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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 July 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6196
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PIEDMONT NATURAL GAS COMPANY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0556998
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1915 Rexford Road, Charlotte, North Carolina 28211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-364-3120
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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.
Class Outstanding at September 4, 1996
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Common Stock, no par value 29,421,010
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Page 1 of 11 pages
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
July 31, October 31,
ASSETS 1996 1995
------ ---- ----
<S> <C> <C>
Utility Plant, at original cost $1,143,833 $1,074,666
Less accumulated depreciation 298,427 273,350
---------- ----------
Utility plant, net 845,406 801,316
---------- ----------
Other Physical Property (net of accumulated
depreciation of $14,170 in 1996 and $12,869
in 1995) 26,970 26,299
---------- ----------
Current Assets:
Cash and cash equivalents 5,877 5,811
Restricted cash 19,990 17,948
Receivables (less allowance for doubtful
accounts of $2,O88 in 1996 and $972 in 1995) 39,995 21,118
Gas in storage 35,122 39,992
Deferred cost of gas 5,424 3,352
Refundable income taxes 1,597 15,265
Other 7,989 13,799
---------- ----------
Total current assets 115,994 117,285
---------- ----------
Deferred Charges and Other Assets 16,195 19,995
---------- ----------
Total $1,004,565 $ 964,895
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock equity:
Common stock $ 242,855 $ 230,964
Retained earnings 157,385 124,015
---------- ----------
Total common stock equity 400,240 354,979
Long-term debt 357,000 361,000
---------- ----------
Total capitalization 757,240 715,979
---------- ----------
Current Liabilities:
Current maturities of long-term debt and
sinking fund requirements 10,000 7,000
Notes payable 30,000 13,500
Accounts payable 55,800 38,303
Deferred income taxes 15,377 14,166
Taxes accrued (13,308) 9,008
Refunds due customers 5,364 22,289
Other 11,945 19,392
---------- ----------
Total current liabilities 115,178 123,658
---------- ----------
Deferred Credits and Other Liabilities 132,147 125,258
---------- ----------
Total $1,004,565 $ 964,895
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Income
(in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended Ended Ended
July 31 July 31 July 31
------------------- ----------------------- ----------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $95,744 $61,649 $594,376 $443,516 $656,082 $510,310
Cost of Gas 55,558 26,447 342,342 222,705 367,203 256,669
------- ------- -------- -------- -------- --------
Margin 40,186 35,202 252,034 220,811 288,879 253,641
------- ------- -------- -------- -------- --------
Other Operating Expenses:
Operations 26,066 23,667 77,927 71,266 100,749 96,025
Maintenance 4,098 4,376 11,327 12,100 15,637 16,239
Depreciation 9,015 7,982 27,045 23,727 35,261 30,205
General Taxes 6,230 5,361 24,659 21,923 30,128 27,105
Income Taxes (5,302) (5,481) 34,206 26,848 29,436 20,884
------- ------- -------- -------- -------- --------
Total other operating expenses 40,107 35,905 175,164 155,864 211,211 190,458
------- ------- -------- -------- -------- --------
Operating Income 79 (703) 76,870 64,947 77,668 63,183
Other Income, Net (574) (801) 4,877 3,332 6,684 4,104
------- ------- -------- -------- -------- --------
Income Before Utility Interest Charges (495) (1,504) 81,747 68,279 84,352 67,287
Utility Interest Charges 7,831 7,321 23,524 22,845 31,252 29,839
------- ------- -------- -------- -------- --------
Net Income $(8,326) $(8,825) $ 58,223 $ 45,434 $ 53,100 $ 37,448
======= ======= ======== ======== ======== ========
Average Shares of Common Stock
Outstanding 29,253 28,644 29,065 27,596 28,989 27,322
Earnings Per Share of Common Stock $ (0.28) $ (0.31) $ 2.00 $ 1.65 $ 1.83 $ 1.37
Cash Dividends Declared Per Share
of Common Stock $ 0.29 $ 0.275 $ 0.855 $ 0.81 $ 1.13 $ 1.07
</TABLE>
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended Ended Ended
July 31 July 31 July 31
------------------- ----------------------- ----------------------
1996 1995 1996 1995 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $(8,326) $(8,825) $58,223 $45,434 $ 53,100 $ 37,448
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, amortization and other 10,011 8,980 30,036 26,705 39,179 34,147
Other, net 1,049 3,657 5,359 7,888 7,385 8,917
Change in operating assets and
liabilities (27,763) (13,554) (22,659) 23,219 (41,065) 4,290
------- ------- ------- ------- -------- --------
Net cash provided by (used in) operating activities (25,029) (9,742) 70,959 103,246 58,599 84,802
------- ------- ------- ------- -------- --------
Cash Flows from Investing Activities:
Utility construction expenditures (24,619) (23,737) (70,770) (69,924) (100,027) (105,718)
Other (570) (711) (1,505) (1,964) (2,851) (2,866)
------- ------- ------- ------- -------- --------
Net cash used in investing activities (25,189) (24,448) (72,275) (71,888) (102,878) (108,584)
------- ------- ------- ------- -------- --------
Cash Flows from Financing Activities:
Increase (Decrease) in bank loans, net 30,000 17,000 16,500 (46,500) 13,000 (18,000)
Issuance of long-term debt - - - - 55,000 40,000
Retirement of long-term debt (1,000) (1,000) (1,000) (1,000) (5,000) (5,000)
Sale of common stock - - - 33,155 - 33,155
Expenses of sale of common stock - - - - (132) -
Issuance of common stock through dividend
reinvestment and employee stock plans 5,003 2,290 10,735 6,335 12,835 8,289
Dividends paid (8,485) (7,873) (24,853) (22,659) (32,759) (29,548)
------- ------- ------- ------- -------- --------
Net cash provided by (used in) financing activities 25,518 10,417 1,382 (30,669) 42,944 28,896
------- ------- ------- ------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (24,700) (23,773) 66 689 (1,335) 5,114
Cash and Cash Equivalents at Beginning of Period 30,577 30,985 5,811 6,523 7,212 2,098
------- ------- ------- ------- -------- --------
Cash and Cash Equivalents at End of Period $ 5,877 $ 7,212 $ 5,877 $ 7,212 $ 5,877 $ 7,212
======= ======= ======= ======= ======== ========
Cash Paid During the Period for:
Interest $10,828 $ 8,034 $25,481 $21,236 $ 31,555 $ 27,476
Income taxes $30,746 $ 950 $50,717 $30,001 $ 50,804 $ 30,701
</TABLE>
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. The condensed consolidated financial statements have not been audited
by independent auditors. These financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements
included in the Company's 1995 Annual Report.
2. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the
financial position of the Company at July 31, 1996, and October 31,
1995, and the results of its operations and its cash flows for the
three months, nine months and twelve months ended July 31, 1996 and
1995.
3. The Company's business is seasonal in nature. The results of
operations for the three- and nine-month periods ended July 31, 1996,
are not necessarily indicative of the results to be expected for the
full year.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The Company finances its current cash requirements through internally generated
cash, the issuance of new common stock through dividend reinvestment and
employee stock purchase plans and committed bank lines of credit totaling $57
million. In addition, the Company sells common stock and long-term debt to
cover cash requirements when market or other conditions warrant such long-term
financing.
Because of the seasonal nature of the natural gas business, a substantial
portion of the Company's earnings are realized in the winter period which is
the first six months of the fiscal year. Injections of natural gas into
storage occur during periods of warm weather (principally April 1 through
October 31) for withdrawal from storage during periods of cold weather
(principally November 1 through March 31). Due to this seasonality and the
demand for gas during the winter season, inventory of stored gas decreased and
receivables increased from October 31, 1995, to July 31, 1996.
The Company has a substantial capital expansion program to sustain its
approximately 6% current annual growth in customer base. The capital expansion
program is dependent on the continuing ability to generate the necessary funds
required for this growth. Utility construction expenditures for the three,
nine and twelve months ended July 31, 1996, were $25 million, $72.1 million and
$101.8 million, respectively, as compared with $23.9 million, $71.1 million and
$107.9 million, respectively, for similar prior periods.
At July 31, 1996, the Company's capital structure consisted of long-term debt
of 47% and common equity of 53%.
Results of Operations
Margin for the three months ended July 31, 1996, increased $5 million compared
with the same period last year due to regulatory-approved changes and greater
volumes of gas sold. Delivered volumes of natural gas for the current three-
month period increased over the similar prior period by 1.4 million dekatherms,
a 7% increase. Weather for the three months ended July 31, 1996, was 22%
colder than in the similar prior period. However, this colder weather had
little effect on margin as the quarter is past the winter period.
Margin for the nine months ended July 31, 1996, increased $31.2 million
compared with the same period last year due to regulatory-approved changes and
greater volumes of gas sold, particularly to
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<PAGE> 7
weather-sensitive residential and commercial customers. Delivered volumes of
natural gas for the current nine-month period increased over the similar prior
period by 13.8 million dekatherms, a 13% increase. Weather for the nine months
ended July 31, 1996, was 29% colder than in the similar prior period. As a
result, the weather normalization adjustment (WNA) decreased operating revenues
by $11.6 million for the current nine months, as compared with an increase of
$10.4 million for the similar prior period.
Margin for the twelve months ended July 31, 1996, increased $35.2 million
compared with the similar prior period due to regulatory-approved changes and
greater volumes of gas sold. Weather for the twelve months ended July 31,
1996, was 27% colder than the similar prior period. The WNA decreased
operating revenues by $11.6 million for the current period and increased
operating revenues by $10.4 million for the similar prior period. Delivered
volumes of natural gas for the current twelve months increased over the similar
prior period by 14.7 million dekatherms, a 12% increase.
The Company's rates are revised periodically to reflect changes in the cost of
gas. Charges to cost of gas are based on the amount recoverable under approved
rate schedules. The net of any over- or under-recoveries of gas costs are
charged or credited to cost of gas and included in refunds due customers. The
Company's rate schedules include gas cost recovery provisions that permit the
recovery of prudently incurred gas costs, subject to annual prudence reviews
covering an historical twelve-month period. Beginning July 1, 1996, prudence
reviews are no longer required in Tennessee as a result of the approval by the
Tennessee Public Service Commission of a performance incentive plan in regards
to the Company's gas purchasing practices in Tennessee.
Operations and maintenance expenses for the three months, nine months and
twelve months ended July 31, 1996, increased over similar prior periods
primarily due to increases in maintenance and repairs of mains, payroll costs
and utilities, and for the nine-month period, by an increase in employee
benefit costs, and for the nine-month and twelve-month periods, by an increase
in advertising costs. These increases were partially offset by decreases in
all periods in rents and leases, and for the nine-month and twelve-month
periods, by decreases in outside labor costs. The current twelve-month period
also reflects reductions in the provision for uncollectibles and in employee
benefit costs.
Depreciation expense for the three months, nine months and twelve months ended
July 31, 1996, increased over similar prior periods due to the growth of plant
in service and to an increase in depreciation rates for South Carolina
operations effective November 1, 1995. For the current twelve-month period, as
compared with the similar prior period, the increase is also due to an increase
in depreciation rates for North Carolina operations effective November 1, 1994.
The two state commissions have approved recovery of the increased depreciation
rates in rates charged to customers.
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General taxes for the three months, nine months and twelve months ended July
31, 1996, increased over similar prior periods primarily due to increases in
gross receipts taxes resulting from increased revenues.
Other income for the three months ended July 31, 1996, increased over the
similar prior period primarily due to an increase in earnings from energy
marketing services. Other income for the nine months and twelve months ended
July 31, 1996, increased over similar prior periods primarily due to increases
in earnings from propane operations attributable to the colder weather noted
above and increases in interest earned on temporary cash investments. Such
increases were partially offset by decreases in earnings from energy marketing
services and merchandise activities, and for the twelve-month period, by a
decrease in the allowance for funds used during construction (AFUDC) due to
changes in rates and lower balances on which AFUDC is computed.
Utility interest charges for the three months, nine months and twelve months
ended July 31, 1996, increased over similar prior periods primarily due to
interest on long-term debt resulting from higher balances outstanding. These
increases were partially offset by a decrease in interest on refunds due
customers due to lower balances outstanding, and for the nine-month and
twelve-months periods, by a decrease in interest on short-term debt due to
lower balances outstanding.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule (for Securities and Exchange
Commission use only).
(b) Reports on Form 8-K -
None.
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<PAGE> 10
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.
PIEDMONT NATURAL GAS COMPANY, INC.
----------------------------------
(Registrant)
Date September 12, 1996 /s/ David J. Dzuricky
-------------------- ----------------------------------
David J. Dzuricky
Senior Vice President-Finance
(Principal Financial Officer)
Date September 12, 1996 /s/ Barry L. Guy
-------------------- ----------------------------------
Barry L. Guy
Vice President and Controller
(Principal Accounting Officer)
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Exhibit 12
PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
For Fiscal Years Ended October 31, 1991 through 1995
and Twelve Months Ended July 31, 1996
(in thousands except ratio amounts)
<TABLE>
<CAPTION>
July 31,
1996 1995 1994 1993 1992 1991
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income from
continuing operations $ 53,100 $ 40,310 $35,506 $37,534 $35,310 $20,552
Income taxes 33,822 25,442 21,407 23,427 21,259 11,408
Fixed charges 36,337 35,651 29,736 26,715 26,246 26,823
-------- -------- ------- ------- ------- -------
Total Adjusted Earnings $123,259 $101,403 $86,649 $87,676 $82,815 $58,783
======== ======== ======= ======= ======= =======
Fixed Charges:
Interest $ 33,993 $ 33,224 $27,671 $24,870 $24,570 $25,253
Amortization of debt expense 343 336 334 192 180 259
One-third of rental expense 2,001 2,091 1,731 1,653 1,496 1,311
-------- -------- ------- ------- ------- -------
Total Fixed Charges $ 36,337 $ 35,651 $29,736 $26,715 $26,246 $26,823
======== ======== ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 3.39 2.84 2.91 3.28 3.16 2.19
======== ======== ======= ======= ======= =======
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PIEDMONT NATURAL GAS FOR THE NINE MONTHS ENDED JULY 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 845,406
<OTHER-PROPERTY-AND-INVEST> 26,970
<TOTAL-CURRENT-ASSETS> 115,994
<TOTAL-DEFERRED-CHARGES> 16,195
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,004,565
<COMMON> 242,855
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 157,385
<TOTAL-COMMON-STOCKHOLDERS-EQ> 400,240
0
0
<LONG-TERM-DEBT-NET> 357,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 10,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 237,325
<TOT-CAPITALIZATION-AND-LIAB> 1,004,565
<GROSS-OPERATING-REVENUE> 594,376
<INCOME-TAX-EXPENSE> 34,206
<OTHER-OPERATING-EXPENSES> 483,300
<TOTAL-OPERATING-EXPENSES> 517,506
<OPERATING-INCOME-LOSS> 76,870
<OTHER-INCOME-NET> 4,877
<INCOME-BEFORE-INTEREST-EXPEN> 81,747
<TOTAL-INTEREST-EXPENSE> 23,524
<NET-INCOME> 58,223
0
<EARNINGS-AVAILABLE-FOR-COMM> 58,223
<COMMON-STOCK-DIVIDENDS> 24,853
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 70,959
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 0
</TABLE>
