdrawals from storage and increased customer billings occur
during periods of cold weather (November through March). In addition, the cost
of gas included in storage and rates is subject to changes in market conditions.
This seasonality is the primary reason for the lower volumes of gas in storage
and for the higher level of accounts receivable at March 31, 1998 compared to
September 30, 1997.
Recoverable Purchased Gas Costs and Refunds Payable primarily represent the
difference between the Company's benchmark gas cost rate charged to customers
and the actual cost of gas. If the Company's benchmark rate charged to customers
exceeds the actual cost of gas, Recoverable Purchased Gas Costs will decrease
and Refunds Payable will increase. Should the benchmark rate charged to
customers be less than the actual cost of gas, Refunds Payable will decrease and
Recoverable Purchased Gas Costs will increase. It is the Company's policy to
manage the benchmark cost of gas to minimize, if possible, large over or under
recoveries.
Net cash provided by operating activities increased $11.2 million for the
six months ended March 31, 1998, as compared to the same period last year. This
increase was due primarily to (1) an increase in Refunds Payable and a decrease
in Recoverable Purchased Gas Cost due to a higher benchmark cost of gas in
rates; (2) a decrease in payments for Federal Income Taxes due to prepaid income
taxes at the end of fiscal year 1997; and (3) an increase in accounts payable
due to the timing of gas purchases and commitments and expenditures in
connection with the Company's construction program.
Construction spending was $17.1 million after giving effect to monies
received from the Fund for the six months ended March 31, 1998, compared to
$17.6 million for the same period in 1997. Construction expenditures for the
remainder of Fiscal Year 1998 are projected to be $30.0 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 1998. The Company expects
to issue long-term debt to replace short-term borrowings in early Fiscal Year
1999.
<PAGE>11
Net cash used in financing activities decreased $6.7 million for the six
months ended March 31, 1998, as compared to the same period last year. The
decrease was due to strong cash flows from operating activities allowing the
Company to lower short-term debt levels by $5.0 million for the six months ended
March 31, 1998, as compared to increased borrowings of $1.0 million in the same
period last year.
(2) Material Changes in Results of Operations
Net income decreased $758,000, $879,000, and $1.1 million, respectively,
for the three, six and twelve month periods ended March 31, 1998, as compared to
the same periods last year. All prior year periods ended March 31, 1997, include
a nonrecurring credit of $1,128,000 related to the settlement of a long-standing
regulatory matter (see Note 4). Excluding the nonrecurring credit, net income
increased $370,000, $249,000 and $66,000 for the three, six and twelve month
periods ended March 31, 1998. Affecting all periods were (1) customer growth at
an annualized rate of 3.8%; and (2) weather which was 0.3%, 3.9% and 2.4% colder
than the same three, six and twelve month periods ended March 31, 1997,
respectively. For the quarter, operations and maintenance expenses decreased
$65,000 from the 1997 quarter. These positive factors were offset by higher
utility interest charges and higher depreciation expense as a result of the
greater investment in plant necessary to support the growing customer base.
The chart below compares margins for the three month, six month and twelve
month periods by customer class (000's omitted):
GROSS MARGIN BY CUSTOMER CLASS
------------------------------
3 Months 6 Months 12 Months
----------------- ----------------- ----------------
1998 1997 1998 1997 1998 1997
------ -------- ------- ------- ------- -----
Residential $11,252 $10,920 $17,805 $16,893 $25,633 $24,978
Commercial 6,865 6,420 10,987 10,017 15,969 14,899
Industrial 6,884 6,734 14,325 14,529 25,825 25,109
Municipal 3,218 3,112 5,793 5,612 7,638 7,640
------- ------- ------- ------- ------- -------
Total $28,219 $27,186 $48,910 $47,051 $75,065 $72,626
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Gross margin increased $1.0 million, $1.9 million, and $2.4 million,
respectively, for the three, six and twelve month periods ended March 31, 1998,
compared to the same periods last year. Positively affecting these periods were
(1) increased customer growth in the higher margin residential and commercial
markets which the Company serves; (2) customer growth behind the city gates of
the wholesale municipal customers served by the Company; and (3) weather which
was colder than the same six and twelve month periods last year. However,
margins are not significantly affected by weather because of the operation of
the Company's Weather Normalization Adjustment (WNA) in its rate structure.
Gross margin for the industrial class of customers was down for the six month
period ended March 31, 1998. This was due to
<PAGE>12
a reduction in minimum contract billings in the 1998 period as compared to the
same period in 1997, and a reduction in volumes delivered during the six months
ended March 31, 1998 to interruptible customers due to more cold weather
curtailments of service to this customer rate class and some loss of load due to
low oil prices compared to the prior year's winter.
The chart below shows total throughput volumes (in thousands of dt) for the
three, six and twelve month periods ended March 31, 1998 and 1997 by customer
class:
THROUGHPUT VOLUMES (Mdt) BY CUSTOMER CLASS
------------------------------------------
3 Months 6 Months 12 Months
-------------- --------------- --------------
1998 1997 1998 1997 1998 1997
----- ----- ----- ------ ----- -----
Residential 3,354 3,293 4,944 4,803 6,326 6,409
Commercial 2,434 2,342 4,134 3,880 6,405 6,216
Industrial 6,951 7,264 14,891 15,376 33,583 32,397
Municipal 3,158 3,055 5,960 5,902 9,111 8,950
------ ------ ------ ------ ------ ------
Total 15,897 15,954 29,929 29,961 55,425 53,972
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
The following chart shows the same total throughput volume classified by
sales and transportation:
THROUGHPUT VOLUMES (Mdt) BY TYPE OF SERVICE
-------------------------------------------
3 Months 6 Months 12 Months
-------------- ---------------- ---------------
1998 1997 1998 1997 1998 1997
----- ------ ------ ------ ------ ------
Sales 8,583 11,219 18,766 19,876 27,409 34,771
Transportation 7,314 4,735 11,163 10,085 28,016 19,201
------ ------ ------ ------ ------ ------
Total 15,897 15,954 29,929 29,961 55,425 53,972
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
The Company earns the same profit margin on transportation of
customer-owned gas as it earns from bundled sales service to those customers.
However, changes in the mix of transportation and sales volumes can have a
significant impact on operating revenues and cost of gas, because 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 or billed by
the Company. Transportation volumes increased for all periods as compared to
last year due to a higher benchmark commodity cost of gas in the Company's rates
causing more transportation customers to secure their own commodity.
<PAGE>13
Weather in the Company's service area was 0.3%, 3.9%, and 2.4% colder
for the three, six and twelve month periods ended March 31, 1998,
respectively, compared to the same periods last year. This colder weather
resulted in increased deliveries to weather sensitive residential, commercial
and municipal customers. However, this had an adverse effect on interruptible
industrial customers due to increased curtailments over the same periods
last year.
Operating revenues decreased $11.8 million, $6.8 million, and $24.3
million for the three, six and twelve month periods ended March 31, 1998,
respectively, as compared to the same periods last year. These decreases
were caused by mix changes to greater transportation volumes to industrial
and municipal and lower sale volumes as shown in the table "Throughput
Volumes (Mdt) By Type of Service" on page 12, and to lower commodity prices
of natural gas.
Cost of gas decreased $12.9 million, $8.7 million and $26.7 million
for the three, six and twelve month periods ended March 31, 1998,
respectively, as compared to the same periods last year. These decreases
were caused primarily by: (1) increased transportation of customer owned
gas and lower sales of gas by the Company; and (2) a decreases in the
average commodity cost of gas in each period as compared to the same period
last year.
Operating and maintenance expenses decreased $65,000 for the three month
period ended March 31, 1998 as compared to the same period last year. The
primary reasons for the decrease were (1) lower transmission maintenance
expenses due the current quarter not having right-of-way clearing costs; and
(2) major maintenance costs at a compressor station which occurred in 1997.
Operating and maintenance expenses increased $470,000 and $985,000 for
the six and twelve month periods ended March 31 1998, respectively, as
compared the same periods last year. Affecting both periods were
(1) increased transmission and distribution expenses; (2) increased
compressor fuel costs caused by increased usage for system integrity;
(3) increased employee compensation costs associated with the increased
customer base; (4) higher employee medical claims; and (5) a slight increase
in the provision for doubtful accounts during the twelve month period due to
higher customer billings, but slower collections after the 1997 heating season
concluded.
Depreciation expense increased in all periods as compared to the same
periods last year due to the addition of utility plant in service, primarily
transmission and distribution plant related to expansion and customer growth.
General taxes decreased in the three and twelve month periods and were
up slightly in the six month period as compared to the same periods last
year. The most significant tax is the state gross receipts tax which is
based on revenue and, therefore, tracks the changes in revenues. Also, higher
property and payroll taxes affected all periods.
Income taxes increased $196,000, $41,000 and $241,000, respectively, for
the three, six and twelve month periods ended March 31, 1998, as compared
to the same periods last
<PAGE>14
year. These increases were caused by increases in operating income as
income tax rates remained unchanged.
Other income, net, decreased $1.2 million for both the three and six
month periods and $1.6 million for the twelve month period as compared to the
same periods last year. Affecting all periods was a nonrecurring after-tax
credit of $1.1 million related to the settlement of a long-standing regulatory
matter (see Note 4).
Utility interest expense increased $397,000, $380,000 and $188,000,
respectively, for the three, six and twelve month periods as compared to the
same periods last year. These increases were due primarily to increased
interest expense related to higher levels of short-term borrowings used to
finance a customer growth rate of almost 4%. This was offset somewhat by an
increase in allowance for funds used during construction and lower interest
expense on long-term debt due to scheduled debt repayments.
(3) Other
The Year 2000 issue exists because many computer systems and
applications use two-digit fields to designate a year. As the century date
change occurs, date-sensitive systems will recognize the year 2000 as 1900,
or not at all. This inability to recognize or properly treat the Year 2000
may cause systems to process critical financial and operational information
incorrectly. NCNG has chosen to replace all critical systems with new
software which is Year 2000 compliant. Existing non-Year 2000 compliant
systems have been and will continue to be replaced as the new software
systems are installed. All work will be completed in mid-Fiscal 1999.
Statements make herein and elsewhere in this annual report which are not
historical in fact are forward-looking statements. In connection with the
"Safe Harbor" provisions of the Private Securities Reform Act of 1995, the
Company cautions that, while it believes such statements to be reasonable
and makes them in good faith, they almost always vary from actual results,
depending upon the circumstances. Investors should be aware of important
factors that could have a material impact on future results. These factors
include, but are not limited to, weather, the regulatory environment,
financial market conditions, interest rate fluctuations, customers'
preferences, unforeseen competition, and other uncertainties, all of which
are difficult to predict, and most of which are beyond the control of the
Company.
<PAGE>15
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
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>16
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 14, 1998 /s/Gerald A. Teele
----------------------------------------
Gerald A. Teele
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: May 14, 1998 /s/Ronald J. Josephson
----------------------------------------
Ronald J. Josephson
Vice President-Financial Services
(Principal Accounting Officer)
<PAGE>17
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 March 31, 1998:
Exhibit
Number
---------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000072596
<NAME> NORTH CAROLINA NATURAL GAS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
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<PERIOD-END> mar-31-1998
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 125,290
0
0
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0
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0
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<EPS-PRIMARY> 1.55
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</TABLE>