<PAGE> 1
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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, 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
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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 2, 1997
- ---------------------------- ---------------------------------
Common Stock, no par value 30,092,297
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Page 1 of 13 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,
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
Utility Plant, at original cost $1,235,941 $1,168,448
Less accumulated depreciation 332,629 306,419
---------- ----------
Utility plant, net 903,312 862,029
---------- ----------
Other Physical Property (net of accumulated
depreciation of $15,544 in 1997 and $14,569 in 1996) 26,284 27,072
---------- ----------
Current Assets:
Cash and cash equivalents 31,163 4,994
Restricted cash 21,327 20,481
Receivables (less allowance for doubtful
accounts of $1,655 in 1997 and $1,960 in 1996) 36,677 32,378
Gas in storage 34,984 50,065
Deferred cost of gas 6,481 6,796
Refundable income taxes - 31,949
Other 7,973 11,324
---------- ----------
Total current assets 138,605 157,987
---------- ----------
Deferred Charges and Other Assets 21,918 17,828
---------- ----------
Total $1,090,119 $1,064,916
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $259,228 $246,907
Retained earnings 176,168 139,184
---------- ----------
Total common stock equity 435,396 386,091
Long-term debt 389,000 391,000
---------- ----------
Total capitalization 824,396 777,091
---------- ----------
Current Liabilities:
Current maturities of long-term debt and
sinking fund requirements 10,000 10,000
Notes payable - 39,000
Accounts payable 51,258 60,150
Deferred income taxes 3,637 17,727
Taxes accrued 16,283 9,940
Refunds due customers 25,539 68
Other 13,111 16,770
---------- ----------
Total current liabilities 119,828 153,655
---------- ----------
Deferred Credits and Other Liabilities 145,895 134,170
---------- ----------
Total $1,090,119 $1,064,916
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 3
PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Income
(in thousands except per share amounts)
-------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended Ended Ended
July 31 July 31 July 31
------------------- ------------------- -------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $103,997 $95,744 $675,836 $594,376 $766,515 $656,082
Cost of Gas 56,854 55,558 401,204 342,342 452,995 367,203
-------- ------- -------- -------- -------- --------
Margin 47,143 40,186 274,632 252,034 313,520 288,879
-------- ------- -------- -------- -------- --------
Other Operating Expenses:
Operations 27,039 26,066 80,245 77,927 108,140 100,749
Maintenance 3,757 4,098 12,257 11,327 16,706 15,637
Depreciation 9,738 9,015 29,129 27,045 38,123 35,261
General taxes 6,334 6,230 26,987 24,659 33,375 30,128
Income taxes (3,417) (5,302) 39,312 34,206 32,457 29,436
-------- ------- -------- -------- -------- --------
Total other operating expenses 43,451 40,107 187,930 175,164 228,801 211,211
-------- ------- -------- -------- -------- --------
Operating Income 3,692 79 86,702 76,870 84,719 77,668
Other Income, Net (833) (574) 2,840 4,877 3,356 6,684
-------- ------- -------- -------- -------- --------
Income Before Utility Interest Charges 2,859 (495) 89,542 81,747 88,075 84,352
Utility Interest Charges 8,636 7,831 25,733 23,524 33,927 31,252
-------- ------- -------- -------- -------- --------
Net Income $ (5,777) $(8,326) $ 63,809 $ 58,223 $ 54,148 $ 53,100
======== ======= ======== ======== ======== ========
Average Shares of Common Stock
Outstanding 29,964 29,253 29,806 29,065 29,716 28,989
Earnings Per Share of Common Stock $ (0.19) $ (0.28) $ 2.14 $ 2.00 $ 1.82 $ 1.83
Cash Dividends Declared Per Share
of Common Stock $ 0.305 $ 0.29 $ 0.90 $ 0.855 $ 1.19 $ 1.13
</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 (Unaudited)
(in thousands)
-----------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
Ended Ended Ended
July 31 July 31 July 31
--------------------- ------------------- --------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $(5,777) $(8,326) $ 63,809 $ 58,223 $ 54,148 $ 53,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,083 10,011 33,189 30,036 43,214 39,179
Other, net 3,175 1,049 7,769 5,359 9,925 7,385
Change in operating assets and liabilities (2,559) (27,763) 50,110 (22,659) 35,555 (41,065)
------- ------- -------- -------- --------- --------
Net cash provided by (used in) operating activities 5,922 (25,029) 154,877 70,959 142,842 58,599
------- ------- -------- -------- --------- --------
Cash Flows from Investing Activities:
Utility construction expenditures (26,314) (24,619) (70,251) (70,770) (96,240) (100,027)
Other (1,294) (570) (1,704) (1,505) (3,074) (2,851)
------- ------ -------- -------- --------- --------
Net cash used in investing activities (27,608) (25,189) (71,955) (72,275) (99,314) (102,878)
------- ------- -------- -------- --------- --------
Cash Flows from Financing Activities:
Increase (Decrease) in bank loans, net - 30,000 (39,000) 16,500 (30,000) 13,000
Issuance of long-term debt - - - - 40,000 55,000
Retirement of long-term debt (2,000) (1,000) (2,000) (1,000) (8,000) (5,000)
Expenses of sale of common stock - - - - - (132)
Issuance of common stock through dividend
reinvestment and employee stock plans 3,855 5,003 11,072 10,735 15,124 12,835
Dividends paid (9,137) (8,485) (26,825) (24,853) (35,366) (32,759)
------- ------- -------- -------- --------- --------
Net cash provided by (used in) financing activities (7,282) 25,518 (56,753) 1,382 (18,242) 42,944
------- ------- -------- -------- --------- --------
Net Increase (Decrease) in Cash and Cash Equivalents (28,968) (24,700) 26,169 66 25,286 (1,335)
Cash and Cash Equivalents at Beginning of Period 60,131 30,577 4,994 5,811 5,877 7,212
------- ------- -------- -------- --------- --------
Cash and Cash Equivalents at End of Period $31,163 $ 5,877 $ 31,163 $ 5,877 $ 31,163 $ 5,877
======= ======= ======== ======== ========= ========
Cash Paid During the Period for:
Interest $11,466 $10,828 $ 27,583 $ 25,481 $ 33,537 $ 31,555
Income taxes $ 182 $30,746 $ 34,460 $ 50,717 $ 35,830 $ 50,804
</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 July 31, 1997, and October 31,
1996, and the results of its operations and its cash flows for the three
months, nine months and twelve months ended July 31, 1997 and 1996.
3. The Company's business is seasonal in nature. The results of operations
for the three- and nine-month periods ended July 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 $75
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, 1996, to July 31, 1997.
The Company has a substantial capital expansion program to sustain its
approximately 5% 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, 1997, were $26.7 million, $71.5 million and
$97.7 million, respectively, compared with $25 million, $72.1 million and $101.8
million, respectively, for similar prior periods.
At July 31, 1997, 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, 1997, increased $7 million compared
with the same period last year due to regulatory-approved rate changes,
continued customer growth and greater volumes of gas delivered. Delivered
volumes of natural gas for the current three-month period increased over the
similar prior period by 3.3 million dekatherms, a 15% increase. Weather for the
three months ended July 31, 1997, was 115% colder than in the
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similar prior period and 93% colder than normal. However, this colder weather
had a lesser effect on margin as the quarter is past the winter period and
represents only 3% of normal annual degree days.
Margin for the nine months ended July 31, 1997, increased $22.6 million compared
with the same period last year due to regulatory-approved rate changes and
continued customer growth. Delivered volumes of natural gas for the current
nine-month period decreased from the similar prior period by 4 million
dekatherms, a 3% decrease. Weather for the nine months ended July 31, 1997, was
15% warmer than in the similar prior period and 4% warmer than normal. The
weather normalization adjustment (WNA), in effect from November 1 through March
31, increased operating revenues by $10.6 million for the current nine months,
as compared with a decrease of $11.6 million for the similar prior period.
Margin for the twelve months ended July 31, 1997, increased $24.6 million
compared with the similar prior period due to regulatory-approved rate changes
and continued customer growth. Delivered volumes of natural gas for the current
twelve months decreased from the similar prior period by 4.4 million dekatherms,
a 3% decrease due to warmer weather. Weather for the twelve months ended July
31, 1997, was 14% warmer than the similar prior period and 5% warmer than
normal. The WNA increased operating revenues by $10.6 million for the current
period and decreased operating revenues by $11.6 million for the similar prior
period.
The Company's rate schedules include gas cost recovery provisions that permit
the recovery of prudently incurred gas costs. Annual prudence reviews covering
an historical twelve-month period are required in North Carolina and South
Carolina but are not required in Tennessee. 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 in the financial
statements.
Operations and maintenance expenses for the three months, nine months and twelve
months ended July 31, 1997, increased over similar prior periods primarily due
to increases in payroll costs, outside labor and consulting work and the
provision for uncollectibles, and for the twelve-month period, by an increase in
advertising costs and employee benefits. These increases were partially offset
by decreases in all periods in rents and leases.
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Depreciation expense for the three months, nine months and twelve months ended
July 31, 1997, increased over similar prior periods due to the growth of plant
in service and for the twelve months ended July 31, 1997, to an increase in
depreciation rates for South Carolina operations effective November 1, 1995.
General taxes for the three months, nine months and twelve months ended July 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 increases in payroll
taxes.
Other income for the three months, nine months and twelve months ended July 31,
1997, decreased from similar prior periods primarily due to decreases in
earnings from propane operations due to warmer weather noted above and decreases
in earnings from natural gas marketing services, partially offset by increases
in earnings from merchandise activities. The twelve-month period ended July 31,
1996, also included a non-recurring income item associated with the Company's
investment in Pine Needle LNG Company, L.L.C.
Utility interest charges for the three months, nine months and twelve months
ended July 31, 1997, increased over similar prior periods primarily due to
interest on long-term debt resulting from higher balances outstanding and
interest on refunds due customers, and for the nine-month and twelve-month
periods, to an increase in interest on short-term debt due to greater balances
outstanding.
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PART II. OTHER INFORMATION
Item 5. Other Information
South Carolina Rate Proceedings
In February 1996, the South Carolina Consumer Advocate appealed to the Richland
County Court of Common Pleas the order of the Public Service Commission of South
Carolina (PSCSC) approving the Company's rate increase of $7.8 million annually,
effective November 7, 1995. On May 20, 1997, the Court dismissed the appeal and
affirmed the PSCSC's order in its entirety. On August 22, 1997, the Consumer
Advocate filed an appeal with the Supreme Court of South Carolina. The outcome
of this proceeding cannot be determined at this time.
Tennessee Rate Proceedings
On December 17, 1996, the Tennessee Regulatory Authority (TRA) approved a rate
increase of $4.4 million which the Company began collecting on January 1, 1997.
The TRA's decision was confirmed by a written decision on February 19, 1997. The
Tennessee Consumer Advocate filed several pleadings with the TRA arguing, among
other things, that the Company was not entitled to recover the increased rates
prior to the date of the TRA's February 19 Order. All parties in this
proceeding, including the Company, petitioned the TRA to reconsider its February
19 Order. On June 9, the TRA issued an order denying all motions and upholding
its previous orders. On August 8, 1997, the Consumer Advocate petitioned the
Court of Appeals for a review of the TRA's orders. The outcome of this
proceeding cannot be determined at this time.
Expansion of Services
In 1994, the Company filed a petition with the North Carolina Utilities
Commission (NCUC) for a certificate of public convenience and necessity to serve
four counties in North Carolina not presently receiving natural gas service. The
Company requested permission to use expansion funds to offset a portion of the
cost of construction in the four counties. Another company also filed an
application to serve the four counties; however, this company did not request
permission to use expansion funds.
In 1995, the NCUC granted a conditional certificate to the Company to serve the
four-county area but prohibited the Company from utilizing
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<PAGE> 10
available expansion funds. The Company did not accept the condition prohibiting
the use of expansion funds, and the NCUC granted a conditional certificate to
the competing applicant. Following further motions and responses by all parties
involved, the NCUC, in January 1996, granted a final certificate to the
competing applicant. The Company appealed that order to the Supreme Court of
North Carolina, and on July 24, 1997, the Court ruled to uphold the decision of
the NCUC awarding the franchise to the competing applicant.
Operations Expense Reduction Plan
As part of a plan to reduce overall operating expenses and further prepare for
increased competition in the energy industry, the Company announced on September
2, 1997, that it is eliminating 67 personnel company-wide. In addition, 26
existing job vacancies will not be filled. Most of the affected workers are
white-collar employees in the Company's corporate headquarters in Charlotte and
in its service area offices in the Carolinas and Tennessee. The job cuts will
amount to 3.9% of the Company's present utility workforce of 1,711 employees.
Affected employees in positions or position classes will first be offered a
voluntary severance package consisting of two weeks base salary for every full
year of service, and an additional four weeks salary for employees at least
fifty years of age with at least fifteen years of service, up to a maximum of 52
weeks salary. Employees who receive voluntary severance offers will be allowed
forty-five days to consider them.
If desired staffing levels have not been achieved following the forty-five day
consideration period, employees remaining in selected positions will be required
to take an involuntary severance package. The involuntary package will consist
of two weeks base salary plus one week salary for every full year of service.
All affected employees will be offered out-placement counseling and up to
eighteen months of health insurance coverage for the employee.
The action will result in a charge to operations expense of an estimated $2.1
million in the fourth fiscal 1997 quarter, if all employees offered the
voluntary severance packages were to elect to take them.
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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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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 5, 1997 /s/ David J. Dzuricky
----------------- -------------------------------------
David J. Dzuricky
Senior Vice President-Finance
(Principal Financial Officer)
Date September 5, 1997 /s/ Barry L. Guy
----------------- -------------------------------------
Barry L. Guy
Vice President and Controller
(Principal Accounting Officer)
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<PAGE> 1
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 July 31, 1997
(in thousands except ratio amounts)
--------------------------------------------------------
<TABLE>
<CAPTION>
July 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income from
continuing operations $ 54,148 $ 48,562 $ 40,310 $ 35,506 $ 37,534 $ 35,310
Income taxes 34,695 30,928 25,442 21,407 23,427 21,259
Fixed charges 39,231 37,009 35,651 29,736 26,715 26,246
-------- -------- -------- -------- -------- --------
Total Adjusted Earnings $128,074 $116,499 $101,403 $ 86,649 $ 87,676 $ 82,815
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest $ 37,022 $ 34,511 $ 33,224 $ 27,671 $ 24,870 $ 24,570
Amortization of debt
expense 352 345 336 334 192 180
One-third of rental expense 1,857 2,153 2,091 1,731 1,653 1,496
-------- -------- -------- -------- -------- --------
Total Fixed Charges $ 39,231 $ 37,009 $ 35,651 $ 29,736 $ 26,715 $ 26,246
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed
Charges 3.26 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 NINE MONTHS
ENDED JULY 31, 1997, 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-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 903,312
<OTHER-PROPERTY-AND-INVEST> 26,284
<TOTAL-CURRENT-ASSETS> 138,605
<TOTAL-DEFERRED-CHARGES> 21,918
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,090,119
<COMMON> 259,228
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 176,168
<TOTAL-COMMON-STOCKHOLDERS-EQ> 435,396
0
0
<LONG-TERM-DEBT-NET> 389,000
<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> 255,723
<TOT-CAPITALIZATION-AND-LIAB> 1,090,119
<GROSS-OPERATING-REVENUE> 675,836
<INCOME-TAX-EXPENSE> 39,312
<OTHER-OPERATING-EXPENSES> 549,822
<TOTAL-OPERATING-EXPENSES> 589,134
<OPERATING-INCOME-LOSS> 86,702
<OTHER-INCOME-NET> 2,840
<INCOME-BEFORE-INTEREST-EXPEN> 89,542
<TOTAL-INTEREST-EXPENSE> 25,733
<NET-INCOME> 63,809
0
<EARNINGS-AVAILABLE-FOR-COMM> 63,809
<COMMON-STOCK-DIVIDENDS> 26,825
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 154,877
<EPS-PRIMARY> 2.14
<EPS-DILUTED> 0
</TABLE>
