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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 January 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
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Commission file number 1-6196
------
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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-364-3120
----------------------------
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 March 5, 1997
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Common Stock, no par value 29,779,331
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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>
January 31, October 31,
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Utility Plant, at original cost $1,189,321 $1,168,448
Less accumulated depreciation 316,280 306,419
---------- ----------
Utility plant, net 873,041 862,029
---------- ----------
Other Physical Property (net of accumulated
depreciation of $14,953 in 1997 and $14,569
in 1996) 26,633 27,072
---------- ----------
Current Assets:
Cash and cash equivalents 9,962 4,994
Restricted cash 21,238 20,481
Receivables (less allowance for doubtful
accounts of $2,308 in 1997 and $1,960
in 1996) 103,472 32,378
Gas in storage 23,439 50,065
Deferred cost of gas 37,017 6,796
Refundable income taxes 3,949 31,949
Other 9,982 11,324
---------- ----------
Total current assets 209,059 157,987
---------- ----------
Deferred Charges and Other Assets 18,770 17,828
---------- ----------
Total $1,127,503 $1,064,916
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock equity:
Common stock $ 251,658 $ 246,907
Retained earnings 167,898 139,184
---------- ----------
Total common stock equity 419,556 386,091
Long-term debt 391,000 391,000
---------- ----------
Total capitalization 810,556 777,091
---------- ----------
Current Liabilities:
Current maturities of long-term debt and
sinking fund requirements 10,000 10,000
Notes payable 26,000 39,000
Accounts payable 95,056 60,150
Deferred income taxes 27,085 17,727
Taxes accrued (8,054) 9,940
Refunds due customers 16,082 68
Other 13,779 16,770
---------- ----------
Total current liabilities 179,948 153,655
---------- ----------
Deferred Credits and Other Liabilities 136,999 134,170
---------- ----------
Total $1,127,503 $1,064,916
========== ==========
</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 except per share amounts)
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
January 31 January 31
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues $312,533 $239,160 $758,428 $541,907
Cost of Gas 194,163 132,707 455,589 275,567
-------- -------- -------- --------
Margin 118,370 106,453 302,839 266,340
-------- -------- -------- --------
Other Operating Expenses:
Operations 26,974 25,669 107,128 95,612
Maintenance 4,337 3,561 16,552 16,266
Depreciation 9,728 9,015 36,752 33,086
General taxes 11,423 9,380 33,090 27,936
Income taxes 22,521 19,924 30,158 24,161
-------- -------- -------- --------
Total other operating expenses 74,983 67,549 223,680 197,061
-------- -------- -------- --------
Operating Income 43,387 38,904 79,159 69,279
Other Income, Net 2,562 3,290 4,347 5,824
-------- -------- -------- --------
Income Before Utility Interest Charges 45,949 42,194 83,506 75,103
Utility Interest Charges 8,637 8,096 31,730 30,927
-------- -------- -------- --------
Net Income $ 37,312 $ 34,098 $ 51,776 $ 44,176
======== ======== ======== ========
Average Shares of Common Stock
Outstanding 29,646 28,909 29,347 28,455
Earnings Per Share of Common Stock $ 1.26 $ 1.18 $ 1.76 $ 1.55
Cash Dividends Declared Per Share
of Common Stock $ .29 $ .275 $ 1.16 $ 1.10
</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 Twelve Months
Ended Ended
January 31 January 31
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 37,312 $ 34,098 $ 51,776 $ 44,176
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,094 10,015 41,187 36,918
Other, net 1,749 2,403 6,860 9,807
Change in operating assets and
liabilities (6,016) (17,422) (25,855) 547
-------- -------- -------- ---------
Net cash provided by operating
activities 44,139 29,094 73,968 91,448
-------- -------- -------- ---------
Cash Flows from Investing Activities:
Utility construction expenditures (20,939) (22,608) (95,089) (98,385)
Other (136) (592) (2,420) (3,064)
-------- -------- -------- ---------
Net cash used in investing activities (21,075) (23,200) (97,509) (101,449)
-------- -------- -------- ---------
Cash Flows from Financing Activities:
Increase (Decrease) in bank
loans, net (13,000) 6,500 6,000 (44,000)
Issuance of long-term debt -- -- 40,000 55,000
Retirement of long-term debt -- -- (7,000) (5,000)
Sale of common stock, net of expenses -- -- -- 33,023
Issuance of common stock through
dividend reinvestment and employee
stock plans 3,501 2,208 16,081 8,543
Dividends paid (8,597) (7,947) (34,044) (31,572)
-------- -------- -------- ---------
Net cash provided by (used in)
financing activities (18,096) 761 (21,037) 15,994
-------- -------- -------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents 4,968 6,655 (2,504) 5,993
Cash and Cash Equivalents at
Beginning of Period 4,994 5,811 12,466 6,473
-------- -------- -------- ---------
Cash and Cash Equivalents at
End of Period $ 9,962 $ 12,466 $ 9,962 $ 12,466
======== ======== ======== =========
Cash Paid During the Period for:
Interest $ 10,680 $ 8,909 $ 33,205 $ 28,984
Income Taxes $ 570 $ 199 $ 52,458 $ 30,163
</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 1996 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 January 31, 1997, and October 31,
1996, and the results of its operations and its cash flows for the
three months and twelve months ended January 31, 1997 and 1996.
3. The Company's business is seasonal in nature. The results of operations
for the three-month period ended January 31, 1997, 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 annual 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, 1996, to January 31, 1997.
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 and
twelve months ended January 31, 1997, were $21.3 million and $96.7 million,
respectively, as compared with $22.9 million and $99.8 million, respectively,
for similar prior periods.
At January 31, 1997, capitalization consisted of long-term debt of 48% and
common equity of 52%.
Results of Operations
Margin for the three months ended January 31, 1997, increased $11.9 million
compared with the same period last year due to regulatory-approved rate changes,
including general rate increases in North Carolina and Tennessee. Delivered
volumes of natural gas for the current three-month period decreased from the
similar prior period by 3.5 million dekatherms, a 7% decrease. Weather for the
three months ended January 31, 1997, was 10% warmer than in the similar prior
period. The weather normalization adjustment (WNA), in effect from November 1
through March 31, increased operating revenues by $1.7 million for the three
months ended January 31, 1997, compared with a decrease of $8.6 million for the
similar prior period.
Margin for the twelve months ended January 31, 1997, increased $36.5 million
compared with the similar prior period due to regulatory-approved rate changes,
including general rate increases in North Carolina, South Carolina and
Tennessee. Weather for the
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<PAGE> 7
twelve months ended January 31, 1997, was 2% colder than the similar prior
period. The WNA decreased operating revenues by $1.3 million in the current
twelve-month period and decreased operating revenues by $7.1 million in the
similar prior period. Delivered volumes of natural gas for the current twelve
months increased over the similar prior period by 1.3 million dekatherms, a 1%
increase.
Rate schedules include gas cost recovery provisions that permit the recovery of
prudently incurred gas costs, subject to annual prudence reviews in North
Carolina and South Carolina covering historical twelve-month periods. Rates are
revised periodically without formal rate proceedings 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.
Operations and maintenance expenses for the three months and twelve months ended
January 31, 1997, increased over similar prior periods primarily due to
increases in maintenance and repairs of mains, payroll and outside labor and,
for the twelve-month period only, to increases in utilities, employee benefit
costs and the provision for uncollectibles.
Depreciation expense for the three months and twelve months ended January 31,
1997, increased over similar prior periods due to the growth of plant in service
and for the twelve-month period to an increase in depreciation rates for South
Carolina operations effective November 1, 1995.
General taxes for the three months and twelve months ended January 31, 1997,
increased over similar prior periods primarily due to increases in gross
receipts taxes resulting from increased revenues, increases in property taxes
from rate increases and additions to taxable property and, for the twelve-month
period only, to increases in payroll taxes.
Other income for the three months and twelve months ended January 31, 1997,
decreased from similar prior periods primarily due to decreases in earnings from
propane operations which were partially offset by increases in earnings from
merchandise activities. The twelve-month period ended January 31, 1996, also
included income associated with the Company's investment in Pine Needle LNG
Company, L.L.C.
Utility interest charges for the three months and twelve months ended January
31, 1997, increased over similar prior periods primarily due to interest on
long-term debt resulting from higher balances outstanding. The increase in the
twelve-month period was partially offset by a decrease in interest on refunds
due customers.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on February 28, 1997,
for the purpose of electing four directors, ratifying the selection of
independent auditors, approving the Company's Executive Long-Term Incentive Plan
and amending Article 3 of the Company's Articles of Incorporation to increase
the authorized shares of Common Stock from 50,000,000 to 100,000,000 shares. The
record date for the determination of shareholders entitled to notice of and to
vote at the meeting was January 15, 1997. Proxies for the meeting were solicited
pursuant to section 14(a) of the Securities and Exchange Act of 1934. There was
no solicitation in opposition to management's solicitations.
All of management's nominees for directors for terms expiring in 2000 as listed
in the proxy statement were elected as indicated below:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted Voted NOT
FOR WITHHELD VOTED
--- -------- -----
<S> <C> <C> <C>
C. M. Butler III
- ----------------
24,253,595 433,473 5,049,303
Sam J. DiGiovanni
- -----------------
24,346,853 340,215 5,049,303
John W. Harris
- --------------
24,327,689 359,379 5,049,303
John F. McNair III
- ------------------
24,129,784 557,284 5,049,303
</TABLE>
Directors continuing in office until 1998 are Jerry W. Amos, John H. Maxheim and
Walter S. Montgomery, Jr. Directors continuing in office until 1999 are Muriel
W. Helms, Ned R. McWherter, Donald S. Russell, Jr. and John E. Simkins, Jr.
The proposal to ratify the selection by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of the Company for the fiscal year
ending October 31, 1997, was approved by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
--- ------- ---------- -----
24,452,635 91,791 142,642 5,049,303
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<PAGE> 9
The proposal to approve the Company's Executive Long-Term Incentive Plan was
approved by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
--- ------- ---------- -----
22,662,176 1,395,735 629,157 5,049,303
The proposal to amend Article 3 of the Company's Articles of Incorporation to
increase the authorized shares of Common Stock from 50,000,000 to 100,000,000
shares was approved by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
--- ------- ---------- -----
22,880,578 1,395,878 410,612 5,049,303
Item 5. Other Information
On December 17, 1996, the Tennessee Regulatory Authority (TRA) approved upon
oral motion a rate increase of $4.4 million, effective January 1, 1997. On
January 1, the Company began collecting the increased rates. On February 19, the
TRA issued its written order confirming the Company's right to begin collecting
the increased rates effective January 1. All parties have sixty days in which to
seek judicial review of this order. The Tennessee Consumer Advocate has filed
several pleadings with the TRA arguing that the Company was not entitled to
recover the increased rates prior to the date of the TRA's February 19 order.
Following oral arguments on March 4, the TRA ruled that the Company was entitled
to increase its rates effective January 1; however, the TRA's decision has not
yet been confirmed by written order. Once a written order is issued, the
Consumer Advocate will have sixty days in which to seek judicial review. All
parties to this proceeding have petitioned the TRA to reconsider its February 19
order approving increased rates. In its petition, the Consumer Advocate has
requested the TRA to deny any increase in rates to the Company. The Company
cannot determine the final outcome of these matters.
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 March 13, 1997 /s/ David J. Dzuricky
-------------- ----------------------------------
David J. Dzuricky
Senior Vice President-Finance
(Principal Financial Officer)
Date March 13, 1997 /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, 1992 through 1996
and Twelve Months Ended January 31, 1997
(in thousands except ratio amounts)
<TABLE>
<CAPTION>
January 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income from
continuing operations $ 51,776 $ 48,562 $ 40,310 $35,506 $37,534 $35,310
Income taxes 33,043 30,928 25,442 21,407 23,427 21,259
Fixed charges 37,309 37,009 35,651 29,736 26,715 26,246
-------- -------- -------- ------- ------- -------
Total Adjusted Earnings $122,128 $116,499 $101,403 $86,649 $87,676 $82,815
======== ======== ======== ======= ======= =======
Fixed Charges:
Interest $ 35,216 $ 34,511 $ 33,224 $27,671 $24,870 $24,570
Amortization of debt
expense 349 345 336 334 192 180
One-third of rental expense 1,744 2,153 2,091 1,731 1,653 1,496
-------- -------- -------- ------- ------- -------
Total Fixed Charges $ 37,309 $ 37,009 $ 35,651 $29,736 $26,715 $26,246
======== ======== ======== ======= ======= =======
Ratio of Earnings to Fixed
Charges 3.27 3.15 2.84 2.91 3.28 3.16
==== ==== ==== ==== ==== ====
</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 COMPANY, INC. FOR THE THREE MONTHS
ENDED JANUARY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 873,041
<OTHER-PROPERTY-AND-INVEST> 26,633
<TOTAL-CURRENT-ASSETS> 209,059
<TOTAL-DEFERRED-CHARGES> 18,770
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,127,503
<COMMON> 251,658
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 167,898
<TOTAL-COMMON-STOCKHOLDERS-EQ> 419,556
0
0
<LONG-TERM-DEBT-NET> 391,000
<SHORT-TERM-NOTES> 26,000
<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> 280,947
<TOT-CAPITALIZATION-AND-LIAB> 1,127,503
<GROSS-OPERATING-REVENUE> 312,533
<INCOME-TAX-EXPENSE> 22,521
<OTHER-OPERATING-EXPENSES> 246,625
<TOTAL-OPERATING-EXPENSES> 269,146
<OPERATING-INCOME-LOSS> 43,387
<OTHER-INCOME-NET> 2,562
<INCOME-BEFORE-INTEREST-EXPEN> 45,949
<TOTAL-INTEREST-EXPENSE> 8,637
<NET-INCOME> 37,312
0
<EARNINGS-AVAILABLE-FOR-COMM> 37,312
<COMMON-STOCK-DIVIDENDS> 8,597
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 44,139
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 0
</TABLE>
