<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 January 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission file number 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
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(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 6, 1998
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Common Stock, no par value 30,392,603
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Page 1 of 12 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,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Utility Plant, at original cost $1,273,184 $1,256,772
Less accumulated depreciation 352,674 342,418
---------- ----------
Utility plant, net 920,510 914,354
---------- ----------
Other Physical Property (net of accumulated
depreciation of $16,506 in 1998 and $15,947 in 1997) 27,114 27,382
---------- ----------
Current Assets:
Cash and cash equivalents 15,254 5,210
Restricted cash 21,443 21,385
Receivables (less allowance for doubtful
accounts of $2,749 in 1998 and $2,027 in 1997) 115,771 32,367
Gas in storage 29,457 47,676
Deferred cost of gas 20,451 7,327
Refundable income taxes 7,068 7,115
Other 10,775 11,076
---------- ----------
Total current assets 220,219 132,156
---------- ----------
Deferred Charges and Other Assets 25,826 24,264
---------- ----------
Total $1,193,669 $1,098,156
========== ==========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 268,261 $ 262,576
Retained earnings 189,261 157,250
---------- ----------
Total common stock equity 457,522 419,826
Long-term debt 381,000 381,000
---------- ----------
Total capitalization 838,522 800,826
---------- ----------
Current Liabilities:
Current maturities of long-term debt and
sinking fund requirements 10,000 10,000
Notes payable 30,000 25,000
Accounts payable 76,559 65,103
Deferred income taxes 15,144 10,276
Taxes accrued 27,989 11,041
Refunds due customers 35,933 15,097
Other 14,429 19,012
---------- ----------
Total current liabilities 210,054 155,529
---------- ----------
Deferred Credits and Other Liabilities 145,093 141,801
---------- ----------
Total $1,193,669 $1,098,156
========== ==========
</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
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues $313,255 $312,533 $776,239 $758,428
Cost of Gas 190,162 194,163 456,664 455,589
-------- -------- -------- --------
Margin 123,093 118,370 319,575 302,839
-------- -------- -------- --------
Other Operating Expenses:
Operations 25,565 26,974 109,279 107,128
Maintenance 3,372 4,337 15,195 16,552
Depreciation 10,491 9,728 39,950 36,752
General taxes 11,489 11,423 32,949 33,090
Income taxes 25,182 22,521 34,617 30,158
-------- -------- -------- --------
Total other operating expenses 76,099 74,983 231,990 223,680
-------- -------- -------- --------
Operating Income 46,994 43,387 87,585 79,159
Other Income, Net 2,525 2,562 4,036 4,347
-------- -------- -------- --------
Income Before Utility Interest Charges 49,519 45,949 91,621 83,506
Utility Interest Charges 8,270 8,637 33,610 31,730
-------- -------- -------- --------
Net Income $ 41,249 $ 37,312 $ 58,011 $ 51,776
======== ======== ======== ========
Average Shares of Common Stock Outstanding:
Basic 30,274 29,646 30,041 29,347
Diluted 30,580 29,652 30,332 29,386
Earnings Per Share:
Basic $ 1.36 $ 1.26 $ 1.93 $ 1.76
Diluted $ 1.35 $ 1.26 $ 1.91 $ 1.76
Cash Dividends Declared Per Share
of Common Stock $ 0.305 $ 0.29 $ 1.22 $ 1.16
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 4
PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Cash Flows (Unaudited)
(in thousands)
----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
January 31 January 31
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 41,249 $ 37,312 $ 58,011 $ 51,776
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and other 11,539 11,094 44,150 41,187
Other, net 1,922 1,749 9,633 6,860
Change in operating assets and liabilities (27,248) (6,016) 10,984 (25,855)
-------- -------- -------- --------
Net cash provided by operating activities 27,462 44,139 122,778 73,968
-------- -------- -------- --------
Cash Flows from Investing Activities:
Utility construction expenditures (16,558) (20,939) (87,677) (95,089)
Other (310) (136) (1,768) (2,420)
-------- -------- -------- --------
Net cash used in investing activities (16,868) (21,075) (89,445) (97,509)
-------- -------- -------- --------
Cash Flows from Financing Activities:
Increase (Decrease) in bank loans, net 5,000 (13,000) 4,000 6,000
Issuance of long-term debt -- -- -- 40,000
Retirement of long-term debt -- -- (10,000) (7,000)
Issuance of common stock through dividend
reinvestment and employee stock plans 3,688 3,501 14,608 16,081
Dividends paid (9,238) (8,597) (36,649) (34,044)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities (550) (18,096) (28,041) 21,037
-------- -------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 10,044 4,968 5,292 (2,504)
Cash and Cash Equivalents at Beginning
of Period 5,210 4,994 9,962 12,466
-------- -------- -------- --------
Cash and Cash Equivalents at End of Period $ 15,254 $ 9,962 $ 15,254 $ 9,962
======== ======== ======== ========
Cash Paid During the Period for:
Interest $ 11,492 $ 10,680 34,136 $ 33,205
Income taxes $ 2,514 $ 539 $ 36,612 $ 52,458
</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 1997 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, 1998, and October 31,
1997, and the results of its operations and its cash flows for the three
months and twelve months ended January 31, 1998 and 1997.
3. The Company's business is seasonal in nature. The results of operations
for the three-month period ended January 31, 1998, are not necessarily
indicative of the results to be expected for the full year.
4. Basic earnings per share are computed based on the weighted average
number of shares of Common Stock outstanding during each period.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". A reconciliation of
basic and diluted earnings per share is presented below:
<TABLE>
<CAPTION>
Three Months Twelve Months
Ended Ended
January 31 January 31
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net Income $41,249 $37,312 $58,011 $51,776
======= ======= ======= =======
Average Shares of Common Stock
Outstanding for Basic Earnings
Per Share 30,274 29,646 30,041 29,347
Contingently Issuable Shares Under
the Long-Term Incentive Plan 306 6 291 39
------ ------ ------ ------
Average Shares of Dilutive Stock 30,580 29,652 30,332 29,386
======= ======= ======= =======
Earnings Per Share:
Basic $ 1.36 $ 1.26 $ 1.93 $ 1.76
Diluted $ 1.35 $ 1.26 $ 1.91 $ 1.76
</TABLE>
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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 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, 1997, to January 31, 1998.
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 and
twelve months ended January 31, 1998, were $17 million and $89.2 million,
respectively, as compared with $21.3 million and $96.7 million, respectively,
for similar prior periods.
At January 31, 1998, capitalization consisted of long-term debt of 45% and
common equity of 55%.
Results of Operations
Margin for the three months ended January 31, 1998, increased $4.7 million
compared with the same period last year due to regulatory-approved changes and
increased volumes of gas sold or transported, including secondary market
transactions. Delivered volumes of natural gas (system throughput) for the
current three-month period increased over the similar prior period by 2.8
million dekatherms, a 6% increase. Volumes from secondary market sales increased
over the similar prior period by 5.4 million dekatherms, a 139% increase.
Weather for the three months ended January 31, 1998, was 3% warmer than in the
similar prior period. The weather normalization adjustment (WNA), in effect from
November 1 through March 31, decreased operating revenues by $781,000 for the
three months ended January 31, 1998, compared with an increase of $1.7 million
for the similar prior period.
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Margin for the twelve months ended January 31, 1998, increased $16.7 million
compared with the similar prior period due to regulatory-approved changes and
increased volumes of gas sold or transported, including secondary market
transactions. System throughput for the current twelve months increased over the
similar prior period by 2.3 million dekatherms, a 2% increase. Volumes from
secondary market sales increased over the similar prior period by 16.4 million
dekatherms, a 121% increase. Weather for the twelve months ended January 31,
1998, was 9% warmer than the similar prior period. The WNA increased operating
revenues by $8.1 million in the current twelve-month period and decreased
operating revenues by $1.3 million in 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 are
required covering a historical twelve-month period in North Carolina and South
Carolina but are not required in Tennessee. Rates in all three states 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 ended January 31, 1998,
decreased from the similar prior period primarily due to decreases in payroll,
rental payments and employee benefit costs. Operations and maintenance expenses
for the twelve months ended January 31, 1998, increased over the similar prior
period primarily due to increases in payroll, outside labor, outside consultants
and the provision for uncollectibles. These increases were partially offset by
decreases in rents and employee benefit costs.
Depreciation expense for the three months and twelve months ended January 31,
1998, increased over similar prior periods due to the growth of plant in
service.
General taxes for the three months ended January 31, 1998, increased less than
1% over the similar prior period primarily due to increases in franchise taxes
offset by decreases in gross receipts taxes. General taxes for the twelve months
ended January 31, 1998, decreased less than 1% from the similar prior period due
to decreases in gross receipts taxes and payroll taxes offset by increases in
franchise taxes and property taxes.
Other income for the three months and twelve months ended January 31, 1998,
decreased from similar prior periods primarily due to decreases in earnings from
propane operations which were partially offset by increases in earnings from
jobbing activities. The
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<PAGE> 8
decrease in the current twelve-month period also included decreases in earnings
from energy marketing services which were offset by increases in interest income
and income from the performance incentive plan in Tennessee.
Utility interest charges for the three months ended January 31, 1998, decreased
from the similar prior period primarily due to decreases in interest on
long-term debt due to lower balances outstanding and interest on short-term debt
due to lower balances outstanding but at slightly higher interest rates. The
decrease in the three-month period was partially offset by an increase in
interest on refunds due customers due to higher balances outstanding for
refunds. Utility interest charges for the twelve months ended January 31, 1998,
increased over the similar prior period due to increases in interest from higher
balances outstanding on long-term debt and refunds due customers. The increase
in the twelve-month period was partially offset by a decrease in interest on
short-term debt due to lower amounts outstanding during the period.
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<PAGE> 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on February 27, 1998, for the
purpose of electing three directors and ratifying the selection of independent
auditors. The record date for the determination of shareholders entitled to
notice of and to vote at the meeting was January 14, 1998. 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 2001 as listed
in the proxy statement were elected as indicated below:
Shares Shares Shares
Voted Voted NOT
FOR WITHHELD VOTED
------ -------- ------
Jerry W. Amos 24,309,799 458,070 5,530,535
John H. Maxheim 24,450,965 316,904 5,530,535
Walter S. Montgomery, Jr. 24,429,725 338,144 5,530,535
Directors continuing in office until 1999 are Muriel W. Helms, Ned R. McWherter,
Donald S. Russell, Jr., and John E. Simkins, Jr. Directors continuing in office
until 2000 are C. M. Butler III, Sam J. DiGiovanni, John W. Harris and John F.
McNair III.
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, 1998, was approved by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
------ ------- ---------- ------
24,545,623 73,062 149,184 5,530,535
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<PAGE> 10
Item 5. Other Information
As previously reported, the Tennessee Regulatory Authority (TRA) issued an order
in December 1996 in a general rate case proceeding permitting the Company to
increase its margin in Tennessee, effective January 1, 1997, by $4.4 million
annually. The TRA's decision was confirmed by a written decision in February
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 order. All parties in
this proceeding, including the Company, petitioned the TRA to reconsider its
February order. In June 1997, the TRA issued an order denying all motions and
upholding its previous orders. In August 1997, the Consumer Advocate petitioned
the Court of Appeals for a review of the TRA's orders. Oral arguments were heard
on March 3, 1998. The outcome of this proceeding cannot be determined at this
time.
On February 27, 1998, the Board of Directors declared a dividend distribution of
one preferred share purchase right for each outstanding share of Common Stock to
shareholders of record at the close of business on March 12, 1998. Each right
entitles the record holder to purchase from the Company one one-thousandth of a
share of the Company's Series A Junior Participating Preferred Stock, no par
value, at a purchase price of $100. The rights are more fully explained in a
Form 8-A filed with the Securities and Exchange Commission on February 27, 1998.
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 March 12, 1998 /s/ David J. Dzuricky
-------------- ----------------------------------
David J. Dzuricky
Senior Vice President-Finance
(Principal Financial Officer)
Date March 12, 1998 /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, 1993 through 1997
and Twelve Months Ended January 31, 1998
(in thousands except ratio amounts)
<TABLE>
<CAPTION>
January 31,
1998 1997 1996 1995 1994 1993
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income from
continuing operations $ 58,011 $ 54,074 $ 48,562 $ 40,310 $35,506 $37,534
Income taxes 37,292 34,650 30,928 25,442 21,407 23,427
Fixed charges 38,246 39,263 37,009 35,651 29,736 26,715
-------- -------- -------- -------- ------- -------
Total Adjusted Earnings $133,549 $127,987 $116,499 $101,403 $86,649 $87,676
======== ======== ======== ======== ======= =======
Fixed Charges:
Interest $ 36,558 $ 36,949 $ 34,511 $ 33,224 $27,671 $24,870
Amortization of debt
expense 333 346 345 336 334 192
One-third of rental expense 1,356 1,968 2,153 2,091 1,731 1,653
-------- -------- -------- -------- ------- -------
Total Fixed Charges $ 38,247 $ 39,263 $ 37,009 $ 35,651 $29,736 $26,715
======== ======== ======== ======== ======= =======
Ratio of Earnings to Fixed
Charges 3.49 3.26 3.15 2.84 2.91 3.28
======== ======== ======== ======== ======= =======
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 920,510
<OTHER-PROPERTY-AND-INVEST> 27,114
<TOTAL-CURRENT-ASSETS> 220,219
<TOTAL-DEFERRED-CHARGES> 25,826
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,193,669
<COMMON> 268,261
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 189,261
<TOTAL-COMMON-STOCKHOLDERS-EQ> 457,522
0
0
<LONG-TERM-DEBT-NET> 381,000
<SHORT-TERM-NOTES> 30,000
<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> 315,147
<TOT-CAPITALIZATION-AND-LIAB> 1,193,669
<GROSS-OPERATING-REVENUE> 313,255
<INCOME-TAX-EXPENSE> 25,182
<OTHER-OPERATING-EXPENSES> 241,079
<TOTAL-OPERATING-EXPENSES> 266,261
<OPERATING-INCOME-LOSS> 46,994
<OTHER-INCOME-NET> 2,525
<INCOME-BEFORE-INTEREST-EXPEN> 49,519
<TOTAL-INTEREST-EXPENSE> 8,270
<NET-INCOME> 41,249
0
<EARNINGS-AVAILABLE-FOR-COMM> 41,249
<COMMON-STOCK-DIVIDENDS> 9,238
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 27,462
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.35
</TABLE>
