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, 1997
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. Shares outstanding have been
adjusted for a three-for-two stock split effective February 20, 1998 to all
stockholders of record on January 26, 1998. See Note 2 to the unaudited
Condensed Consolidated Financial Statements.
Common Stock, $2.50 par value 10,049,454
- ----------------------------- ------------------
Class Number of Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement dated December 5, 1997 relating to the
January 13, 1998 Annual Meeting of Stockholders are incorporated by reference
into Part II of this quarterly report.
<PAGE>2
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,
1997 1997
---------------- ----------------
Gas Utility Plant
In service $306,375 $303,652
Less-Accumulated depreciation
and amortization (106,957) (104,268)
-------- --------
199,418 199,384
Construction work in progress 9,711 4,176
-------- --------
Utility Plant, net 209,129 203,560
-------- --------
Nonutility Property 7,337 6,744
Less-Accumulated depreciation (2,543) (2,504)
-------- --------
Nonutility Property, net 4,794 4,240
-------- --------
Current Assets
Cash and temporary cash investments 2,276 962
Restricted cash and temporary
cash investments 4,356 4,606
Accounts receivable, less reserve 26,761 17,359
Recoverable purchased gas costs 1,857 1,020
Inventories, at average cost -
Gas in storage 8,159 8,799
Materials and supplies 4,529 3,386
Merchandise 1,218 1,351
Deferred gas cost-unbilled volumes 5,410 647
Prepaid income taxes 1,819 4,521
Other current assets 566 339
-------- --------
Total Current Assets 56,951 42,990
-------- --------
Investment in joint ventures 382 301
Deferred charges and other assets 2,248 2,160
-------- --------
Total Assets $273,504 $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 (Unaudited)
(in thousands)
CAPITALIZATION AND LIABILITIES
December 31, September 30,
1997 1997
----------- ------------
Capitalization
Stockholders' investment:
Common stock, par value $2.50; 24,000
shares authorized; shares issued and
outstanding: 12/31/97-10,026;
09/30/97-10,001 (Note 2) $25,064 $25,003
Capital in excess of par value 32,641 32,173
Retained earnings 59,061 56,047
-------- --------
Total Stockholders' Investment 116,766 113,223
-------- --------
Long-term debt 61,000 61,000
-------- --------
Total Capitalization 177,766 174,223
-------- --------
Current Liabilities
Current maturities of long-term debt 2,000 2,000
Notes payable 25,000 15,000
Accounts payable 21,353 16,923
Customer deposits 2,345 2,081
Restricted supplier refunds 4,356 4,606
Accrued interest 839 2,294
Accrued income and other taxes 2,951 1,840
Other current liabilities 4,860 2,598
-------- --------
Total Current Liabilities 63,704 47,342
-------- --------
Other Credits
Deferred income taxes 22,961 22,709
Regulatory liability related to
income taxes, net 2,180 2,232
Unamortized investment tax credits 2,475 2,523
Postretirement and postemployment
benefit liabilities 3,095 2,979
Other 1,323 1,243
-------- --------
Total Other Credits 32,034 31,686
-------- --------
Total Capitalization and Liabilities $273,504 $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 December 31, 1997 and 1996
(in thousands except per share amounts)
1997 1996
------ ------
Operating Revenues $58,458 $53,455
Cost of Gas 37,767 33,590
------- -------
Gross Margin 20,691 19,865
------- -------
Operating Expenses and Taxes:
Operations and Maintenance 6,368 5,835
Depreciation 2,755 2,457
General Taxes 2,625 2,276
Income Taxes 2,864 3,019
------- -------
Total Operating Expenses and Taxes 14,612 13,587
------- -------
Operating Income 6,079 6,278
Other Income, net 479 416
------- -------
Income Before Utility Interest Charges 6,558 6,694
Utility Interest Charges 1,189 1,205
------- -------
Net Income $5,369 $5,489
======= =======
Average Common Shares Outstanding (Note 2) 10,008 9,866
======= =======
Basic Earnings Per Share (Notes 2 and 6) $0.54 $0.56
======= =======
Diluted Earnings Per Share (Notes 2 and 6) $0.53 $0.55
======= =======
Dividends Declared Per Share (Note 2) $0.2333 $0.2167
======= =======
(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 Twelve Months Ended December 31, 1997 and 1996
(in thousands except per share amounts)
1997 1996
------ ------
Operating Revenues $186,707 $203,284
Cost of Gas 112,674 131,530
-------- --------
Gross Margin 74,033 71,754
-------- --------
Operating Expenses and Taxes:
Operations and Maintenance 25,990 23,848
Depreciation 10,372 9,642
General Taxes 8,810 9,076
Income Taxes 9,174 9,119
-------- --------
Total Operating Expenses and Taxes 54,346 51,685
-------- --------
Operating Income 19,687 20,069
Other Income, net 2,173 1,186
-------- --------
Income Before Utility Interest Charges 21,860 21,255
Utility Interest Charges 4,386 4,860
-------- --------
Net Income $17,474 $16,395
======== ========
Average Common Shares Outstanding (Note 2) 9,968 9,826
======== ========
Basic Earnings Per Share (Notes 2 and 6) $1.75 $1.67
======== ========
Diluted earnings Per Share (Notes 2 and 6) $1.75 $1.66
======== ========
Dividends Declared Per Share (Note 2) $0.9333 $0.8667
======== ========
(The accompanying notes are an integral part of these statements.)
<PAGE>6
NORTH CAROLINA NATURAL GAS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended December 31, 1997 and 1996
(in thousands)
1997 1996
------ ------
Cash Flows From Operating Activities:
Net Income $5,369 $5,489
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,810 2,516
Change in deferred income taxes and
deferred investment tax credits, net 159 (36)
Change in other current assets and liabilities (6,258) (1,176)
Other 65 98
------ ------
Net cash provided by operating activities 2,145 6,891
------ ------
Cash Flows From Investing Activities:
Property additions (9,219) (8,146)
Proceeds from Expansion Fund 295 -
Other, net (81) (145)
------ ------
Net cash used in investing activities (9,005) (8,291)
------ ------
Cash Flows From Financing Activities:
Increase in notes payable 10,000 4,000
Cash dividends paid (2,335) (2,137)
Issuance of common stock through dividend
reinvestment, employee stock purchase,
and key employee stock option plans 509 454
------ ------
Net cash provided by financing activities 8,174 2,317
------ ------
Net increase in cash and temporary
cash investments 1,314 917
Cash and temporary cash investments,
beginning of period 962 1,117
------ ------
Cash and temporary cash investments,
end of period $2,276 $2,034
====== ======
Cash paid for:
Interest, net of amounts capitalized $2,841 $2,680
Income taxes, net of refunds - 1,995
(The accompanying notes are an integral part of these statements.)
<PAGE>7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note 1: The condensed financial statements included in this report reflect only
normal recurring adjustments which are, in the opinion of management,
necessary for 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, 1997 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
presented have been adjusted to reflect the stock split.
Note 3: Long-Term Debt at December 31, 1997:
Amount Due
Within
Issue One Year Total
----- ----------- -----------
7.15% Senior Notes, due 11/15/15 $ - $30,000,000
9.21% Debentures, Series C, due 11/15/11 - 25,000,000
8.75% Debentures, Series B, due 06/15/01 2,000,000 6,000,000
--------- ----------
Long-Term Debt $2,000,000 $61,000,000
========= ==========
<PAGE>8
Note 4: At December 31, 1997, the Company had $4.4 million in restricted
supplier refunds, none of which were received in the current quarter. 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 the Company's Expansion Fund (the Fund). The Fund is
administered by the Commission 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 13,
1996, the Company transferred $3.8 million, $6.6 million, and $3.9 million,
respectively, to the Fund. At December 31, 1997, 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 and November 4, 1997, the Company, upon approval
by the NCUC, received payments of $455,435 and $295,388, respectively, from
the Fund for that project.
Note 5: On May 5, 1996, the Company filed with the NCUC to recover net customer
costs of $3.0 million from exploration and development activities. The
recovery is a result of a true-up of distribution costs and revenue
benefits from the Company's past exploration and drilling programs. On
February 7, 1997, the NCUC issued its order granting a pretax recovery of
$1.9 million. The Commission's Order approved, in all material respects,
the Stipulation of Settlement reached by the Company and the Public Staff
of the NCUC. 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 a gain of $.11 per share in the
three months ended March 31, 1997, and in the twelve months ended December
31, 1997. The gain has been recorded in other income.
Note 6: 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 effect of the adoption of SFAS No. 128 on the three and
twelve month periods ended December 31, 1997 and 1996 is as follows:
<PAGE>
<PAGE>9
For The Three Months Ended December 31, 1997
----------------------------------------------
Per Share
Income Shares Amount
--------- ---------- ---------
Basic Earnings Per Share
Income Available to
Common Shareholders $5,369,266 10,007,957 $0.54
========== ========== ========
Diluted Earnings Per Share
Incremental Shares for
Assumed Conversions:
Options 3,374
Employee Stock Purchase Plan 3,651
Deferred Compensation 14,529
Deferred Retirement 23,589
----------
Income Available to
Common Shareholders $5,369,266 10,053,100 $0.53
========== ========== ========
For The Three Months Ended December 31, 1996
----------------------------------------------
Per Share
Income Shares Amount
--------- --------- ---------
Basic Earnings Per Share
Income Available to
Common Shareholders $5,488,710 9,865,535 $0.56
========== ========== ========
Diluted Earnings Per Share
Incremental Shares for
Assumed Conversions:
Options 16,646
Employee Stock Purchase Plan 4,632
Deferred Compensation 6,255
Deferred Retirement 22,578
----------
Income Available to
Common Shareholders $5,488,710 9,915,646 $0.55
========== ========== ========
<PAGE>10
For The Twelve Months Ended December 31, 1997
-----------------------------------------------
Per Share
Income Shares Amount
---------- -------- ---------
Basic Earnings Per Share
Income Available to
Common Shareholders $17,474,298 9,967,836 $1.75
=========== ========== =======
Diluted Earnings Per Share
Incremental Shares for
Assumed Conversions:
Options 3,264
Employee Stock Purchase Plan 3,334
Deferred Compensation 14,529
Deferred Retirement 23,589
----------
Income Available to
Common Shareholders $17,474,298 10,012,552 $1.75
=========== ========== =======
For The Twelve Months Ended December 31, 1996
-----------------------------------------------
Per Share
Income Shares Amount
---------- -------- ---------
Basic Earnings Per Share
Income Available to
Common Shareholders $16,395,043 9,825,683 $1.67
=========== ========== =======
Diluted Earnings Per Share
Incremental Shares for
Assumed Conversions:
Options 15,616
Employee Stock Purchase Plan 3,775
Deferred Compensation 6,255
Deferred Retirement 22,578
----------
Income Available to
Common Shareholders $16,395,043 9,873,907 $1.66
=========== ========== =======
<PAGE>11
Note 7: In February 1997, the FASB issued SFAS No. 129, "Disclosures of
Information about Capital Structure." This pronouncement requires companies
to expand capital structure disclosures for any securities other than
ordinary common stock. The impact of the adoption of SFAS No. 129 on
October 1, 1997 has had no effect on the Company's disclosures regarding
its capital structure.
Note 8: Certain prior year amounts in the unaudited Condensed Consolidated
Financial Statements have been reclassified to conform with current year
presentation.
<PAGE>12
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
short-term loans from committed and uncommitted bank lines. During the quarter
ended December 31, 1997, the Company increased its committed bank lines of
credit by $12.0 million to $36.0 million. At December 31, 1997, loans totaling
$25.0 million were outstanding under the lines of credit compared to $15.0
million outstanding at September 30, 1997. The additional bank loans in the
current quarter were necessary to provide funds for the Company's ongoing
construction program and to finance the normal seasonal increases in working
capital, principally accounts receivable and recoverable purchased gas costs.
The Company's business is seasonal in nature as fluctuations in weather
dictate injections and withdrawals 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 in customers' rates is subject to changes in
market conditions. This seasonality is the primary reason for the lower volumes
of gas in storage as of December 31, 1997, which are somewhat offset by higher
average gas costs. The seasonality and higher gas costs included in customers'
rates also account for the higher level of accounts receivable and deferred gas
cost-unbilled volumes in the current quarter.
Recoverable purchased gas costs primarily represent the difference between
the Company's benchmark gas cost rate charged to customers and the actual cost
of gas. The increase is due to higher gas costs in the last quarter of calendar
1997; and the balance will be recovered in rates to customers in future periods.
Materials and supplies increased $1.1 million for the current quarter. This
increase was caused by (1) increased materials needed for pipeline projects, and
(2) the purchase of certain materials in large quantities to take advantage of
discounts offered by suppliers.
<PAGE>
<PAGE>13
In fiscal year 1997, the Company made quarterly estimated income tax
payments based on annualized income. Thus, due to high income levels in the
period from November to April, estimated tax payments substantially exceeded the
liability, and prepaid income taxes were recorded on the September 30, 1997
balance sheet. In the first quarter of fiscal year 1998, estimated income taxes
did not exceed the prepayments; thus, no tax payments were made in cash.
Accounts payable increased $4.4 million during the first quarter of fiscal
year 1998 compared to September 30, 1997. This increase was caused by an
increase in gas cost payables due to increased gas purchases and higher
commodity prices of gas. Also, increased general purchases relating to the
Company's construction activities added to the increase in accounts payable.
Net cash provided by operating activities decreased $4.7 million for the
three months ended December 31, 1997, as compared to the same period last year.
This decrease was due primarily to a decrease in accounts payable for the three
months ended December 31, 1997 compared to the same period last year.
Construction spending was $8.9 million, after giving effect to monies
received from the Expansion Fund for the three months ended December 31, 1997,
compared to $8.1 million for the same period in 1996. Construction expenditures
for the remainder of fiscal year 1998 are projected at $37.2 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 fiscal year 1998. The Company expects to issue
long-term debt to replace short-term borrowings in late Fiscal 1998.
Net cash provided by financing activities increased $5.9 million for the
three months ended December 31, 1997, as compared to the same period last year.
The primary reason for this was an increase of $6 million in short-term notes
payable.
(2) Material Changes in Results of Operations
Net income decreased $120,000 for the three month period ended December 31,
1997, as compared to the same period last year. This decrease was caused by
increases in operations and maintenance expenses as a result of system growth
and increased depreciation expense due to higher levels of depreciable assets.
Partially offsetting these reductions were customer growth in excess of 4%
during the quarter ended December 31, 1997, compared to the same quarter last
year; increased sales to weather-sensitive residential and commercial customers
caused by weather that was 4% colder than the same period in 1996; and increased
profits in the Company's propane operations.
<PAGE>14
Net income increased $1.1 million for the twelve month period ended
December 31, 1997, as compared to the same period last year. The three primary
factors causing the increase in twelve months' earnings were (1) a nonrecurring
after-tax credit of $1.1 million related to settlement of a long-standing
regulatory matter (see note 5); (2) customer growth at an annualized rate of
4.5%; and (3) lower utility interest charges.
The chart below compares margins for the three month and twelve month
periods ended December 31, 1997 and 1996 by customer class (in thousands):
GROSS MARGIN BY CUSTOMER CLASS
---------------------------------------------------
3 Months 12 Months
------------------- ---------------------
1997 1996 1997 1996
------- ------ ------ -------
Residential $ 6,554 $ 5,973 $25,302 $25,009
Commercial 4,121 3,597 15,524 14,367
Industrial 7,441 7,796 25,675 24,567
Municipal 2,575 2,499 7,532 7,811
------ ------ ------ ------
Total $20,691 $19,865 $74,033 $71,754
====== ====== ====== ======
Gross margin increased $826,000 during the quarter ended December 31, 1997,
compared to the same period last year, primarily due to customer growth and
related increases in facilities' charges. While weather was 4% colder in the
1997 quarter compared to the 1996 quarter, margins were not significantly
affected by colder weather because of the operation of the Company's Weather
Normalization Adjustment (WNA) in its rate structure. Gross margin for the
industrial class was down slightly. This was caused by a reduction in minimum
contract billings in 1997 as compared to 1996, and a small reduction in volumes
delivered during the 1997 quarter due to more cold-weather curtailments of
service to interruptible customers.
Gross margin increased $2.3 million during the twelve month period ended
December 31, 1997 as compared to the same period last year. This increase was
caused by customer growth and related facilities' charges and warmer winter
weather that resulted in less curtailment to industrial customers during the
winter period. Also affecting this period was hot summer weather which led to
increased deliveries of gas to electric generators in the industrial customer
class. While winter weather for the entire calendar year 1997 was 17% warmer
than calendar year 1996, the operation of the WNA offset substantially all of
the margin loss in the residential and commercial markets that was caused by
decreases in volumes delivered to those customer classes. The municipal margin
was down due to the loss of an industrial customer served by one of the
municipalities served by the Company.
<PAGE>15
The chart below shows total throughput volumes (in thousands of dt) for the
three month and twelve month periods ended December 31, 1997 and 1996 by
customer class:
THROUGHPUT VOLUMES (Mdt) BY CUSTOMER CLASS
--------------------------------------------------
3 Months 12 Months
----------------- -------------------
1997 1996 1997 1996
---- ----- ----- ------
Residential 1,589 1,510 6,265 7,129
Commercial 1,366 1,240 5,224 5,518
Industrial 8,275 8,410 34,985 31,919
Municipal 2,801 2,847 9,008 9,480
------ ------ ------ ------
Total 14,031 14,007 55,482 54,046
====== ====== ====== ======
The following chart shows the same total throughput volumes classified by
sales and transportation:
THROUGHPUT VOLUMES (Mdt) BY TYPE OF SERVICE
---------------------------------------------------
3 Months 12 Months
------------------ --------------------
1997 1996 1997 1996
---- ---- ----- ------
Sales 10,183 8,657 30,045 37,992
Transportation 3,848 5,350 25,437 16,054
------ ------ ------ ------
Total 14,031 14,007 55,482 54,046
====== ====== ====== ======
For the three month period, total throughput volumes remained flat. Colder
weather and continued customer growth caused an increase in residential and
commercial volumes. This was offset by lower volumes to industrial customers
caused by more weather-induced curtailments to interruptible customers. However,
transportation volumes decreased in the three month period ended December 31,
1997 because (1) the rising price of natural gas caused some customers to switch
back to sales service from transportation service; and (2) there were more
weather-induced curtailments of the larger industrial boiler fuel customers who
use heavy oil as an alternative fuel.
<PAGE>16
Total throughput volumes for the twelve month period ended December 31,
1997 increased because of the 4.5% increase in customers served and continued
increase in demand for gas in the Company's service area from industrial and
electric power generation customers. Residential and commercial volumes
decreased due to warmer weather and municipal volumes decreased due to warmer
weather and the loss of an industrial customer served by one of the
municipalities. These lower volumes were offset by higher volumes delivered to
industrial customers due to fewer weather-induced curtailments. Transportation
volumes for the twelve month period increased due to a switch from sales to
transportation services, particularly in the off-peak months when the market
rates were lower than the Company's benchmark sales rate.
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
significant impacts 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 nor billed
by the Company.
Operating revenues increased $5.0 million for the three month period ended
December 31, 1997 as compared to the same period last year. This increase was
caused by (1) 5% and 10% increases, in sales to the residential and commercial
markets, respectively, which offset decreased deliveries of gas to industrial
customers; (2) a mix change to greater sales volumes to industrial customers and
lower transportation volumes; and (3) higher commodity prices of natural gas
passed on to customers.
Operating revenues decreased $16.6 million for the twelve month period
ended December 31, 1997 as compared to the same period last year. This decrease
was caused by (1) a 9% decrease in sales volumes to the residential and
commercial markets; and (2) a mix change to greater transportation volumes and
lower sales volumes to industrial and municipal customers.
Cost of gas increased $4.2 million for the three month period ended
December 31, 1997 as compared to the same period last year. This increase was
caused by increased quantities purchased related to higher sales volumes to
industrial customers switching from transportation service to sales service,
increased sales volumes to residential and commercial customers due to weather
that was 4% colder than the same period last year and higher gas commodity
prices.
<PAGE>17
Cost of gas decreased $18.9 million for the twelve month period ended
December 31, 1997, as compared to the same period last year. This decrease was
caused primarily by increased transportation service resulting in purchases
which were 21% lower than the same period last year. Partially offsetting this
decrease was an increase of 4% in the commodity prices of gas.
Operating and maintenance expenses increased $533,000 and $2.1 million,
respectively, for the three month and twelve month periods ended December 31,
1997, as compared to the same periods last year. Affecting both periods were (1)
increased transmission and distribution maintenance expenses; (2) increased
compressor fuel costs caused by increased usage for system integrity and an
increase in the commodity cost of gas; (3) increased provisions for doubtful
accounts caused by higher residential and commercial customer billings together
with a slow-down in collections; (4) higher employee compensation costs
associated with the increased customer base; and (5) increased employee medical
claims.
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 increased in the three month period ended December 31, 1997,
and decreased in the twelve month period ended December 31, 1997, as compared to
the same periods last year. The most significant tax is the state gross receipts
tax which is directly related to gross revenue. Also, higher property taxes
affected the twelve month period.
Income taxes for the three month period ended December 31, 1997, decreased
slightly from the same period last year due to lower operating income. Higher
operating income for the twelve month period ended December 31, 1997, compared
to the same period in 1996 resulted in slightly higher income tax expense.
Other income, net, increased $63,000 for the three months ended December
31, 1997, as compared to the same period last year. This increase was caused
primarily by increased profits from the Company's propane operations due to 4%
colder weather compared to the same period last year.
Other income, net, increased $987,000 for the twelve month period ended
December 31, 1997 as compared to the same period last year. This increase was
caused by a nonrecurring credit of $1.1 million related to the settlement of a
long-standing regulatory matter (see Note 5 to the Condensed Consolidated
Financial Statements). Partially offsetting that increase was a reduction in
other income, net, from (1) the Company's propane operations due to weather
which was 17% warmer than the same period in 1996, and (2) reduced interest
income on short-term investments.
<PAGE>18
Utility interest charges decreased $16,000 and $474,000, respectively, for
the three month and twelve month periods as compared to the same periods last
year. These decreases were caused primarily by higher construction expenditures
and a related increase in allowance for funds used during construction because
of more construction work in progress throughout 1997. Partially offsetting
these decreases were increased interest expenses on short-term debt because of
higher levels of short-term debt outstanding throughout
<PAGE>19
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 13, 1998
(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: 5,630,251
Against or Withheld: 43,982
Robert T. Johnson For: 5,633,509
Against or Withheld: 40,724
William H. Prestage For: 5,634,858
Against or Withheld: 39,375
Note: These vote totals do not reflect the three-for-two stock
split effective February 20, 1998.
<PAGE>20
(d) Names of each director whose term of office as director continued
after the meeting:
Paul A. DelaCourt Frank B. Holding,Jr.
James E. S. Hynes John O. McNairy
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:
To consider an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
common stock from 12,000,000 shares, $2.50 par value, to
24,000,000 shares of common stock, $2.50 par value:
For: 5,301,408
Against: 304,754
Abstain: 68,071
Note: These vote totals do not reflect the three-for-two stock
split effective February 20, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The proposal to amend the Company's Certificate of Incorporation to
increase authorized shares of common stock from 12,000,000 shares, $2.50 value,
to 24,000,000 shares of common stock, $2.50 par value, previously filed with the
Securities and Exchange Commission as an exhibit to the Company's Proxy
Statement dated December 5, 1997, relating to the January 13, 1997 Annual
Meeting of Stockholders is incorporated by reference into Part II Item 4 (e) of
this quarterly report.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
<PAGE>21
(b) Reports on Form 8-K
On January 21, 1998 the Company filed on Form 8-K a change in
distribution date of the new shares of common stock from February
27, 1998 to February 20, 1998.
<PAGE>22
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 11, 1998 /s/ Gerald A. Teele
--------------------------------------
Gerald A. Teele
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: February 11, 1998 /s/ Ronald J. Josephson
--------------------------------------
Ronald J. Josephson
Vice President-Financial Services
(Principal Accounting Officer)
<PAGE>23
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, 1997:
Exhibit
Number
- --------
10-33 - Fourth Amendment to Natural Gas Service Agreement
dated November 1, 1997 with the City of Monroe
27 - Financial Data Schedule
<PAGE> 24
Exhibit 10-33
Page 1 of 2
FOURTH AMENDMENT TO
NATURAL GAS SERVICE AGREEMENT BETWEEN
THE CITY OF MONROE, NC
AND
NORTH CAROLINA NATURAL GAS CORPORATION
This Fourth Amendment entered into to be effective on the 1st day of
November, 1997, between The City of Monroe, North Carolina, (as "Customer") and
North Carolina Natural Gas Corporation, a Delaware corporation (as "Company"),
W I T N E S S E T H:
WHEREAS, Customer and Company are parties to a certain "Natural Gas Service
Agreement By and Between The City of Monroe, North Carolina and North Carolina
Natural Gas Corporation" effective December 6, 1991 ("the Agreement"); the First
Amendment effective November 1, 1992 to such Agreement; the Second Amendment
dated January 1, 1995 to such Agreement; the Third Amendment dated November 1,
1996 to such Agreement; and
WHEREAS, Company and Customer wish to amend that contract as more fully set
forth herein;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein and in the Agreement, Company and Customer agree as follows:
1. Section 2.01 is deleted in its entirety and the following is substituted
therefor:
<PAGE>25
Exhibit 10-33
Page 2 of 2
2.1 Subject to the terms and provisions of this Agreement, Company agrees
to sell and deliver to Customer and Customer agrees to purchase and
receive from Company, Customer's natural gas requirements, excluding
that portion of Customer's requirements which are transported
pursuant to Article III below. Customer agrees that the maximum
quantity of gas that Company is required to deliver, either by sale
or transportation, shall be 11,300 dekatherms ("Dth) per day and
565 Dth per hour. For purposes of computing the Charge under Rate
Schedules RE-2 and T-6, the foregoing maximum daily quantity,
subject to adjustments as provided herein, shall constitute the
Contract Demand, and Customer agrees to pay Company therefor as
provided in the applicable rate schedule.
2. This Fourth Amendment shall become effective on November 1, 1997.
3. Except as specifically provided herein, the Agreement shall continue in
force and effect as previously written.
IN WITNESS HEREOF, this instrument is executed effective as of the day and
year first written above.
CITY OF MONROE, N.C.
CITY SEAL /s/ Judy Davis
-----------------------------------
Title: Mayor
NORTH CAROLINA NATURAL GAS CORPORATION
CORPORATE SEAL /s/ Calvin B. Wells
-----------------------------------
Title: President
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