UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 - For the fiscal year ended September 30, 1996
( ) 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: 1-11429
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED (Exact name of
registrant as specified in its charter)
NORTH CAROLINA 56-0233140
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
400 COX ROAD, P. O. BOX 1398
GASTONIA, NORTH CAROLINA 28053-1398
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 864-6731
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (x)
Estimated aggregate market value of the voting stock held by
nonaffiliates of the registrant at November 29, 1996 . . .. $366,631,106
Number of shares of Common Stock, $1 par value, outstanding at November
29, 1996 . . . . . . . . . . . . . . . . . . . . 19,296,374
Documents incorporated by reference:
Portions of the proxy statement dated December 9, 1996, relating to the
January 31, 1997 annual meeting of shareholders, are incorporated by reference
into Part III of this annual report.
<PAGE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
-------------
TABLE OF CONTENTS
Item Page
PART I.
1. Business................................................ 2
Executive Officers of the Registrant.................... 11
2. Properties.............................................. 12
3. Legal Proceedings....................................... 13
4. Submission of Matters to a Vote of Security Holders..... 13
PART II.
5. Market for the Registrant's Common Stock and
Related Shareholder Matters........................... 13
6. Selected Financial Data................................. 14
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition................. 15
8. Financial Statements and Supplementary Data............. 25
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................... 44
PART III.
10. Directors and Executive Officers of the Registrant...... 44
11. Executive Compensation.................................. 44
12. Security Ownership of Certain Beneficial Owners
and Management........................................ 45
13. Certain Relationships and Related Transactions.......... 45
PART IV.
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................... 45
Signatures.............................................. 52
Exhibit Index........................................... 53
1
<PAGE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
PART I
Item 1. Business
General
Public Service Company of North Carolina, Incorporated (PSNC) is a
public utility engaged primarily in transporting, distributing and selling
natural gas to approximately 300,000 residential, commercial and industrial
customers in North Carolina. It was organized as a North Carolina corporation in
1938, and its corporate office is located at 400 Cox Road, P. O. Box 1398,
Gastonia, North Carolina 28053-1398, telephone (704) 864-6731.
In connection with its natural gas distribution business, PSNC
promotes, sells and installs both new and replacement cooking, water heating,
laundry, space heating, cooling and humidity control natural gas appliances and
equipment. PSNC, through an unregulated subsidiary, provides conversion and
maintenance services for natural gas-fueled vehicles (NGVs) in selected cities
in and beyond its franchised territory. Through another unregulated subsidiary,
PSNC is engaged in the marketing of natural gas to large commercial and
industrial customers.
During fiscal years 1996, 1995 and 1994, no single customer account
contributed more than 2% of PSNC's total operating revenues.
PSNC has no reportable industry segments. Revenues attributable to
natural gas distribution, merchandise and jobbing, propane operations,
exploration and development and gas marketing and other activities for each of
the fiscal years in the three-year period ended September 30, 1996 were as
follows (in thousands):
1996 1995 1994
Natural Gas Distribution(1) $308,882 $247,893 $273,705
Merchandise and Jobbing(2) 9,444 8,675 8,135
Propane Operations(3) - - 9,090
Exploration & Development(3) - (171) 1,547
Gas Marketing/Other
Activities(1) 20,179 8,827 7,654
Total $338,505 $265,224 $300,131
(1) See "Results of Operations" on page 15 of this annual report.
(2) Primarily the sale and installation of gas appliances.
(3) Effective June 29, 1994, PSNC sold its propane operations to
Empiregas, Inc. During June 1994, PSNC sold PSNC Production
Corporation's exploration and development properties.
2
<PAGE>
Service Territory
PSNC's 33-county franchised service territory includes Raleigh, Durham
and the Research Triangle Park area in the north central portion of the state;
this area accounts for approximately 61% of PSNC's customers and 53% of its
throughput (total gas sales and transportation) in fiscal 1996. PSNC's central
area includes the cities of Gastonia, Concord and Statesville which are located
in the greater Charlotte metropolitan area; this area accounts for 27% of PSNC's
customers and 32% of its throughput. PSNC's western area includes Asheville,
Hendersonville and Brevard, and accounts for the remaining 12% of customers and
15% of throughput. PSNC's diversified industrial base in its service territory
includes manufacturers of textiles, chemicals, ceramics and clay products,
glass, automotive products, minerals, pharmaceuticals, plastics, metals,
electronic equipment, furniture and a variety of food and tobacco products.
PSNC's utility operations are regulated by the North Carolina Utilities
Commission (NCUC).
Over 2.3 million people reside in PSNC's franchised territory. During
the past three fiscal years, PSNC has added approximately 39,100 new customers
to its natural gas transmission and distribution systems. Of those customers,
25,900 were residential, 12,600 were commercial and 600 were industrial. The
resulting 5.2% average annual growth rate is nearly three times the national
industry average. PSNC's average annual customer growth rate since fiscal 1986
has been 5.2%. PSNC attributes this growth rate to two primary factors:
- The continued expansion by PSNC of its transmission and
distribution systems to enable it to reach new customers in
its relatively unsaturated service territory. The population
in PSNC's franchised territory has grown faster than the
national average in recent years and PSNC estimates that it
serves approximately one-third of that population.
- The continued growth of the North Carolina economy, including
areas within PSNC's service territory. Also, the State's
relatively low unemployment rate has been below the national
average in recent years.
Business Strategy
PSNC is expanding its transmission and distribution systems to deliver
more natural gas throughout its service territory. Of its total construction
expenditures of $60.4 million in fiscal 1996, $61.1 million in fiscal 1995, and
$45.5 million in fiscal 1994, approximately $45.6 million, $49.7 million and
$39.1 million, respectively, were expended on the construction of transmission
and distribution pipelines.
PSNC is focusing on the following marketing priorities:
- Retaining existing customers by marketing the replacement of
old appliances and equipment with new gas equipment.
- Increasing demand for natural gas by marketing additional gas
equipment to PSNC's existing customers.
- Adding new customers either on its existing distribution
system or by economical short distribution main extensions.
3
<PAGE>
In addition, PSNC is evaluating the introduction of emerging gas
technologies as a way to increase the long-term demand for natural gas. PSNC has
identified the conversion of gasoline-fueled vehicles to NGVs as an opportunity
to increase the demand for natural gas in the future. PSNC was the first local
distribution company (LDC) in North Carolina to offer NGV conversions to the
public and private sectors. PSNC also has identified natural gas cooling
technology as an opportunity to increase the demand for natural gas and has
begun marketing such technology. The implementation in 1992 of the Federal
Energy Regulatory Commission (FERC) Order Nos. 636, 636-A and 636-B (Order 636)
created new off-system marketing opportunities for PSNC and its marketing
affiliate.
PSNC's internal focus has been to streamline its organizational
structure and improve the performance of management and employees. PSNC has also
focused on increasing employee efficiency, improving its number of customers per
employee ratio over the last three years from 224 at September 30, 1993, to 254
at September 30, 1996. At November 30, 1996, PSNC had 265 winter period
customers per employee.
Gas Supply
As a result of FERC Order 636, which restructured the interstate
natural gas transportation industry, PSNC's gas purchasing practices have
changed significantly during the past few years. Effective August 1, 1991,
PSNC's primary pipeline supplier, Transcontinental Gas Pipe Line Corporation
(Transco), became the first major pipeline to offer unbundled open-access
transportation and storage services. The primary advantage is that PSNC now
manages its gas supply, transportation and storage service requirements rather
than utilizing a pipeline supplier whose service options are bundled together
and then offered as a single city gate sales service. Unbundled open-access
transportation and storage services, however, do shift the risk of ensuring an
adequate supply of gas from the interstate pipelines to LDCs.
The FERC approved Transco's restructuring settlement effective November
1, 1993, and essentially preserved Transco's existing firm service settlement
with PSNC. PSNC has not experienced any material adverse effect on its financial
position or results of operations as a result of the order. Further, management
believes it will provide gas services marketing opportunities both on and off
the existing pipeline system for PSNC and its subsidiaries which should provide
an overall net benefit to PSNC.
PSNC purchases for resale most of the natural gas that it delivers
(throughput) to its customers. The balance of its throughput is natural gas
purchased by certain large volume commercial and industrial customers directly
from various producers and marketers. This gas is transported to these customers
by PSNC at a rate which enables PSNC to earn a margin equivalent to that which
it would have earned by selling the same quantity of gas to these customers.
Quantities of transported gas represented approximately 26%, 38%, and 26% of
PSNC's total throughput for fiscal 1996, 1995 and 1994, respectively.
Management believes that PSNC's gas supply portfolio will enable it to
continue to provide secure service on a cost-competitive basis. This balance of
security and cost control, along with flexibility to adapt to changing
conditions, is achieved through a mix
4
<PAGE>
of long-term contractual obligations, coupled with short-term or spot market
purchases. PSNC's utility gas purchasing practices are reviewed annually by the
NCUC.
The following table summarizes the natural gas supply sources and
transportation arrangements available to PSNC under contract with Transco and
CNG Transmission Company (CNG). All amounts are shown in dekatherms (DT), a unit
of heating value equal to one million British Thermal Units (BTU). PSNC's
backhaul arrangement with CNG makes available additional daily capacity of
60,000 DT and is for a combination of storage and firm transportation. Natural
gas purchased by PSNC from other sources is transported by Transco and CNG.
Natural gas purchased directly from Williams Energy Services Company, a Transco
marketing affiliate, accounted for 30% and 28%, respectively, of PSNC's supply
in fiscal 1996 and 1995.
<TABLE>
<CAPTION>
Daily Contract
Deliver- Annual Expiration
Type of Contract ability Quantity Date
<S> <C> <C> <C>
Firm Sales Service (1) (3) 41,928 15,303,720 3/31/97
Firm Sales Service (1) 41,928 15,303,720 3/31/01
Firm Transportation 164,151 59,915,115 1/31/12
Firm Transportation 5,175 1,888,875 10/31/07
Incremental Firm Transportation 2,264 826,360 3/16/98
Winter Firm Transportation
(December 1 through
February 28) 4,347 391,230 7/31/11
Southern Expansion Firm
Transportation:
November and March 35,397
December through February 39,330 5,698,917 10/31/05
Southeast Expansion Firm
Transportation:
Phase 1 6,064 2,213,360 11/01/14
Phase 2 20,759 7,577,035 11/01/15
Phase 3 17,804 6,498,460 11/01/15
CNG Firm Transportation 30,330 11,070,450 (2)
</TABLE>
(1) These are separate and concurrent contracts.
(2) These represent multiple contracts which expire on
dates ranging from 10/31/99 to 3/31/16.
(3) A portion of this contract for 8,386 daily
deliverability will expire on 3/31/97. The remaining
33,542 will automatically be renewed for a one year
period.
As discussed further in Note 2 to the financial statements, PSNC and a
subsidiary of Piedmont Natural Gas Company, Inc. (Piedmont) formed Cardinal
Pipeline Company, LLC (Cardinal) in March 1994 to construct an intrastate
transmission pipeline. The Cardinal pipeline was placed into service in December
1994 and provides additional daily capacity to PSNC's eastern service territory
in and around the Durham and Raleigh areas. The NCUC granted an increase in
annual revenues of $3,063,000 to recover PSNC's cost of the investment,
effective January 26, 1995. In September 1995, PSNC, Piedmont, Transco, and
North Carolina Natural Gas Corporation (NCNG) signed a letter of intent to form
a limited liability company (LLC) to purchase and extend the Cardinal pipeline.
As proposed, the pipeline will be extended 67 miles from Burlington to a point
5
<PAGE>
southeast of Raleigh, and will add 140 million cubic feet per day of additional
firm capacity. A definitive agreement was signed on December 6, 1995. The LLC
plans to request appropriate regulatory authorization in December 1996 or early
calendar 1997 to extend the existing pipeline, and subject to the approval of
appropriate state and federal agencies, construction is scheduled to begin in
early 1999. The facilities are expected to be in service on or before November
1, 1999.
To balance peak winter demands of residential and commercial customers
with their much-reduced summer usage, PSNC uses underground natural gas storage
services and liquefied natural gas (LNG) peaking facilities. During periods of
reduced usage, PSNC purchases natural gas to replenish the LNG facilities owned
by PSNC and used under contract storage services from its pipeline suppliers.
The ability to maintain maximum delivery from these storage facilities for an
extended period of time is limited. Information about PSNC's storage
arrangements is shown in the following table. All amounts are shown in
dekatherms.
Daily Contract
Deliver- Expiration
Storage Facility ability Capacity Date
CNG General Storage 29,670 1,776,000 3/31/16
Transco General Storage 33,218 1,923,485 3/31/13
Transco Washington
Storage (1) 32,870 2,794,500 3/31/98
Transco LNG Storage 5,175 25,875 (3)
Transco Eminence Storage 29,514 245,297 3/31/13
Cove Point LNG Storage 25,000 250,000 4/15/07
PSNC LNG Storage (2) 100,000 1,040,000 N/A
(1) No peak day delivery assured by contract.
(2) Amounts shown represent maximum peak day capacity.
(3) This contract has expired; however, its renewal is currently
being negotiated with Transco. In the interim, this service is
available to PSNC under the same terms and conditions contained in
the expired agreement.
As discussed further in Note 2 to the financial statements, PSNC has
signed an amendment to the operating agreement of the Pine Needle LNG Company,
LLC (Pine Needle), to add PSNC's subsidiary, PSNC Blue Ridge Corporation, as an
owner of Pine Needle effective October 1, 1995. Pine Needle, originally formed
by subsidiaries of Transco and Piedmont, has sought approval from the FERC to
construct, own and operate an LNG peak demand facility in North Carolina. A
subsidiary of Transco will serve as the operator. PSNC Blue Ridge will own 17%
of Pine Needle, and PSNC will have the right to use 25% of the facility's gas
storage capacity and withdrawal capabilities. The facility, estimated to cost
$107 million, will be located near Transco's transmission pipeline northwest of
Greensboro and will have a storage capacity of four billion cubic feet with
vaporization capability of 400 million cubic feet per day. A project application
was submitted to the FERC in early November 1995 and, pending FERC approval,
construction will begin in early 1997. Liquefaction is expected to begin in May
1999 in time for withdrawal service to begin in the 1999 winter heating season.
6
<PAGE>
Competition
Although PSNC is the sole distributor of natural gas in its service
area, it faces competition from suppliers of alternate fuels and other types of
energy. Competition is strongest for sales to large volume commercial and
industrial customers having alternate fuel capability but exists for all other
customer classes as well.
During fiscal 1996, approximately 34% of gas delivered by PSNC was
delivered to large volume commercial and industrial customers having alternate
fuel capability. The primary alternate fuels available to these customers are
fuel oil and propane, and, to a lesser extent, coal and combustible wood
products. The NCUC has approved a rate structure that allows PSNC to negotiate
reduced rates in order to match the cost of alternate fuels to individual
customers and recover the lost margin from other classes of customers. PSNC
anticipates that the need to negotiate reduced rates with these customers will
continue.
Electricity is the primary competition to natural gas in the
residential and commercial markets where the predominate uses of energy are for
space heating, water heating and cooking. Currently, natural gas enjoys a
competitive price advantage over electricity for these purposes, enabling PSNC
in recent years to obtain a significant share of the new residential
construction in its service area where natural gas is available.
Regulation and Rates
PSNC's natural gas transmission and distribution business is subject to
regulation by the NCUC, including rates, issuance of securities, adequacy of
service, safety standards, extension and abandonment of facilities, accounting
and depreciation rates. The NCUC has seven commissioners appointed by the
Governor of North Carolina for staggered eight-year terms. The NCUC granted
PSNC's most recent general rate increase of $2,701,000 of additional annual
revenues on October 1, 1996. The order allows PSNC an opportunity to earn a
10.37% overall return on its net utility investment.
PSNC's rates include a weather normalization adjustment mechanism
(WNA). The WNA was initially approved in PSNC's general rate case order in
November 1991 and is in effect for bills rendered during the period from
November 1 through April 30 of each year. The WNA applies only to residential
and small general service rates and affects only the non-gas portion of PSNC's
rates. Sales to large-volume customers are not normalized because natural gas
usage for such customers is significantly less weather-sensitive. The WNA
increases tariff rates if weather is warmer than normal and decreases rates if
weather is colder than normal. This prevents the under- or over-collection of
non-gas costs due to variations in the quantity of natural gas delivered when
weather deviates from normal. The WNA does not change the seasonality of PSNC's
earnings and cash flow; however, it does reduce fluctuations caused by abnormal
weather.
PSNC also operates under two other rate provisions that serve to reduce
fluctuations in PSNC's earnings. First, its Rider D rate mechanism allows PSNC
to recover, in any manner authorized by the NCUC, margin losses on negotiated
gas sales to large commercial and industrial customers with alternate fuel
capability. The Rider D rate mechanism also allows PSNC to recover from
customers all prudently incurred gas costs, including changes in natural gas
prices. Second, PSNC operates with "full
7
<PAGE>
margin" transportation rates. These rates allow PSNC to earn the same margin on
gas delivered to customers regardless of whether the gas is sold by PSNC to the
customer or is only transported by PSNC.
PSNC's rates are established using a base cost of gas approved by the
NCUC which may be modified periodically to reflect changes in the market price
of natural gas and changes in the rates charged by PSNC's pipeline suppliers.
PSNC may file revised tariffs with the NCUC coincident with these changes or it
may track the changes in its deferred accounts for subsequent rate
consideration. The rules of the NCUC allow recovery of all prudently incurred
gas costs. Also, the NCUC reviews PSNC's gas purchasing practices annually.
In April 1992, the NCUC adopted rules to implement the expansion fund
program established by an act passed by the North Carolina General Assembly in
July 1991. This act permits the establishment of expansion funds to be used by
each North Carolina LDC to expand natural gas service to areas which would
otherwise not be economically feasible to serve. Separate funds have been
established for use solely in each LDC's franchised service territory. Sources
for expansion funds may be each LDC's respective supplier refunds, special
surcharges or other sources permitted by the NCUC. Subject to the NCUC's rules
and availability of funds, the LDCs will be allowed to utilize the expansion
funds to the extent necessary to make such projects feasible on a net present
value basis. The balance of the funding for projects will be supplied by the
LDC. Ten counties in PSNC's franchised territory are currently unserved as are
certain areas in other counties. On June 3, 1993, the NCUC entered an order
creating an expansion fund for PSNC in the Office of the State Treasurer. PSNC
has received approximately $22,923,000 of supplier refunds and interest earned
thereon. The NCUC has approved an expansion project for McDowell County which
will require funding from PSNC's expansion fund. The total estimated cost to
complete this project is approximately $14,500,000, of which up to $8,193,500
can be used from the fund to finance the project. The project was initiated in
December 1995 and will serve its first customer during December 1996. PSNC plans
to file with the NCUC for approval of additional expansion projects in two other
counties before January 1,1997.
Franchises
Effective July 15, 1996, the NCUC granted PSNC certificates of public
convenience and necessity in seven counties in western North Carolina to PSNC's
franchised service territory. PSNC's franchised service territory now consists
of all or parts of 33 counties in North Carolina. Under North Carolina law, no
company may construct or operate properties for the sale or distribution of
natural gas without having obtained such a certificate, except that no
certificate is required for construction in the ordinary course of business or
for construction into territory contiguous to that already occupied by an LDC
and not receiving similar service from another public utility.
PSNC has nonexclusive franchises from 64 municipalities in which it
delivers natural gas. The expiration dates of franchises having specific
expiration provisions range from 1998 to 2029. The franchises contain no
restrictions of a materially burdensome nature and are adequate for PSNC's
business as presently, and as proposed to be, conducted. These franchises have
been routinely renewed by the municipalities when they expire. The other
communities served by PSNC have not required franchises.
8
<PAGE>
Non-utility Businesses
During fiscal 1996, PSNC continued its gas brokering activities through
its subsidiary, PSNC Production Corporation. This rapidly expanding activity now
serves approximately 250 accounts both on and off PSNC's system. Clean Energy
Enterprises, Inc. (formerly Tar Heel Energy Corporation) also continued its
activities in the refueling of natural gas vehicles and the conversion of
gasoline-fueled vehicles to natural gas.
Environmental Matters
PSNC is subject to regulation with regard to environmental matters by
various federal, state and local authorities. PSNC owns or has owned portions of
six sites in North Carolina on which manufactured gas plants (MGPs) were
formerly operated and one site at which a manufactured gas holder was located.
Evaluations have revealed that MGP residuals are present or suspected at several
of the sites. PSNC has recorded a total liability of $3,705,000, which
represents the minimum amount of the range of $3,705,000 to $50,145,000 expected
for investigating and monitoring the extent of environmental degradation and of
implementing remedial procedures. See Note 7 to the financial statements for
further details regarding this and other environmental matters related to PSNC.
Employees
At November 30, 1996, PSNC had 1,148 full-time employees compared with
1,121 at November 30, 1995. PSNC considers its relationship with its employees
to be good and has never experienced a strike or work stoppage. PSNC has
collective bargaining agreements with the International Chemical Workers Union
Council of the United Food and Commercial Workers locals representing
approximately 330 construction and service employees. Collective bargaining
agreements that expired in December 1996 have been renegotiated. These
agreements will expire in December 1999.
Seasonality
Due to the seasonal nature of PSNC's business, the first six months of
its fiscal year are generally the most profitable. During fiscal 1996, the
quarters ended December 31 and March 31 together accounted for approximately 72%
and 75% of PSNC's natural gas sales revenues and volumes, respectively. The
quarters ending June 30 and September 30 are generally PSNC's least profitable
quarters due to decreased demand for natural gas related to lower space heating
requirements.
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<PAGE>
<TABLE>
<CAPTION>
OPERATING STATISTICS
- --------------------
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES - GAS:
Residential Sales $162,967,260 $135,846,213 $137,986,651 $127,119,020 $109,475,477
Commercial Sales 74,444,770 57,783,940 67,679,342 66,124,813 57,890,721
Industrial Sales 52,460,676 31,483,864 49,970,780 80,861,975 67,125,621
Gas Transported for Others 17,737,092 21,746,901 17,031,426 4,848,112 4,982,772
Miscellaneous 1,272,281 1,032,096 1,036,857 1,035,221 928,751
------------ ------------ ----------- ------------ ------------
Total $308,882,079 $247,893,014 $273,705,056 $279,989,141 $240,403,342
============ ============ ============ ============ ============
GAS SUPPLY (DT):
Natural Gas Purchased 51,841,058 37,790,467 47,390,194 54,772,352 51,508,887
Less Increase (Decrease) in Storage 471,720 (257,091) 1,466,236 104,399 (22,568)
Less Unbilled, Unaccounted For,
Company Use and Other 2,518,774 1,979,901 2,156,027 2,166,864 2,182,555
---------- ---------- ---------- ---------- ----------
Total Gas Sold 48,850,564 36,067,657 43,767,931 52,501,089 49,348,900
========== ========== ========== ========== ==========
GAS DELIVERED (DT):
Residential Sales 22,398,288 17,566,948 18,781,482 18,058,000 16,092,646
Commercial Sales 13,925,422 10,827,444 12,261,918 13,031,684 12,613,272
Industrial Sales 12,526,854 7,673,265 12,724,531 21,411,405 20,642,982
Gas Transported for Others 16,795,268 22,551,006 15,120,391 4,678,292 5,508,225
---------- ---------- ---------- ---------- ----------
Total 65,645,832 58,618,663 58,888,322 57,179,381 54,857,125
========== ========== ========== ========== ==========
NUMBER OF CUSTOMERS (AT YEAR END):
Residential 248,931 246,868 234,948 222,996 214,153
Commercial 38,285 (2) 27,788 25,942 25,688 25,416
Industrial 2,025 2,107 2,249 (3) 1,469 (3) 938
------- ------- ------- ------- -------
Total 289,241 276,763 263,139 250,153 240,507
======= ======= ======= ======= =======
PER RESIDENTIAL CUSTOMER:
Average Gas Used (DT) 89.98 71.16 79.94 80.98 75.15
Average Revenue $654.67 $550.28 $587.31 $570.05 $487.61
Revenue per DT $7.28 $7.73 $7.35 $7.04 $6.49
ANNUAL HEATING DEGREE DAYS (1):
Actual 3,822 2,954 3,389 3,462 3,181
Normal 3,359 3,341 3,341 3,341 3,359
Percent of Normal 114% 88% 101% 104% 95%
PEAK DAY DELIVERY (DT) 433,045 403,581 420,597 350,131 340,905
</TABLE>
(1) Degree day information is based on the Raleigh/Durham area.
Fiscal 1996 and 1992 reflect
an additional day for leap year.
(2) Increase is attributable to a reclassification of approximately
8,000 customers from residential to commercial/small industrial
during fiscal 1996.
(3) Increase is attributable to a reclassification of approximately
400 commercial customers to a small industrial classification
during fiscal 1994 and fiscal 1993.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Date Elected
Name and Age (1) Title (1) An Officer
<S> <C> <C>
Charles E. Zeigler, Jr. Chairman, President and 11/01/86
Age - 50 Chief Executive Officer
John D. Grawe Senior Vice President - 10/03/94
Age - 48 Operations
George F. Kast Senior Vice President - 08/24/87
Age - 50 Information Systems
Jerry W. Richardson Senior Vice President - 02/23/82
Age - 51 Engineering
Fred L. Schmidt Senior Vice President - 01/04/93
Age - 55 Human Resources
Robert D. Voigt Senior Vice President - 09/01/81
Age - 45 Corporate Development and
Chief Financial Officer
Franklin H. Yoho Senior Vice President - 02/01/91
Age - 37 Marketing and Gas Supply
Herbert B. Cox Vice President - 05/01/90
Age - 52 Operations Services
J. Paul Douglas Vice President - 12/21/94
Age - 49 Corporate Counsel and
Secretary
Boyce C. Morrow, Jr. Vice President - 03/01/90
Age - 52 Governmental Relations
Jack G. Mason Treasurer 03/01/95
Age - 39
Sharon D. Boone Controller and 03/01/95
Age - 43 Assistant Secretary
</TABLE>
(1) As of November 30, 1996.
The present terms of all officers extend to January 31, 1997, the date
of the next annual meeting of shareholders and the annual meeting of the board
of directors, or until their successors are elected and qualified.
All of the executive officers have served in executive positions
with PSNC for the past five years with the exception of Fred L. Schmidt,
J. Paul Douglas, John D. Grawe, Jack G. Mason and Sharon D. Boone.
Fred L. Schmidt was employed by PSNC on January 4, 1993. Prior to
joining PSNC, he was employed by RJR Nabisco, Incorporated in Winston-Salem,
North Carolina as Director - Employee Relations, Compensation and
Benefits, and Human Resources Information Systems.
J. Paul Douglas was employed by PSNC on December 21, 1994. Prior to
joining PSNC, he was employed by Conoco Inc. as counsel from March 1991 to
December 1994, was a partner with the law firm of Katten, Muchin, Zavis and
Dombroff from February 1990 to March 1991 and was a partner with the law firm of
Grove, Jaskiewicz, Gilliam and Cobert from February 1984 to February 1990.
John D. Grawe was employed by PSNC on October 3, 1994. Prior to joining
PSNC, he was employed by Wisconsin Power and Light Company, most recently
serving as Director of Gas Engineering and Operations.
11
<PAGE>
Jack G. Mason was employed by PSNC on July 5, 1979. During the past
five years, prior to serving as Treasurer, Mr. Mason held the positions of
Director - Financial Projects and Assistant Treasurer, Assistant Treasurer, and
Assistant Treasurer and Assistant Controller.
Sharon D. Boone was employed by PSNC on November 15, 1982. During the
past five years, prior to serving as Controller and Assistant Secretary, Ms.
Boone held the positions of Director - Corporate Accounting, Manager - Corporate
Accounting, and Manager - Plant Accounting and Tax Services.
Item 2. Properties
PSNC owns 703 miles of transmission pipelines of 2 to 24 inches in
diameter that connect its distribution systems with the Texas to New York
pipeline transmission system of Transco. PSNC also owns 64% of the 37.5 miles of
transmission pipeline associated with the Cardinal pipeline, as discussed more
fully in Note 2 to the financial statements. Transco delivers natural gas to
PSNC at various points on Transco's pipeline in North Carolina. Natural gas is
distributed by PSNC through its 6,044 miles of distribution mains. These
transmission pipelines and distribution mains are located primarily on
rights-of-ways held under easement, license or permit on lands owned by others.
PSNC's Energy Center, which consists of its LNG liquefaction, storage
and vaporization facility, is located on a 70-acre tract of land in Cary, North
Carolina.
PSNC also owns 18 commercial office buildings, a measurement operations
center, eleven service center buildings, 16 service buildings, and an energy
control building; PSNC leases six commercial office buildings for its own use.
Two of the service buildings also house training facilities. Another service
building is jointly occupied by a NGV conversion facility.
PSNC's gas utility plant was previously subject to the lien of the
Indenture securing its outstanding first mortgage bonds. At September 30, 1995,
PSNC had $3,680,000 of first mortgage bonds outstanding. PSNC retired these
bonds effective December 1, 1995, and the lien was released during January 1996.
12
<PAGE>
Item 3. Legal Proceedings
As more fully disclosed in Part I under "Environmental Matters" and in
Part II in Note 7 to the financial statements, PSNC owns or has owned portions
of sites at which manufactured gas plants were formerly operated and is
cooperating with the North Carolina Department of Environment, Health and
Natural Resources to investigate these sites.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of PSNC's security holders during
the three months ended September 30, 1996.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters
PSNC's common stock is traded on the New York Stock Exchange under the
ticker symbol "PGS." PSNC's stock quotations are listed in most publications,
including newspapers, as "PubSvcNC" or "PubSNC." Prior to March 1, 1995, PSNC
was traded in the over-the-counter market and was included in the NASDAQ
National Market System under the symbol "PSNC." At November 30, 1996, there were
approximately 11,500 holders of record of PSNC's common stock.
The table below presents the reported high and low common stock sale
prices along with cash dividends declared per share for each quarter of fiscal
1996 and 1995.
Cash
Quarter Dividends
Ended High Low Declared
Fiscal
1996
Sep 30 $18 5/8 $15 7/8 $.2200
Jun 30 17 15 1/8 .2200
Mar 31 17 7/8 15 7/8 .2125
Dec 31 18 3/4 15 1/4 .2125
Fiscal
1995
Sep 30 16 3/4 14 7/8 .2125
Jun 30 16 3/4 14 3/8 .2125
Mar 31 16 1/2 14 .2050
Dec 31 15 1/2 13 3/4 .2050
On November 13, 1996 the Board of Directors declared a regular
quarterly cash dividend on PSNC's common stock of 22(cent) per share, payable on
January 1, 1997 to shareholders of record on December 10, 1996. PSNC has paid
regular quarterly cash dividends on its common stock since 1958, and has
increased cash dividends paid to shareholders each calendar year since 1970.
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<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the Fiscal Years Ended September 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating revenues (000's)........................ $308,882 $247,893 $273,705 $279,989 $240,403
Gross margin (000's).............................. $140,744 $130,828 $118,327 $112,105 $110,003
Net income (000's)................................ $ 23,898 $ 21,421 $ 19,976 (2) $ 14,219 $ 16,750
Earnings per average common share ................ $ 1.26 $ 1.16 $ 1.17 (2) $ .90 $ 1.08
Cash dividends declared per common share ......... $ .865 $ .835 $ .805 $ .775 $ .747
Average number of common shares
outstanding (000's) ............................. 18,995 18,509 17,012 15,812 15,373
Capital expenditures (000's)...................... $ 60,428 $ 61,119 $ 45,469 $ 40,127 $ 31,055
Total assets (000's).............................. $524,889 $456,995 $427,939 $400,946 $379,770
Common equity (000's)............................. $188,635 $173,372 $160,555 $123,662 $115,069
Long-term debt (000's) (1)........................ $140,150 $100,700 $113,680 $124,518 $130,056
</TABLE>
(1) Excludes current maturities.
(2) Includes $1,511,000 or $0.09 per share related to sale of propane assets.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations
<TABLE>
<CAPTION>
Net Margin
<S> <C> <C> <C>
For the Fiscal Years Ended September 30, 1996 1995 1994
(Amounts in thousands except
degree day and customer data)
Gross margin $140,744 $130,828 $118,327
Less - Franchise taxes 9,885 7,943 8,766
Net margin $130,859 $122,885 $109,561
Total throughput (DT):
Residential 22,398 17,567 18,781
Commercial/small industrial 14,307 11,855 12,450
Large commercial/industrial 28,941 29,197 27,657
65,646 58,619 58,888
Raleigh/Durham area degree days: (1)
Actual 3,822 2,954 3,389
Normal 3,359 3,341 3,341
Percent of normal 114% 88% 101%
Weather normalization adjustment
income (refund), net of
franchise taxes $(8,733) $ 5,800 $ (138)
Customers at end of period: (2)
Residential 248,940 246,877 234,957
Commercial/small industrial 38,624 29,497 27,806
Large commercial/industrial 1,677 389 376
289,241 276,763 263,139
</TABLE>
(1) The increase in normal degree days in 1996 is due to an additional day
for the leap year.
(2) Reflected in customers at September 30, 1996 is the reclassification of
approximately 8,000 customers from residential to commercial/small industrial,
and 1,300 from commercial/small industrial to large commercial/industrial.
Total throughput and net margin, defined as operating revenues less
cost of gas and franchise taxes, are more meaningful comparative statistics than
gas sales volumes and operating revenues when analyzing PSNC's utility operating
results. This is because certain large-volume customers purchase gas directly
from gas producers or other gas suppliers and transport it through PSNC's
pipeline system. PSNC's operating revenues and expenses do not include the
commodity cost of this transported gas; however, PSNC earns a margin on the
transported gas which is equivalent to the margin that PSNC could earn if it
purchased and resold gas to these customers. Also, various temporary collection
and refund mechanisms affect both operating revenues and cost of gas equally.
15
<PAGE>
Fiscal 1996
- - Net margin increased by $7,974,000, or 6%, in fiscal 1996 as compared
to fiscal 1995 primarily due to throughput-related variances
associated with an increased customer base. Also reflected in this
increase is approximately $1,645,000 related to the Cardinal Pipeline
rate increase effective January 26, 1995. The volumes of gas
delivered to residential and commercial/small industrial customers
increased 28% and 21%, respectively, due to weather that was 29%
colder as compared to the prior fiscal year. Both customer bases
increased 4% and 8%, respectively, as compared to fiscal 1995.
Throughput for lower-margin industrial and large commercial customers
decreased 1% as compared to fiscal 1995. This reflects increased
weather-related service curtailments to these customers during the
year as compared to fiscal 1995. Net throughput-related variances
for all customer classes total approximately $6,098,000, including a
variance of $14,533,000 related to refunds associated with the
operation of the weather normalization adjustment (WNA) mechanism.
Net margin for fiscal 1996 also increased due to a $732,000 fiscal
1995 refund related to income tax credits taken in prior periods.
These increases were partially offset by a $734,000 charge to expense
related to the resolution of accounting issues associated with PSNC's
Southern Expansion costs as discussed in Note 2 to the financial
statements.
Fiscal 1995
- - Net margin increased by $13,324,000, or 12%, in fiscal 1995 as
compared to fiscal 1994 primarily due to rate increases associated
with the October 7, 1994 general rate case order and the approval of
rates for the Cardinal Pipeline effective January 26, 1995. Rate
increases that affected PSNC's residential and commercial/small
industrial customers account for approximately $11,723,000 of the
increase. The quantities of gas delivered to residential and
commercial/small industrial customer bases declined 6% and 5%,
respectively, due to 13% warmer weather as compared to the prior
fiscal year. This decrease was somewhat offset by increases in both
customer bases of 5% and 6%, respectively. Net throughput-related
variances for these customers total approximately $2,956,000,
including $5,938,000 related to the operation of the WNA. The
quantities of gas delivered to large commercial/industrial customers
rose 6% due to a 3% increase in the customer base and to higher
operating levels by some of these customers. This increase resulted
in additional net margin of approximately $1,346,000; however, the
increase was offset by a price-related decline of approximately
$1,539,000 due to both changes in the sales mix and the general rate
case order, and to a decline of $430,000 from the prior year in
penalty billings for unauthorized gas usage. The twelve-month period
also reflects a $732,000 refund ordered by the North Carolina
Utilities Commission (NCUC) in the October 7, 1994 rate case order
that related to income tax credits taken in prior periods.
16
<PAGE>
Fiscal 1994
- - Net margin increased by $6,422,000 or 6% in fiscal 1994 as compared
to fiscal 1993. This net increase includes the impact of the
$1,225,000 write-off of Southern Expansion costs, as discussed in
Note 2 to the financial statements, during fiscal 1993. A 5%
increase in the residential and a 4% increase in the commercial/small
industrial customer bases, as compared to the previous year,
generated increases in net margin of $2,937,000 and $1,141,000,
respectively. The quantities of gas delivered to residential and
commercial/small industrial customers both increased 4% due to the
increased customer bases. The WNA variance increased net margin by
$440,000 for fiscal 1994 as compared to fiscal 1993. Net margin for
the large commercial/industrial customer base increased $1,119,000.
Total quantities delivered to large commercial/industrial customers
increased only 2% due to curtailments of interruptible customers
during January 1994's record cold weather; however, quantities
delivered to the general service segment of this customer base
increased 14%.
Operating Expenses
Other operating expenses increased 7% during fiscal 1996. This increase
reflects higher salary expenses and employee benefits and increased expenses for
uncollectibles, which are based on revenues. These increases were partially
offset by reduced outside consulting expenses related to information systems and
employee benefits. Prior fiscal year expenses were reduced by adjustments
related to group life and hospitalization insurance due to favorable experience
and a transfer of a large number of employees to a less costly health
maintenance provider. On a straight comparison basis without these insurance
adjustments, operating expenses for fiscal 1996 increased 5%.
Other operating expenses increased 4% during fiscal 1995. This increase
reflects higher salary expenses and the payroll reallocations implemented during
November 1994 to standardize labor distributions. Also contributing to the
increase were employee severance expenses related to departmental
reorganizations, fees related to listing on the New York Stock Exchange, and
expenses for outside consulting services related to information systems and
employee benefits. These increases were partially offset by the reclassification
of certain sales compensation expenses to merchandising and jobbing, and
adjustments related to group life insurance and hospitalization insurance due to
favorable experience realized by PSNC, along with the transfer of a large number
of employees to a less costly health maintenance organization provider.
The 5% increase in other operating expenses during fiscal 1994 was
primarily due to the October 1993 wage increases granted under the new
performance-based pay system and rising health insurance costs. Also
contributing to the increase were postretirement benefit expenses related to the
adoption of Statement of Financial Accounting Standards (SFAS) No.
106 effective October 1, 1993.
Maintenance expenses increased 20% in fiscal 1996 and decreased 8% in
fiscal 1995 due to the $750,000 reversal of expenses related to the
investigation of former manufactured gas plant (MGP) sites, originally recorded
in fiscal 1992. The reversing entry was recorded during fiscal 1995. On a
straight comparison basis without this adjustment, maintenance
17
<PAGE>
expenses for fiscal 1996 increased 2%. Maintenance expenses decreased 5% in
fiscal 1994 due to the absence of expenses relating to maintenance of compressor
equipment and the LNG storage tank during fiscal 1993.
Depreciation expense for all three fiscal years increased due to plant
additions. Depreciation expense for fiscal 1995 also reflected higher
depreciation rates approved in the October 1994 general rate case order. General
taxes increased during fiscal 1996 due to an increase in franchise tax expense
reflecting an increase in revenues. The decrease in general taxes during fiscal
1995 is due to a reduction in franchise tax expense reflecting a decrease in
revenues. General taxes increased during fiscal 1994 due to increased property
tax expense due to an increase in taxable property and higher tax rates.
Other Income (Deductions)
Other income (deductions) increased $3,132,000 during fiscal 1996.
Other interest income increased $1,133,000 over fiscal 1995 due to interest on
amounts due from customers through the operation of the Rider D rate mechanism.
Winter-period increases in the market price of natural gas resulted in PSNC
recording uncollected gas costs, along with increased demand costs, which
totaled $17,925,000 at September 30, 1996. Income from unregulated subsidiary
operations exceeded fiscal 1995 by $925,000 due largely to gains realized from
natural gas brokering activities. Income from secondary market transactions
increased $582,000 over the prior year. PSNC realized increases in both the
amount of margin generated and an increase in the shareholder portion of these
margins from 10% to 25%, by order of the NCUC effective November 1, 1995.
Secondary market transactions are any transactions that utilize capacity rights
on interstate pipelines. PSNC also realized a $265,000 gain from the sale of
property and a $250,000 improvement in merchandise and jobbing.
Other income (deductions) decreased $4,350,000 during fiscal 1995 due
mainly to proceeds received in fiscal 1994 for the sale of PSNC Propane and the
absence of operating income from propane operations. Other income (deductions)
also decreased due to a loss in merchandise and jobbing largely due to a
reclassification of certain sales commission expenses to merchandise and jobbing
from other operating expenses in connection with the October 1994 general rate
case order. Also contributing to the decrease was the fiscal 1994
reclassification of income from pipeline capacity sales from operating revenues
to other income.
Other income (deductions) increased $4,836,000 during fiscal 1994
mainly due to income from subsidiary operations and from merchandise and jobbing
income. Income from subsidiary operations exceeded fiscal 1993 by $2,845,000
primarily due to the sale of the assets of PSNC Propane Corporation to
Empiregas, Inc. of North Carolina. The sale resulted in an after-tax gain of
$1,511,000, net of expenses, related to terminating the operations, and to
after-tax earnings of $810,000 related to gas marketing activities conducted by
PSNC Production Corporation. Income from PSNC Propane's operations, net of tax
and not including the gain from the asset sale, increased approximately $450,000
as compared to the same period during fiscal 1993. This increase was due to a
decreased cost of propane and higher weather-related volumes of propane sold.
The June 1994 sale of PSNC Production's remaining exploration and development
properties resulted in an after-tax gain of $139,000. Merchandise and jobbing
income for fiscal 1994 increased $1,341,000 over fiscal 1993. Although total
unit sales decreased, the per unit margin increased due to price changes made in
merchandising programs. The previously mentioned reclassification of income from
pipeline capacity sales also contributed to the increase.
18
<PAGE>
Interest Deductions
Interest deductions for fiscal 1996 increased $1,885,000 over fiscal
1996. This increase was due mainly to increased interest expense on long-term
debt of $1,136,000 resulting from the January 1996 issuance of $50,000,000 of
6.99% Senior Debentures due 2026. Interest expense on short-term debt increased
$845,000 due to the higher average short-term bank loans outstanding.
Interest deductions for fiscal 1995 and fiscal 1994 decreased $391,000
and $642,000, respectively, due mainly to lower interest expense on declining
balances in long-term debt. The declining balance in long-term debt is due to
sinking fund payments and to the early redemption in May 1994 of the 9 7/8%
First Mortgage Bonds due 1995. These decreases were partially offset by
increased interest expense due to higher rates on short-term debt.
Liquidity and Capital Resources
PSNC's primary capital needs are the funding of its continuing
construction program and the seasonal funding of its stored gas inventories.
PSNC uses short-term bank loans temporarily, together with internally generated
funds, long-term debt and equity financing to fund its continuing construction
program. PSNC has committed lines of credit with seven commercial banks which
vary monthly depending upon seasonal requirements and a five-year revolving line
of credit with one bank. For the twelve-month period beginning April 1, 1996,
total lines of credit with these banks range from a minimum of $24,000,000 to a
winter-period maximum of $79,000,000. At September 30, 1996, committed lines of
credit totaled $46,000,000. PSNC also has uncommitted annual lines of credit
totaling $80,000,000. Lines of credit are evaluated periodically by management
and renegotiated to accommodate anticipated short-term financing needs.
Management believes these lines are currently adequate to finance construction
expenditures, stored gas inventories and other corporate needs. At September 30,
1996 and 1995, PSNC's total short-term bank loans outstanding were $59,500,000
and $51,000,000, respectively.
PSNC sold an additional 1,725,000 new shares of $1 par common stock
through an underwritten public offering during May 1994. The proceeds, net of
expenses, were $23,406,000. These proceeds were used to repay all outstanding
short-term debt, to redeem the remaining $3,098,000 balance of the 9 7/8% First
Mortgage Bonds due 1995, and to finance a portion of fiscal 1994's construction
expenditures.
During September 1996, PSNC made the final additional payment allowed
on its 10% Senior Debentures due 2003 of $1,250,000. During September 1995 and
1994, PSNC paid an additional $2,500,000, the maximum additional annual payment
permitted pursuant to the terms of this debenture agreement.
Effective December 1, 1995, PSNC redeemed the remaining $3,680,000
balance of its 8% Series I First Mortgage Bonds, due 1998, at a redemption price
of 100.35%. PSNC financed this redemption through the use of short-term bank
debt. As this retired the balance of first mortgage bonds, PSNC has closed the
original indenture and all supplemental indentures which secured these bonds,
and obtained a release of the liens on its property.
PSNC also generates equity capital through its dividend reinvestment,
employee stock purchase and stock option plans. During fiscal 1996, 1995 and
1994, the dividend reinvestment plan generated $5,187,000, $5,069,000 and
$5,020,000, respectively, of additional equity capital. The employee stock
purchase plan generated $1,198,000, $1,174,000 and $1,255,000,
19
<PAGE>
respectively, of additional equity capital. The stock option plan generated net
equity capital of $1,232,000, $447,000 and $861,000 for the respective three
fiscal years.
On December 20, 1995, PSNC filed with the Securities and Exchange
Commission a registration statement covering up to an aggregate amount of
$125,000,000 of senior unsecured debt. On January 10, 1996, PSNC sold
$50,000,000 of 6.99% Senior Debentures due 2026 in a public offering under the
registration statement. The net proceeds of $49,314,000 received on January 16,
1996, were used to pay down a significant portion of the then outstanding
short-term debt. On November 5, 1996, the NCUC issued an order that authorized
the issuance and sale of up to the remaining $75,000,000 covered by the
registration statement. PSNC expects to issue this debt in the first half of
fiscal 1997, depending upon market conditions and the interest rate environment.
Proceeds will be used to retire a portion of the then outstanding short-term
bank loans outstanding.
The ratio of long-term debt to total capitalization was 42.6% at
September 30, 1996, 36.7% at September 30, 1995 and 41.5% at September 30, 1994.
PSNC's goal is to maintain a capital structure with a ratio of long-term debt to
total capitalization in the 40%-45% range with periodic moderate fluctuations.
Construction expenditures were $60,428,000, $61,119,000 and $45,469,000
for fiscal 1996, 1995 and 1994, respectively. The fiscal 1995 increase is due
mainly to construction costs of $7,332,000 associated with the construction of
the Cardinal Pipeline project, and approximately $4,000,000 associated with
another transmission project. For fiscal 1997, PSNC's Board of Directors
approved a budget of $64,233,000 for PSNC's ongoing construction program. PSNC
anticipates spending approximately $65,000,000 annually on its construction
program for the next several years.
As discussed more fully in Note 4 to the financial statements, PSNC and
its subsidiaries sponsor a non-contributory defined benefit pension plan
covering substantially all employees. There were no contributions made to the
plan during fiscal 1994. During fiscal 1995 and 1996, contributions were
$4,659,000 and $2,855,000, respectively. Projected fiscal 1997 plan
contributions total $2,801,000.
As discussed further in Note 11 to the financial statements, PSNC
currently estimates paying from its assets, approximately $3,600,000 of special
termination benefits to eligible employees in connection with a voluntary early
retirement program available from October 14, 1996, until November 27, 1996.
This amount, which will be expensed during the first quarter of fiscal 1997, is
in addition to regular pension benefits paid from plan assets. As a result of
the early retirement program, PSNC
20
<PAGE>
anticipates recognizing a pension gain of approximately $1,300,000 during the
first quarter of fiscal 1997. PSNC anticipates a permanent savings in annual
salaries of approximately $1,100,000 beginning in the second quarter of fiscal
1997 and an increase in annual pension expense of $200,000 beginning in fiscal
1998.
Restricted cash and temporary investments and restricted supplier
refunds are attributable to refunds of $21,480,000 received from PSNC's pipeline
transporters since fiscal 1992 and accumulated interest of $1,443,000. The
investment and use of these funds have been restricted by an order of the NCUC.
These funds are to remain segregated from general funds and may be used only for
expansion of PSNC's facilities into unserved territories which would otherwise
be uneconomical to serve. In an order dated June 3, 1993, the NCUC created an
expansion fund for PSNC in the Office of the State Treasurer. Pursuant to the
order, approximately $16,528,000 of the restricted funds have been deposited
into the expansion fund. The NCUC has approved an expansion project into
McDowell County to be funded from PSNC's expansion fund in an amount up to
$8,193,500. PSNC's construction expenditures as of September 30, 1996 relating
to this project were approximately $4,900,000, of which $3,700,000 will be
refunded from the expansion fund during the first quarter of fiscal 1997. The
project was initiated in December 1995 and is expected to be in service by
December 1996. PSNC plans to file with the NCUC for approval of additional
expansion projects in two other counties before January 1, 1997.
Net accounts receivable increased $4,295,000 as compared to September
1995. This increase was due primarily to increased revenues billed in September
1996 compared to September 1995.
Stored gas inventories increased $3,722,000 due to an increase in the
average cost of natural gas as compared to September 30, 1995, along with the
addition of another storage service during fiscal 1996.
Net deferred gas costs fluctuate in response to the operation of PSNC's
Rider D rate mechanism. This mechanism allows PSNC to recover margin losses on
negotiated sales to large commercial and industrial customers with alternate
fuel capability. It also allows PSNC to recover all prudently incurred gas costs
from customers. On a monthly basis, any difference in amounts paid and collected
is recorded for subsequent refund to or collection from PSNC's customers.
Deferred gas costs at September 30, 1996, reflect undercollections from
customers primarily related to the unanticipated surge in natural gas prices
during January 1996, when PSNC experienced record throughput. Deferred gas costs
at September 30, 1995, reflect undercollections of demand costs from customers.
The $534,000 increase in the asset for debt expense relates to expenses
associated with the 6.99% Senior Debentures due 2026 sold on January 10, 1996.
Other assets increased $1,509,000 in fiscal 1996 primarily due to a
$1,347,000 increase in the investment in Pine Needle LNG Company, LLC and a
$367,000 investment in Cardinal Extension Company, LLC.
21
<PAGE>
The increase in accrued interest reflects interest on the additional
6.99% Senior Debentures due 2026 sold on January 10, 1996, and interest on
increased short-term borrowings as compared to September 30, 1995.
The $8,500,000 increase in interim bank loans at September 30, 1996 as
compared to September 30, 1995 relates to deficiencies associated with
uncollected gas costs that have been deferred pursuant to the Rider D rate
mechanism. PSNC's deferred gas cost balances are approved by the NCUC in annual
gas cost prudence reviews and are collected from or refunded to customers over a
subsequent twelve-month period.
Deferred credits and other liabilities increased $3,329,000 due mainly
to an increase of $3,627,000 related to net deferred income taxes.
As discussed more fully in Note 7 to the financial statements, PSNC
owns or has owned portions of six sites in North Carolina on which manufactured
gas plants (MGPs) were formerly operated and one site at which a manufactured
gas holder was located. Evaluations of these sites have revealed that MGP
residuals are present or suspected at several of the sites. The North Carolina
Department of Environment, Health and Natural Resources (NCDEHNR) has
recommended that no further action be taken with respect to one site. An
environmental consulting firm retained by PSNC estimated that the minimum
aggregate costs to investigate and monitor the extent of environmental
degradation and to implement remedial procedures with respect to the remaining
six sites may range from $3,705,000 to $50,145,000 over a 30-year period. PSNC
is unable to determine the rate at which costs may be incurred over this time
period. In October 1994, PSNC entered into an administrative order of consent
with NCDEHNR to investigate the Durham, North Carolina site in accordance with
standards and methods approved by NCDEHNR. At September 30, 1996, PSNC had
recorded a total liability of the minimum amount of the range, or $3,705,000.
PSNC and a subsidiary of Piedmont Natural Gas Company, Inc. (Piedmont)
formed Cardinal Pipeline Company, LLC (Cardinal) in March 1994 to construct an
intrastate transmission pipeline. The pipeline was placed into service in
December 1994 and extends 37.5 miles to provide additional daily capacity to
PSNC's eastern service territory in and around the Durham and Raleigh areas. On
December 6, 1995, subsidiaries of Transcontinental Gas Pipe Line Corporation
(Transco), PSNC, Piedmont, and North Carolina Natural Gas Corporation (NCNG)
formed Cardinal Extension Company, LLC, to purchase and extend the existing
Cardinal Pipeline. The extension will span approximately 67 miles at an
estimated cost of $75 million. PSNC, through a subsidiary, will own
approximately 33% of the new pipeline, and will contribute its net book
investment in the existing pipeline plus additional equity capital of
approximately $1 million.
As discussed more fully in Note 2 to the financial statements, Pine
Needle LNG Company, LLC (Pine Needle), a limited liability company formed by
subsidiaries of Transco and Piedmont, signed an amendment to its operating
agreement to add PSNC's subsidiary, PSNC Blue Ridge Corporation, as an owner of
Pine Needle effective October 1, 1995. Pine Needle will own, build and operate a
four billion cubic foot liquefied natural gas (LNG) storage facility near
Transco's pipeline in northwest Guilford County. On April 30, 1996, the Federal
Energy Regulatory Commission (FERC), made a preliminary determination to grant a
certificate authorizing the construction and operation of Pine Needle. The FERC
has approved a 12.75% return on equity for the project, and stated that the debt
component of the rate structure will be determined after permanent financing is
obtained. On May 30, 1996, the
22
<PAGE>
NCUC filed an application for rehearing of the preliminary determination. In
its request, the NCUC contested the approved rate of return on equity and the
proposed capital structure. On November 27, 1996, the FERC issued an order
granting a certificate of convenience and necessity authorizing the construction
and operation of Pine Needle, and denying the NCUC's request for rehearing of
the rate of return and capital structure issues. Construction should begin in
early 1997 at an estimated cost of $107 million. The facility is expected to be
operational by May 1999. PSNC, through its subsidiary, will own 17% of the
facility, and PSNC has contracted to use 25% of the facility's gas storage
capacity and withdrawal capabilities. At September 30, 1996, PSNC's investment
in Pine Needle totaled $2,055,000.
On December 2, 1996, PSNC Production Corporation and Sonat Marketing
Company L.P., a subsidiary of Sonat Inc., created Sonat Public Service Company
L.L.C. PSNC Production and Sonat Marketing will each own 50% of the new company.
Sonat Marketing will contribute $4,944,000 for its 50% ownership in the company.
PSNC Production will contribute gas contracts with a net book value of $0 for
its 50% ownership in the new company and will be the operator and managing
partner. Sonat Marketing is entitled to a partial refund of its contribution if
the economics of the transaction are adversely modified by any regulatory body
over a five-year period. Therefore, PSNC Production will recognize that
contribution as earned over five years, the economic period used in the
determination of the contribution amount. Sonat Public Service Company will
market natural gas and related services to small industrial and large commercial
customers throughout the Mid-Atlantic region, including the states of North
Carolina, South Carolina, Maryland, and Virginia, and the District of Columbia.
The new company will also provide gas supply management services to
municipalities in the Mid-Atlantic region.
Effects of Inflation
The margin charged to PSNC's firm gas customers may not be increased
without a general rate case. Accordingly, in the absence of authorized rate
increases and except for changes in the cost of gas sold, which are passed along
to customers on a timely basis through various rate adjustment mechanisms, PSNC
must look to performance improvement and higher throughput to offset
inflationary increases in its cost of operations. Current rates only permit PSNC
to recover its historical cost of utility plant and give no recognition to the
replacement cost of these facilities. PSNC's last general rate case was filed
March 1, 1996 and became effective October 1, 1996. Management continually
reviews operations and economic conditions to assess the need for filing for
general rate relief.
Recently Issued Accounting Statements
In March 1995, the Financial Accounting Standards Board (FASB) issued
its SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This statement imposes stricter criteria
for regulatory assets by requiring that such assets be probable of future
recovery at each balance sheet date. PSNC adopted this standard on October 1,
1995. Based on the current regulatory structure in which PSNC operates, PSNC's
financial position and results of operations were not materially affected.
In October 1995, the FASB issued its SFAS No. 123, "Accounting for
Awards of Stock-Based Compensation to Employees." This statement defines a fair
value method of accounting for stock options or similar equity instruments and
will be effective for PSNC beginning October 1, 1996.
23
<PAGE>
SFAS No. 123 permits companies to continue to account for stock-based
compensation awards under existing accounting rules, but requires disclosure in
a note to the financial statements of the pro forma net income and earnings per
share as if PSNC had adopted the new method of accounting. Currently PSNC has
two stock-based compensation plans which are described in Note 3 to the
financial statements. PSNC expects to continue to apply current accounting rules
and adopt only the disclosure requirements for these plans. As a result,
adoption of the new statement will not directly impact PSNC's financial position
or results of operations.
Forward-looking Statements
Statements contained in this document and the notes to the financial
statements which are not historical in nature are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to risks and uncertainties that may cause
future results to differ materially from those set forth in such forward-looking
statements. PSNC undertakes no obligation to update such statements to reflect
events or circumstances after the date hereof. Such risks and uncertainties with
respect to PSNC include, but are not limited to, its ability to successfully
implement internal performance goals, performance issues with natural gas
suppliers and transporters, the capital-intensive nature of PSNC's business,
regulatory issues (including rate relief to recover increased capital and
operating costs), competition, weather, exposure to environmental issues and
liabilities, variations in natural gas prices and general and specific economic
conditions. From time to time, subsequent to the date of the filing of this
document, PSNC may include forward-looking statements in oral statements or
other written documents.
24
<PAGE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Statements of Income
<CAPTION>
For the Fiscal Years Ended September 30, 1996 1995 1994
<S> <C> <C> <C>
Operating revenues $308,882,079 $247,893,014 $273,705,056
Cost of gas 168,137,830 117,065,047 155,377,642
Gross margin 140,744,249 130,827,967 118,327,414
Operating Expenses and Taxes:
Other operating expenses 50,074,438 47,006,721 45,123,338
Maintenance 5,128,699 4,261,832 4,645,045
Provision for depreciation 19,748,947 18,156,134 15,197,428
General taxes 16,005,669 13,823,123 14,566,009
Income taxes -
Federal 11,579,200 10,776,500 8,031,000
State 2,917,300 2,743,800 2,109,000
Total operating expenses and taxes 105,454,253 96,768,110 89,671,820
Operating income 35,289,996 34,059,857 28,655,594
Other Income (Deductions):
Allowance for equity funds used
during construction - 18,244 10,431
Merchandise and jobbing (83,582) (333,914) 478,848
Subsidiary operations, net of
income taxes 1,327,561 402,344 3,130,113
Interest income and other 2,106,868 132,543 950,177
Total other income (deductions) 3,350,847 219,217 4,569,569
Gross income 38,640,843 34,279,074 33,225,163
Interest Deductions:
Interest on long-term debt 12,252,379 11,115,979 12,060,285
Amortization of debt expense 151,978 137,122 146,983
Other interest 2,589,033 1,974,268 1,187,878
Allowance for borrowed funds used
during construction (250,765) (369,522) (146,389)
Total interest deductions 14,742,625 12,857,847 13,248,757
Net income $ 23,898,218 $ 21,421,227 $ 19,976,406
Average common shares outstanding 18,995,035 18,509,049 17,012,261
Earnings per average common share $1.26 $1.16 $1.17
Cash dividends declared per common share $.865 $.835 $.805
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
25
<PAGE>
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
September 30, 1996 1995
<S> <C> <C>
Assets
Gas Utility Plant:
In service $619,831,020 $566,460,339
Less - Accumulated depreciation 183,529,378 166,506,014
Net plant in service 436,301,642 399,954,325
Construction work in progress 9,386,643 7,484,772
445,688,285 407,439,097
Non-utility Property, net of
accumulated depreciation (1996 -
$134,789 and 1995 - $148,864) 691,145 801,118
Current Assets:
Cash and temporary investments 3,360,640 993,086
Restricted cash and temporary investments 6,394,634 4,215,146
Receivables, less allowance for
doubtful accounts (1996 - $2,481,943
and 1995 - $2,037,855) 17,899,381 13,604,584
Inventories, at average cost -
Materials, supplies and merchandise 6,704,622 5,576,801
Stored gas 15,862,819 12,141,033
Deferred gas costs, net 17,525,347 3,692,135
Prepayments 2,275,674 2,088,850
70,023,117 42,311,635
Deferred Charges and Other Assets:
Debt expense 1,418,463 884,392
Other 7,067,699 5,558,331
8,486,162 6,442,723
$524,888,709 $456,994,573
Capitalization and Liabilities Capitalization (see statements):
Common equity $188,635,405 $173,372,370
Long-term debt 140,150,000 100,700,000
328,785,405 274,072,370
Current Liabilities:
Current maturities of long-term debt 6,800,000 10,480,000
Accounts payable 20,300,451 20,411,512
Accrued taxes 3,074,823 1,823,638
Customer prepayments and deposits 6,013,886 5,741,647
Accrued interest 3,096,993 2,451,520
Cash dividends declared 4,222,283 3,971,802
Restricted supplier refunds 6,394,634 4,215,146
Other 3,960,098 3,416,056
53,863,168 52,511,321
Interim bank loans, due within one year 59,500,000 51,000,000
113,363,168 103,511,321
Deferred Credits and Other Liabilities:
Income taxes, net 56,232,845 52,605,635
Investment tax credits 4,210,269 4,645,425
Accrued pension cost 12,213,788 12,930,801
Other 10,083,234 9,229,021
82,740,136 79,410,882
$524,888,709 $456,994,573
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
26
<PAGE>
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Statements of Capitalization
<CAPTION>
September 30, 1996 1995
<S> <C> <C>
Common Equity:
Common stock, $1 par, 30,000,000
shares authorized; shares outstanding
1996 - 19,204,385 and 1995 - 18,689,346 $ 19,204,385 $ 18,689,346
Capital in excess of par value 114,007,859 106,655,316
Retained earnings 55,423,161 48,027,708
188,635,405 173,372,370
Long-term Debt:
First mortgage bonds (An equivalent
portion of gas utility plant pledged
as collateral) -
8% Series I, due 1998 - 3,680,000
Senior debentures (unsecured) -
8.65% due 2002 15,000,000 17,500,000
10% due 2003 11,250,000 15,000,000
10% due 2004 38,700,000 43,000,000
8.75% due 2012 32,000,000 32,000,000
6.99% due 2026 50,000,000 -
146,950,000 111,180,000
Less - Current maturities 6,800,000 10,480,000
140,150,000 100,700,000
$328,785,405 $274,072,370
</TABLE>
<TABLE>
Consolidated Statements of Retained Earnings
<CAPTION>
For the Fiscal Years Ended September 30, 1996 1995 1994
<S> <C> <C> <C>
Balance, beginning of year $48,027,708 $42,142,636 $36,164,769
Add - Net income 23,898,218 21,421,227 19,976,406
71,925,926 63,563,863 56,141,175
Deduct - Cash dividends declared
on common stock and other 16,502,765 15,536,155 13,998,539
Balance, end of year $55,423,161 $48,027,708 $42,142,636
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
<PAGE>
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the Fiscal Years Ended September 30, 1996 1995 1994
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net income $23,898,218 $21,421,227 $19,976,406
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation charged to operating expenses 19,748,947 18,156,134 15,197,428
Depreciation charged to other accounts 2,821,518 2,350,489 2,440,130
Amortization of debt expense and other 151,978 137,122 161,896
Provision for doubtful accounts 1,706,466 1,404,268 1,493,028
Amortization of investment tax credits, net (435,156) (435,154) (440,313)
Deferred income taxes, net 3,627,210 4,136,329 1,876,372
Gain on sale of propane assets - - (3,127,970)
51,519,181 47,170,415 37,576,977
Change in assets and liabilities:
Receivables (6,001,263) 1,639,855 (3,521,320)
Inventories (4,849,607) 2,690,078 (1,404,041)
Deferred gas costs, net (13,833,212) (2,958,509) 5,348,373
Prepayments (186,824) 482,864 (745,459)
Accounts payable (111,061) 4,755,558 (1,848,648)
Accrued taxes 1,251,185 (3,963,760) 2,634,559
Customer prepayments and deposits 272,239 171,656 100,649
Accrued interest 645,473 138,428 (1,382,050)
Other 1,602,404 268,917 1,445,207
Accrued pension cost (717,013) (2,600,758) 2,008,302
Net cash provided by operating activities 29,591,502 47,794,744 40,212,549
Cash Flows from Investing Activities:
Construction expenditures (60,428,321) (61,118,541) (45,469,230)
Non-utility property and other (1,801,879) (1,015,502) (1,535,728)
Proceeds from sale of propane assets - - 12,800,126
Net cash used in investing activities (62,230,200) (62,134,043) (34,204,832)
Cash Flows from Financing Activities:
Issuance of common stock through public
offering, net of expenses - - 23,406,260
Issuance of common stock through dividend
reinvestment, stock purchase and stock
option plans 7,674,585 6,762,526 7,297,969
Increase (decrease) in interim bank loans, net 8,500,000 28,000,000 (10,500,000)
Sale of senior debentures, net of expenses 49,313,951 - -
Retirement of long-term debt (14,230,000) (7,740,000) (11,136,000)
Retirement of common stock (58,056) (71,811) (162,420)
Cash dividends (16,194,228) (14,152,550) (14,297,880)
Net cash provided by (used in)
financing activities 35,006,252 12,798,165 (5,392,071)
Net increase (decrease) in cash and
temporary investments 2,367,554 (1,541,134) 615,646
Cash and temporary investments at beginning
of year 993,086 2,534,220 1,918,574
Cash and temporary investments at end of year $ 3,360,640 $ 993,086 $ 2,534,220
Cash paid during the year for:
Interest (net of amount capitalized) $13,787,781 $12,137,583 $14,134,527
Income taxes $11,480,000 $13,486,095 $ 8,927,800
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
28
<PAGE>
Public Service Company of North Carolina, Incorporated
and Subsidiaries
Notes to Consolidated Financial Statements
For the Fiscal Years Ended September 30, 1996, 1995 and 1994
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Segment Data
The consolidated financial statements include Public Service
Company of North Carolina, Incorporated's (PSNC), wholly-owned
subsidiaries, Clean Energy Enterprises, Inc. (previously Tar Heel Energy
Corporation), PSNC Blue Ridge Corporation, PSNC Production Corporation,
PSNC Propane Corporation, PSNC Cardinal Pipeline Company, and PSNC's
interest in Cardinal Pipeline Company, LLC. Through its subsidiaries,
PSNC also owns an interest in Cardinal Extension Company, LLC and Pine
Needle LNG Company, LLC. All significant intercompany transactions have
been eliminated in consolidation.
PSNC and its subsidiaries operate in one dominant business
segment, distribution of natural gas. PSNC Production Corporation, an
unregulated subsidiary, is engaged in the marketing of natural gas to
large commercial and industrial customers. Through another unregulated
subsidiary, Clean Energy Enterprises, Inc., PSNC provides conversion,
maintenance and fueling services for natural gas vehicles in selected
cities in and beyond its franchised territory. During fiscal 1994, PSNC
divested its remaining oil and gas properties, which ended PSNC's
participation in exploration and development activities and, PSNC sold
its propane subsidiary assets to Empiregas, Inc. of North Carolina.
Utility Plant
Utility plant is stated at the historical cost of construction.
Included in historical cost are certain construction-related costs such
as taxes, pensions and other fringe benefits, as well as the estimated
cost of funds used during construction (AFUDC). PSNC capitalizes AFUDC on
a pre-tax basis for both the cost of short-term debt and the allowed
overall cost rate.
Depreciation
PSNC provides for depreciation on a straight-line basis by the
application of specific rates to the various classes of depreciable
property. These rates, which have been approved by the North Carolina
Utilities Commission (NCUC), approximate 3.9%, 3.9% and 3.5% of the cost
of depreciable property for fiscal 1996, 1995 and 1994, respectively, on
a composite basis.
Revenues
Certain customers (primarily residential and commercial) are
billed on a cycle basis while other customers are billed as of the end of
each month. Revenues are recorded at the time of billing. The cost of gas
delivered but unbilled is deferred and recognized in the period in which
the related revenue is billed.
29
<PAGE>
Income Taxes
PSNC accounts for income taxes pursuant to the Statement of
Financial Accounting Standards (SFAS) No. 109, which requires a liability
method of accounting for income taxes. Under this method, the deferred
tax liability represents the tax effect of temporary differences between
the financial statement and tax bases of assets and liabilities and is
measured using current tax rates.
PSNC uses deferral accounting for investment tax credits, which
amortizes the credits to income over the service life of related
property.
Cash and Temporary Investments
For purposes of reporting cash flows, cash and temporary
investments include cash on hand and investments of 45 days or less.
Investments may include repurchase agreements, Treasury bills, federal
agency securities, certificates of deposit and high-grade commercial
paper.
Since fiscal 1992, PSNC has received refunds from its pipeline
transporters for which the investment and use have been restricted by an
order of the NCUC. Pursuant to an order of the NCUC, these funds are to
remain segregated from PSNC's general funds and will be used for
expansion of PSNC's facilities into unserved territories. These refunds,
along with interest earned thereon, are periodically transferred to the
Office of the State Treasurer. The balance not transferred is reported in
restricted cash and temporary investments and restricted supplier
refunds.
Debt Expense
PSNC amortizes issuance costs for its debentures over the life of
the related debt. PSNC is amortizing the redemption premium and the
unamortized issuance costs on its previously refunded Series K First
Mortgage Bonds over 15 years, in accordance with the treatment authorized
by the NCUC.
Fair Value of Financial Instruments
Financial instruments include cash and temporary investments and
long-term debt. The amount reported for cash and temporary investments
are considered to be reasonable approximations of their fair values due
to their short-term nature. The carrying amount of long-term debt
(including current maturities) at September 30, 1996, is $146,950,000 as
compared to a fair market value of $158,369,000. The fair market value of
these instruments is based on current market prices and yields for
similar issues.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions. These affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could materially differ from those estimates.
2. REGULATORY MATTERS
In PSNC's 1986 general rate case order, a rate mechanism (Rider-D)
was authorized. As currently approved by the NCUC, Rider D allows PSNC to
record for recovery from its customers all prudently incurred
30
<PAGE>
gas costs on a monthly basis. Any difference in amounts paid and
collected for these costs is deferred for subsequent refund to or
collection from customers. Additionally, PSNC can recover its margin
losses on negotiated gas sales to certain large commercial and industrial
customers in any manner authorized by the NCUC. At September 30, 1996,
the balance of net gas costs to be collected from customers pursuant to
Rider D was approximately $17,925,000.
In PSNC's 1991 general rate case order, a weather normalization
adjustment (WNA) mechanism was authorized. This mechanism allows PSNC to
adjust its winter-period gas sales rates to certain customers to avoid
undercollections or overcollections of its non-gas costs due to weather
fluctuations from normal.
Effective November 1, 1990, PSNC obtained additional firm capacity
from Transcontinental Gas Pipe Line Corporation's (Transco) Southern
Expansion project. The demand costs associated with this increased
capacity were recorded as a reduction of refunds due customers in
accordance with PSNC's interpretation of its tariffs as approved by the
NCUC in Docket No. G-5, Sub 246. The Public Staff of the NCUC filed a
petition with the NCUC claiming that these amounts were not recoverable
from customers under tariffs and laws existing at the time, except
through a general rate case. In an order dated April 5, 1991, the NCUC
ordered that PSNC's prior treatment of these costs not be disturbed. The
NCUC also ordered, prospectively, that these demand costs be collected
through all rates on a provisional basis pending further order. In view
of this NCUC order, PSNC deferred both the associated costs and the
revenue for the period April 5, 1991, through October 31, 1991. In the
November 1, 1991, general rate case order, the NCUC approved the
prospective collection of these demand costs through all rates. On April
29, 1993, the Public Staff filed a motion with the NCUC requesting that
PSNC be ordered to refund to its customers the revenues collected from
April 5, 1991, through October 31, 1991 for such costs. On July 27, 1993,
the NCUC issued an order requiring the refund as proposed by the Public
Staff. As a result of the order, PSNC charged to gas cost expenses during
the fourth quarter of fiscal 1993 approximately $1,225,000 of related
deferred gas costs and incurred approximately $199,000 of interest on the
deferred revenue. On October 16, 1995, the Federal Energy Regulatory
Commission (FERC) issued an order on remand, from the United States Court
of Appeals for the District of Columbia Circuit, requiring Transco to
file revised tariff sheets for Southern Expansion service provided from
November 1, 1990, through October 31, 1991. As a result of this order,
PSNC received additional charges for the period April 5, 1991, through
October 31, 1991, and recorded additional expense of $734,000 during the
fourth quarter of fiscal 1996. PSNC believes the October 16, 1995, order
to be the final order regarding Southern Expansion charges incurred prior
to November 1, 1991, and anticipates no further exposure from this issue.
On September 25, 1996, the NCUC issued an order in PSNC's general
rate case filed during March 1996. The order, effective October 1, 1996,
granted additional annual revenues of $2,701,000 and allowed a 10.37%
overall return on PSNC's net utility investment. It also approved the
continuation of the previously mentioned WNA and Rider D rate mechanisms.
PSNC and a subsidiary of Piedmont Natural Gas Company, Inc.
(Piedmont) formed Cardinal Pipeline Company, LLC (Cardinal) in March
1994, to construct and operate a 24-inch natural gas pipeline. It was
placed into service on December 31, 1994, and extends 37.5 miles from a
connection with Transco near Reidsville to Burlington, where it connects
with existing pipelines of PSNC and Piedmont. An increase in annual
revenues of $3,063,000 was granted by the NCUC to PSNC to recover the
cost of the investment, effective January 26, 1995.
On December 6, 1995, subsidiaries of PSNC, Piedmont, Transco, and
31
<PAGE>
North Carolina Natural Gas Corporation (NCNG) formed Cardinal Extension
Company, LLC (Cardinal Extension) to purchase and extend the Cardinal
pipeline. The pipeline will extend 67 miles from Burlington to a point
southeast of Raleigh and will add 140 million cubic feet per day of
additional firm capacity for North Carolina consumers. The extension will
be project-financed at an estimated cost of $75 million. Through their
respective subsidiaries, PSNC will own approximately 33%, Piedmont will
own approximately 17%, Transco will own approximately 45%, and NCNG will
own approximately 5% of Cardinal Extension. PSNC, through a subsidiary,
will contribute to Cardinal Extension its net book investment in the
existing pipeline plus additional equity capital of approximately $1
million. Subject to the approval of appropriate state and federal
agencies, construction is scheduled to begin in early 1999. The
facilities are expected to be in service on or before November 1, 1999.
PSNC signed an amendment to the operating agreement of Pine Needle
LNG Company, LLC (Pine Needle), to add PSNC's subsidiary, PSNC Blue Ridge
Corporation, as an owner of Pine Needle effective October 1, 1995. Pine
Needle, originally formed by subsidiaries of Transco and Piedmont, will
own and operate a liquefied natural gas (LNG) peak demand facility in
North Carolina. A subsidiary of Transco will serve as the operator. PSNC
Blue Ridge will own 17% of Pine Needle, and PSNC will have the right to
use 25% of the facility's gas storage capacity and withdrawal
capabilities. The facility, estimated to cost $107 million, will be
located near Transco's pipeline northwest of Greensboro and will have a
storage capacity of four billion cubic feet with vaporization capability
of 400 million cubic feet per day. Pine Needle plans to seek non-recourse
project financing for the facility investment. On April 30, 1996, the
FERC made a preliminary determination to grant a certificate authorizing
the construction and operation of Pine Needle. The FERC has approved a
12.75% return on equity for the project, and stated that the debt
component of the rate structure will be determined after permanent
financing is obtained. In July 1996, the FERC staff completed its
environmental assessment of Pine Needle and concluded that the project
would have no significant environmental impact. Pending FERC approval,
construction will begin in early 1997. Through September 30, 1996, PSNC
Blue Ridge has invested $2,055,000 in the project. Liquefaction is
expected to begin in May 1999 in time for withdrawal service to begin in
the 1999 winter heating season. PSNC Blue Ridge will make capital
contributions totaling approximately $9 million during the construction
period.
32
<PAGE>
3. COMMON STOCK
The changes in common stock and capital in excess of par value for
the three years ended September 30, 1996 were as follows:
<TABLE>
Common Stock
$1 Par, Authorized
30,000,000 Shares Capital in
Shares Excess of
Outstanding Amount Par Value
<CAPTION>
<S> <C> <C> <C>
September 30, 1993 15,991,776 $15,991,776 $ 71,505,794
Issuance through dividend
reinvestment plan (DRP) 325,434 325,434 4,694,165
Issuance through employee
stock purchase plan (ESPP) 86,892 86,892 1,168,261
Issuance through nonqualified
stock option plan (NSOP) - net 82,945 82,945 940,272
Compensation expense - NSOP - - 14,154
Recognition of permanent tax
differences related to stock
options exercised - - 196,800
Issuance through public offering -
net of expenses 1,725,000 1,725,000 21,681,260
September 30, 1994 18,212,047 18,212,047 100,200,706
Issuance through DRP 349,315 349,315 4,720,158
Issuance through ESPP 90,574 90,574 1,083,265
Issuance through NSOP - net 37,410 37,410 481,804
Compensation expense - NSOP - - 113,583
Recognition of permanent tax
differences related to stock
options exercised - - 55,800
September 30, 1995 18,689,346 18,689,346 106,655,316
Issuance through DRP 326,618 326,618 4,860,612
Issuance through ESPP 92,405 92,405 1,105,164
Issuance through NSOP - net 96,016 96,016 1,193,770
Compensation expense - NSOP - - 29,197
Recognition of permanent tax
differences related to stock
options exercised - - 163,800
September 30, 1996 19,204,385 $19,204,385 $114,007,859
</TABLE>
In accordance with PSNC's 1992 Nonqualified Stock Option Plan,
options to purchase an aggregate of up to 600,000 shares of PSNC's common
stock can be granted to officers and key employees of PSNC annually
beginning October 1, 1992. Options are granted at 90% of the fair market
value determined on the date of the grant, are exercisable beginning two
years from the date of the grant and expire five years
33
<PAGE>
from the date of the grant. An exception to the two-year exercise date is
allowed upon the retirement, disability or death of a participant.
On January 4, 1993, PSNC effected a 3-for-2 common stock split in
the form of a 50% common stock dividend. The following common stock
options and shares have been restated.
Options granted, exercised and canceled for the three years ended
September 30, 1996 were as follows:
Options Exercise Price
Outstanding Per Share
September 30, 1993 338,931
Granted 120,000 $13.23
Exercised (98,928) $ 8.77 to $15.57
Canceled (11,572) $ 8.77 to $15.57
September 30, 1994 348,431
Granted 120,000 $12.86
Exercised (46,095) $10.56 to $15.57
Canceled (1,479) $15.57
September 30, 1995 420,857
Granted 120,000 $14.29
Exercised (101,624) $10.56 to $15.57
Canceled (11,994) $12.86 to $15.57
September 30, 1996 427,239
PSNC also offers an Employee Stock Purchase Plan under which
eligible employees may purchase PSNC's common stock through voluntary
payroll deductions at a 10% discount from the fair market value as
defined in the plan.
On August 13, 1996, PSNC received authority from the NCUC to amend
its dividend reinvestment plan. The amended plan, effective October 1,
1996, is called the Stock Purchase and Automatic Dividend Reinvestment
Plan. At September 30, 1996, 1,668,616 common shares were reserved for
issuance under this plan, 141,896 common shares were reserved for
granting under the 1992 Nonqualified Stock Option Plan and 369,218 common
shares were reserved for issuance under the Employee Stock Purchase Plan.
34
<PAGE>
4. PENSION AND POSTRETIREMENT PLANS
PSNC and its subsidiaries sponsor a non-contributory defined
benefit pension plan covering substantially all employees. The benefits
are based on years of service and the employee's compensation during the
five consecutive years of employment that will produce the highest
average pay. Contributions to the plan are determined on an annual basis
with the amount of such contributions being within the minimum required
for funding standard account purposes and the maximum deductible for
federal income tax purposes.
Net pension cost in fiscal 1996, 1995 and 1994 consisted of the
following components (amounts in thousands):
1996 1995 1994
Service cost $2,034 $1,977 $2,026
Interest cost 2,972 3,173 3,040
Actual return on assets (2,845) (3,320) (814)
Net amortization (23) 228 (2,244)
Net pension cost $2,138 $2,058 $2,008
The table below sets forth the amount recognized on PSNC's
consolidated balance sheets at September 30, 1996 and 1995 (amounts in
thousands):
1996 1995
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits in
1996 of $29,405 and 1995 of $32,049 $30,434 $33,382
Projected benefit obligation $44,458 $45,315
Plan assets at fair value 38,503 37,011
Plan assets under projected
benefit obligation 5,955 8,304
Unrecognized transition amount 2,539 2,849
Unrecognized net gain 8,444 7,074
Unrecognized prior service cost (4,724) (5,296)
Accrued pension cost $12,214 $12,931
Actuarial assumptions:
Weighted average discount rate 7.75% 7%
Rate of increase in future
compensation levels 3.75%-7% 3%-6.25%
Weighted average expected
long-term rate of return 8% 8%
The majority of plan assets is invested in equities with the
balance primarily in fixed income investments. The fair value of PSNC's
own common stock held by the plan at the respective 1996 and 1995
measurement dates was approximately $2,710,000 and $2,629,000.
PSNC offers medical, life and dental insurance coverage to its
qualified salaried and hourly retirees. These benefits are unfunded.
Retirees are required to contribute for the cost of the coverage. PSNC's
policy is to review the contributions required from retirees on an annual
basis and to increase retiree contributions as necessary.
35
<PAGE>
Effective October 1, 1993, PSNC adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The standard
provides for the accrual of the costs of retiree medical, life and dental
insurance benefits over the working lifetime of the employees.
Based on the actuarial valuation of October 1, 1993, the adoption
of SFAS No. 106 resulted in a transition obligation of approximately
$7,400,000. The following table reconciles the plan's funded status to
the accrued benefit cost as of September 30, 1996 and 1995 (amounts in
thousands):
1996 1995
Fair value of plan assets $ - $ -
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents $ 2,507 $ 2,163
Other fully eligible participants 1,445 1,651
Other active participants 3,380 4,466
7,332 8,280
Unrecognized prior service cost (574) -
Unrecognized net gain 256 721
Unrecognized transition obligation (3,768) (6,639)
Accrued postretirement benefit cost $ 3,246 $ 2,362
The net periodic postretirement benefit cost for the twelve months
ended September 30, 1996, 1995 and 1994 consists of the following
components (amounts in thousands):
1996 1995 1994
Service cost $ 258 $ 326 $ 366
Interest cost on APBO 525 599 533
Amortization of
transition obligation 258 369 368
Net amortization 19 (21) -
Net periodic postretirement
benefit cost $1,060 $1,273 $1,267
As of the 1996 measurement date, the assumed health care cost
trend rate used in determining the APBO was 6% in 1996, 9% in 1997, 8% in
1998, 7% in 1999, then decreasing annually to an ultimate trend rate of
5.25% in 2005. A one-percentage point increase in the assumed health care
cost trend rate would increase the APBO by approximately 12%. The service
and interest cost components of the net periodic postretirement benefit
cost would increase approximately 6%. The net periodic postretirement
benefit cost was calculated using a weighted average discount rate of 7%.
36
<PAGE>
The APBO at the measurement date was determined using a weighted average
discount rate of 7.75%.
PSNC requested recovery of SFAS No. 106 expenses in its general
rate case filed with the NCUC on March 9, 1994. In an order dated October
7, 1994, the NCUC granted recovery of these expenses on a prospective
basis.
5. SHORT-TERM BORROWING ARRANGEMENTS
PSNC has committed lines of credit with seven commercial banks
which vary monthly depending upon seasonal requirements and a five-year
revolving line of credit with one bank. For the twelve-month period
beginning April 1, 1996, total lines of credit with these banks range
from a minimum of $24,000,000 to a winter-period maximum of $79,000,000.
PSNC also has uncommitted annual lines of credit totaling $80,000,000.
There are no restrictions on the withdrawal of cash balances maintained
with these banks. The banks are compensated for the committed lines of
credit through the payment of commitment fees. At September 30, 1996 and
1995, there were $59,500,000 and $51,000,000 of short-term loans
outstanding, respectively.
PSNC borrows funds on a short-term basis primarily for its
construction program and for the seasonal financing of stored gas. The
loans are generally arranged for periods of up to 90 days at rates below
the prime rate. Bankers' acceptance loans are arranged for periods of up
to 180 days at rates below the prime rate. At September 30, 1996 and
1995, PSNC had no bankers' acceptance loans outstanding.
Certain information related to short-term borrowings is as follows
(dollars in thousands):
1996 1995
At year end -
Amount outstanding $59,500 $51,000
Weighted average rate 5.69% 6.42%
During the year -
Maximum amount outstanding $82,500 $51,000
Average daily amount outstanding $39,944 $25,362
Weighted average rate 5.99% 6.10%
The weighted average rate is determined by dividing the total
short-term interest expense for the fiscal year by the average daily
amount outstanding during the fiscal year.
6. INCOME TAXES
Income tax expense is shown on the consolidated statements of
income within the captions listed below. Immediately following are the
components of income tax expense (amounts in thousands):
37
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
Federal State Federal State Federal State
<S> <C> <C> <C> <C> <C> <C>
Income Statement Captions:
Operating expenses
and taxes $11,579 $2,917 $10,777 $2,744 $ 8,031 $2,109
Other income (deductions) 763 202 162 19 1,532 528
$12,342 $3,119 $10,939 $2,763 $ 9,563 $2,637
Income Tax Expense:
Currently payable $ 9,892 $2,427 $ 8,320 $2,023 $ 9,569 $2,550
Deferred 2,885 692 3,054 740 434 87
Investment tax credits, net (435) - (435) - (440) -
$12,342 $3,119 $10,939 $2,763 $ 9,563 $2,637
</TABLE>
A reconciliation of the statutory federal income tax rate to the
effective tax rate is as follows (dollars in thousands):
1996 1995 1994
Statutory federal income tax rate 35% 35% 35%
Expected federal income tax expense
at federal statutory rate $13,438 $12,230 $10,541
Less: State income tax benefit 1,022 962 757
Amortization of ITC 435 435 439
Tax on subsidiary income 465 141 1,096
Other (63) (85) 218
Federal income tax expense $11,579 $10,777 $ 8,031
The components of the net deferred tax liabilities as of September
30, 1996 and 1995, are as follows (amounts in thousands):
1996 1995
Deferred tax assets:
Regulatory liabilities - income tax amounts $ 4,887 $ 5,100
Pension expense 3,719 3,903
Unamortized ITC 1,648 1,767
Postretirement benefits 1,046 819
Insurance reserves 679 735
Other 842 778
$ 12,821 $ 13,102
Deferred tax liabilities:
Depreciation and property related items $ 57,512 $ 53,723
Excess deferred taxes due to
a change in the statutory rate 10,591 10,914
Regulatory assets - income tax amounts 647 701
Other 304 370
$ 69,054 $ 65,708
Net deferred tax liabilities $ 56,233 $ 52,606
38
<PAGE>
7. ENVIRONMENTAL ISSUES
PSNC owns or has owned portions of six sites in North Carolina on
which MGPs were formerly operated and one site at which a manufactured
gas holder was located. Of the seven sites with which PSNC is involved,
intrusive investigation (including drilling, sampling and analysis) has
begun at only one site and the remaining sites have been evaluated using
historical records and observations of current site conditions made
during visits to the sites. These evaluations have revealed that MGP
residuals are present or suspected at several of the sites. The North
Carolina Department of Environment, Health and Natural Resources
(NCDEHNR) has recommended that no further action be taken with respect to
one site. In March and April 1994, an environmental consulting firm
retained by PSNC estimated that the aggregate cost of investigating and
monitoring the extent of environmental degradation and of implementing
remedial procedures with respect to the remaining six sites may range
from $3,705,000 to $50,145,000 over a 30-year period. PSNC is unable to
determine the rate at which costs may be incurred over this time period.
The estimated cost range has not been discounted to present value. The
range includes costs of investigating and monitoring the sites at the low
end of the range and investigating, monitoring and extensively
remediating the sites at the high end of the range. PSNC's associated
actual costs for these sites will depend on a number of factors, such as
actual site conditions, third party claims and recoveries from other
potentially responsible parties (PRPs). Another North Carolina public
utility or its predecessors also operated the MGPs in Raleigh, Durham and
Asheville, and PSNC is in discussion with that utility regarding
potential cost sharing arrangements for investigation and potential
remediation costs of four of the sites. At this time, PSNC has not
reached a definitive agreement regarding such arrangements.
An order of the NCUC dated May 11, 1993 authorized deferral
accounting for all costs associated with the investigation and
remediation of MGP sites. As of September 30, 1996, PSNC has recorded a
liability and associated regulatory asset of the minimum amount of the
range, or $3,705,000.
The NCUC concluded that it is proper and in the public interest to
allow recovery of prudently incurred clean-up costs from current
customers as reasonable operating expenses even though the MGP sites are
not used and useful in providing gas service to current customers.
However, the NCUC will not allow recovery of carrying costs on deferred
amounts. Amounts incurred to date are not material. Management intends to
request recovery of additional MGP clean-up costs not recovered from
other PRPs in future rate case filings, and believes that all costs
deemed by the NCUC to be prudently incurred will be recoverable in gas
rates.
8. LONG-TERM DEBT
Effective December 1, 1995, PSNC redeemed the remaining $3,680,000
balance of its 8% Series I First Mortgage Bonds, due 1998, at a
redemption price of 100.35%. PSNC financed this redemption through the
use of short-term bank debt. As this redemption retired the balance of
first mortgage bonds, PSNC has closed the original indenture and all
supplemental indentures which secured these bonds, and obtained a release
of the liens on its property.
39
<PAGE>
On December 20, 1995, PSNC filed with the Securities and Exchange
Commission a registration statement covering up to an aggregate amount of
$125,000,000 of unsecured debt securities. On January 10, 1996, PSNC sold
$50,000,000 of 6.99% Senior Debentures due 2026 in a public offering
under the registration statement. The net proceeds of $49,314,000 were
used to pay down a significant portion of the then outstanding short-term
bank debt.
Maturities of long-term debt during each of the next five fiscal
years will be as follows: 1997, $6,800,000; 1998, $9,300,000; 1999,
$9,300,000; 2000, $11,800,000; and 2001, $6,800,000.
Under terms of the debt agreements, there are various provisions
relating to the maintenance of certain financial ratios and conditions,
the most significant of which could restrict payment of dividends. At
September 30, 1996, PSNC is in compliance in all material respects with
the requirements of its debt agreements.
9. CONSTRUCTION PROGRAM
The construction program for fiscal 1997, as presently planned,
provides for expenditures of $64,233,000.
10. CONTINGENT LIABILITIES
PSNC is party to certain legal actions. Although it is impossible
to predict the outcomes with certainty, based upon the opinions of legal
counsel, management does not expect the dispositions of these matters to
have a materially adverse effect on PSNC's financial position or results
of operations.
11. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
PSNC offered special benefits to eligible employees in connection
with a voluntary early retirement program. This special termination
benefit, which is payable in addition to the employee's regular plan
benefits, was available until November 27, 1996. Special termination
benefits totaling approximately $3,600,000 will be paid to employees upon
their retirement from PSNC's assets rather than from the pension plan
assets. PSNC anticipates accelerating the recognition of approximately
$1,300,000 of the unrecognized net gain and unrecognized net asset as
allowed in SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits." The net effect of these two transactions will be recognized
during the first quarter of fiscal 1997.
On December 2, 1996, PSNC Production Corporation and Sonat
Marketing Company L.P., a subsidiary of Sonat Inc., created Sonat Public
Service Company L.L.C. PSNC Production and Sonat Marketing will each own
50% of the new company. Sonat Marketing will contribute $4,944,000 for
its 50% ownership in the company. PSNC Production will contribute gas
contracts with a net book value of $0 for its 50% ownership in the new
company and will be the operator and managing partner. Sonat Marketing is
entitled to a partial refund of its contribution if the economics of the
transaction are adversely modified by any regulatory body over a
five-year period. Therefore, PSNC Production will recognize that
contribution as earned over five years, the economic period used in the
determination of the contribution amount. Sonat Public Service Company
will market natural gas and related services to small industrial and
large commercial customers throughout the Mid-Atlantic region, including
the states of North Carolina, South Carolina, Maryland, and Virginia, and
the District of Columbia. The new company will also provide gas supply
management services to municipalities in the Mid-Atlantic region.
40
<PAGE>
12. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents certain financial information for
each quarter during the fiscal years ended September 30, 1996 and 1995
(amounts in thousands, except per share data):
1996
Fourth Third Second First
Operating revenues $33,100 $58,807 $142,053 $74,922
Gross margin 16,303 26,425 61,500 36,516
Operating income (loss) (2,165) 3,905 23,177 10,374
Net income (loss) (5,250) 1,441 20,577 7,131
Earnings (loss)
per share (1) (.27) .08 1.09 .38
1995
Fourth Third Second First
Operating revenues $26,718 $41,650 $112,690 $66,835
Gross margin 16,042 24,236 57,452 33,099
Operating income (loss) (1,222) 3,595 21,849 9,838
Net income (loss) (4,350) 605 18,503 6,663
Earnings (loss) per share (.23) .03 1.00 .36
(1) The sum of the quarterly earnings (loss) per share amounts does not equal
the annual earnings per share amount reflected in the consolidated
statement of income due to the effect of changes in average common shares
outstanding during the fiscal year.
41
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of
Public Service Company of North Carolina, Incorporated:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Public Service Company of North Carolina,
Incorporated (PSNC), a North Carolina corporation, and subsidiaries as of
September 30, 1996 and 1995, and the related consolidated statements of income,
retained earnings and cash flows for each of the three years in the period ended
September 30, 1996. These financial statements are the responsibility of PSNC's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Public Service
Company of North Carolina, Incorporated and subsidiaries as of September 30,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
s/Arthur Andersen LLP
Charlotte, North Carolina,
October 29, 1996
(except with respect to the matters
discussed in Note 11 as to which
the date is December 3, 1996)
42
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation, presentation and
integrity of the financial statements and other financial information in this
report. The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles applicable to rate-regulated
public utilities, including estimates and judgments made by management that were
necessary to prepare the statements in accordance with such accounting
principles, and are not misstated due to material fraud or error. To assure the
integrity of the underlying financial records supporting the financial
statements, management maintains a system of internal accounting controls
sufficient to provide reasonable assurances that PSNC assets are properly
accounted for, safeguarded and are utilized only in accordance with management's
authorization. The concept of reasonable assurance recognizes that the costs of
a system of internal controls should not exceed the related benefits derived
from it.
The system of internal accounting controls is augmented by PSNC's
internal audit department, which has unrestricted access to all levels of PSNC
management. The internal audit department meets periodically, with and without
the presence of management, with the Audit Committee of the Board of Directors
to discuss, among other things, PSNC's system of internal accounting controls
and the adequacy of the internal audit program. The Audit Committee is comprised
of six directors who are not officers or employees of PSNC.
The Audit Committee also meets periodically with Arthur Andersen LLP,
PSNC's independent public accountants, with and without the presence of
management, to discuss the results of the annual audit of PSNC's financial
statements and related data. The Audit Committee and Arthur Andersen LLP also
discuss internal accounting control matters that come to the attention of Arthur
Andersen LLP during the course of the audit.
s/Charles E. Zeigler, Jr. s/Robert D. Voigt
- ---------------------------- -------------------------
Charles E. Zeigler, Jr. Robert D. Voigt
Chairman, President and Senior Vice President - Corporate
Chief Executive Officer Development & Chief Financial
Officer
43
<PAGE>
Supplementary Data
The information for this item is contained in Note 12 entitled
"SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)" on page 41 of
this annual report.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information for this item is set forth in the sections
entitled "Election of Directors" and "The Board of Directors and
Committees of the Board - Compliance with Section 16(a)" in PSNC's
proxy statement dated December 9, 1996, relating to the January 31,
1997 annual meeting of shareholders, which section is incorporated
herein by reference.
Executive Officers
The information for this item is set forth on page 11 of this
annual report.
Item 11. Executive Compensation
The information for this item is set forth in the sections
entitled "Executive Compensation," "Employee Retirement Plans,"
"Performance Graph" and "The Board of Directors and Committees of the
Board" in PSNC's proxy statement dated December 9, 1996, relating to
the January 31, 1997 annual meeting of shareholders, which section is
incorporated herein by reference (specifically excluding disclosures in
such sections relating to Items 402(k) and (l) of Regulation S-K).
44
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information for this item is set forth in the section
entitled "Common Stock Ownership By Directors and Executive Officers"
in PSNC's proxy statement dated December 9, 1996, relating to the
January 31, 1997 annual meeting of shareholders, which section is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information for this item is set forth in the sections
entitled "Election of Directors" and "Compensation Committee Interlocks
and Insider Participation" in PSNC's proxy statement dated December 9,
1996, relating to the January 31, 1997 annual meeting of shareholders,
which sections are incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
Page
(a) 1. Financial statements -
Consolidated Statements of Income for the
Fiscal Years Ended September 30, 1996,
1995 and 1994 25
Consolidated Balance Sheets at
September 30, 1996 and 1995 26
Consolidated Statements of Capitalization
at September 30, 1996 and 1995 27
Consolidated Statements of Retained
Earnings for the Fiscal Years Ended
September 30, 1996, 1995 and 1994 27
Consolidated Statements of Cash Flows for
the Fiscal Years Ended September 30, 1996,
1995 and 1994 28
Notes to Consolidated Financial Statements
for the Fiscal Years Ended September 30,
1996, 1995 and 1994 29-41
Report of Independent Public Accountants 42
Management's Responsibility for Financial Statements 43
45
<PAGE>
Page
2. Financial statement schedules -
The following financial statement schedules are included
herein:
Supplemental Schedules:
Report of Independent Public Accountants 48
Schedule II - Reserves for the Fiscal Years Ended
September 30, 1996, 1995 and 1994 49-51
All other financial statement schedules are omitted as not
applicable, not required, or the required information is included in the
consolidated financial statements and notes thereto.
3. Exhibits -
See Exhibit Index on page 53 of this annual report.
(b) Reports on Form 8-K -
There were no reports on Form 8-K filed during the three months
ended September 30, 1996.
46
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into PSNC's previously filed
Registration Statements on Form S-3 (File Nos. 33-65205 and 33-10637) and Form
S-8 (File Nos. 33-17996, 33-49153 and 33-48909).
s/Arthur Andersen LLP
Charlotte, North Carolina,
December 10, 1996
47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Public Service Company of North
Carolina, Incorporated included in this Form 10-K, and have issued our report
thereon dated October 29, 1996 (except with respect to the matters discussed in
Note 11 as to which the date is December 3, 1996). Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the accompanying index are the responsibility of the
Registrant's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
s/Arthur Andersen LLP
Charlotte, North Carolina,
October 29, 1996
48
<PAGE>
<TABLE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - RESERVES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------- ----------- ---------------- ----------- --------
Additions
Charged To
Balance At ------------------ Balance
Beginning Operating Other At End
Description Of Period Expenses Income Deductions(1) Of Period
- ---------------- ------------ ------------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN BALANCE SHEET FROM
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts $2,037,855 $1,635,210 $71,256 $1,262,378 $2,481,943
(1) Deductions represent uncollectible accounts written off, net of
recoveries, as follows -
Write-off of accounts considered to be uncollectible $1,969,469
Less - Recoveries on accounts previously written off 707,091
$1,262,378
</TABLE>
49
<PAGE>
<TABLE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - RESERVES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------- ----------- ---------------- ----------- --------
Additions
Charged To
Balance At ---------------- Balance
Beginning Operating Other At End
Description Of Period Expenses Income Deductions(1) Of Period
- ---------------- ------------ ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN BALANCE SHEET FROM
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts $1,467,887 $1,335,441 $68,827 $834,300 $2,037,855
(1) Deductions represent uncollectible accounts written off, net of
recoveries, as follows -
Write-off of accounts considered to be uncollectible $1,496,453
Less - Recoveries on accounts previously written off 662,153
$ 834,300
</TABLE>
50
<PAGE>
<TABLE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - RESERVES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------- ----------- ---------------- ----------- --------
Additions
Charged To
Balance At ---------------- Balance
Beginning Operating Other At End
Description Of Period Expenses Income Deductions(1) Of Period
- ---------------- ------------ ----------------- -------------- ----------
DEDUCTED IN BALANCE SHEET FROM
ASSET TO WHICH IT APPLIES:
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $1,303,171 $1,430,708 $101,166 $1,367,158 $1,467,887
(1) Deductions represent uncollectible accounts written off, net of
recoveries, as follows -
Write-off of accounts considered to be uncollectible $2,049,726
Less - Recoveries on accounts previously written off 682,568
$1,367,158
</TABLE>
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PUBLIC SERVICE COMPANY
OF NORTH CAROLINA, INCORPORATED
(Registrant)
s/Charles E. Zeigler, Jr.
Charles E. Zeigler, Jr.
Chairman, President and
December 10, 1996 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on December 10, 1996.
s/Charles E. Zeigler, Jr. s/Robert D. Voigt
Charles E. Zeigler, Jr. Robert D. Voigt
Chairman, President and Senior Vice President -
Chief Executive Officer Corporate Development
(Principal executive officer) and Chief Financial Officer
(Principal financial and
accounting officer)
s/William C. Burkhardt s/B. Frank Matthews, II
William C. Burkhardt - Director B. Frank Matthews, II - Director
s/William A. V. Cecil s/William L. O'Brien, Jr.
William A. V. Cecil - Director William L. O'Brien Jr. - Director
s/Bert Collins s/D. Wayne Peterson
Bert Collins - Director D. Wayne Peterson - Director
s/John W. Copeland s/Ben R. Rudisill, II
John W. Copeland - Director Ben R. Rudisill, II - Director
s/H. Max Craig, Jr. s/G. Smedes York
H. Max Craig, Jr. - Director G. Smedes York - Director
s/Van E. Eure
Van E. Eure - Director
52
<PAGE>
EXHIBIT INDEX
The following documents are filed as a part of this annual report on
Form 10-K for the fiscal year ended September 30, 1996. Those exhibits
previously filed and incorporated herein by reference are identified below with
an asterisk and with a reference to the previous filing.
Exhibit
Number
*3-A-4 - Amended and Restated Charter, dated February 1, 1991. (File
No. 0-1218, 10-K--1992, Exhibit 3-A-4).
*3-I - By-laws, as amended to date. (File No. 0-1218, 10-Q--March
31, 1994, Exhibit 3-I).
*4-A - Debenture Purchase Agreement, dated as of June 15, 1987, for
$25,000,000 of 8.65% Senior Debentures due August 31, 2002.
(File No. 0-1218, 10-K--1987, Exhibit 4-A).
*4-B - Debenture Purchase Agreement, dated as of September 15,
1988, for $25,000,000 of 10% Senior Debentures due October
1, 2003. (File No. 0-1218, 10-K--1988, Exhibit 4-B).
*4-C - Debenture Purchase Agreement, dated as of December 5, 1989,
for $43,000,000 of 10% Senior Debentures due December 1,
2004. (File No. 0-1218, 10-K--1989, Exhibit 4-C).
*4-D - Debenture Purchase Agreement, dated as of June 25, 1992, for
$32,000,000 of 8.75% Senior Debentures due June 30, 2012.
(File No. 0-1218, 10-Q--June 30, 1992, Exhibit 4-D).
*4-E-1 - Indenture dated as of January 1, 1996, as supplemented by a
First Supplemental Indenture dated as of January 1, 1996,
between PSNC and First Union National Bank of North
Carolina, as trustee. (File No. 1-11429, 10-Q--December 31,
1995, Exhibit 4-E-1).
*4-E-2 - Specimen of the certificate representing the $50,000,000
aggregate principal amount of 6.99% Senior Debentures Due
2026 issued by PSNC on January 16, 1996. (File No. 1-11429,
10-Q--December 31, 1995, Exhibit 4-E-2).
*10-A-5 - Natural Gas Sales Agreement - TEMCO/PSNC FT-1 between PSNC
and Transco Energy Marketing Company dated January 1, 1989.
(File No. 0-1218, 10-Q--March 31, 1989, Exhibit 19-A).
*10-A-7 - Firm Seasonal Transportation Agreement dated June 29, 1990,
between PSNC and Transcontinental Gas Pipe Line Corporation.
(File No. 0-1218, 10-K--1990, Exhibit 10-A-7).
53
<PAGE>
Exhibit
Number
*10-A-8 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-8).
*10-A-9 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-9).
*10-A-10 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-10).
*10-A-11 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-11).
*10-A-13 - Firm Transportation Service Agreement under Rate Schedule
FT, dated August 1, 1991, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 0-1218, 10-K--1992,
Exhibit 10-A-13).
*10-A-15 - Firm Transportation Service Agreement under Rate Schedule
FT, dated February 1, 1992, between PSNC and
Transcontinental Gas Pipe Line Corporation. (File No. 0-
1218, 10-K--1993, Exhibit 10-A-15).
*10-A-16 - Firm Transportation Service Agreement under Rate Schedule
FT-NN, dated October 8, 1993, between PSNC and CNG
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-16).
*10-A-17 - Firm Transportation Service Agreement under Rate Schedule
FT-NN-GSS, dated October 8, 1993, between PSNC and CNG
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-17).
*10-A-18 - Firm Transportation Service Agreement under Rate Schedule
FT-A, dated November 1, 1993, between PSNC and Tennessee Gas
Pipeline Company. (File No. 0-1218, 10-K--1993, Exhibit 10-
A-18).
*10-A-19 - Firm Transportation Service Agreement under Rate Schedule
FT-1, dated November 1, 1993, between PSNC and Texas Eastern
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-19).
*10-A-20 - Firm Transportation Service Agreement under Rate Schedule
FT, dated November 1, 1993, between PSNC and Texas Gas
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-20).
*10-A-21 - Firm Transportation Service Agreement under Rate Schedule
FT, dated October 1, 1993, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-21).
54
<PAGE>
Exhibit
Number
*10-A-22 - Firm Transportation Service Agreement under Rate Schedule
FT, dated June 6, 1994, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 1-11429, 10-K--
September 30, 1995, Exhibit 10-A-22).
*10-A-23 - Firm Transportation Service Agreement under Rate Schedule
FT, dated April 30, 1995, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 1-11429, 10-K--
September 30, 1995, Exhibit 10-A-23).
*10-A-24 - Firm Transportation Service Agreement under Rate Schedule
FT, dated January 24, 1996, between PSNC and
Transcontinental Gas Pipe Line Corporation. (File No. 1-
11429, 10-Q--June 30, 1996, Exhibit 10-A-24).
*10-A-25 - General Storage Service Agreement under Rate Schedule GSS,
dated October 17, 1995, between PSNC and CNG Transmission
Corporation. (File No. 1-11429, 10-Q--June 30, 1996,
Exhibit 10-A-25).
*10-A-26 - Firm Transportation Service Agreement under Rate Schedule
FT-NN-GSS, dated October 17, 1995, between PSNC and CNG
Transmission Corporation. (File No. 1-11429, 10-Q--June 30,
1996, Exhibit 10-A-26).
*10-A-27 - Firm Transportation Service Agreement under Rate Schedule
FT, dated January 24, 1996, between PSNC and CNG
Transmission Corporation. (File No. 1-11429, 10-Q--June 30,
1996, Exhibit 10-A-27).
*10-A-28 - Firm Transportation Service Agreement under Rate Schedule
FT-NN, dated October 17, 1995, between PSNC and CNG
Transmission Corporation. (File No. 1-11429, 10-Q--June 30,
1996, Exhibit 10-A-28).
*10-A-29 - Firm Transportation Service Agreement under Rate Schedule
FT, dated January 19, 1996, between PSNC and Texas Gas
Transmission Corporation. (File No. 1-11429, 10-Q--June 30,
1996, Exhibit 10-A-29).
*10-A-30 - Firm Transportation Service Agreement under Rate Schedule
FT-1, dated October 30, 1995, between PSNC and Texas Eastern
Transmission Corporation. (File No. 1-11429, 10-Q--June 30,
1996, Exhibit 10-A-30).
55
<PAGE>
Exhibit
Number
*10-A-31 - Interruptible Transportation Service Agreement under Rate
Schedule IT, dated January 23, 1996, between PSNC and
Transcontinental Gas Pipe Line Corporation. (File No. 1-
11429, 10-Q--June 30, 1996, Exhibit 10-A-31).
*10-B-2 - General Storage Service Agreement under Rate Schedule GSS,
dated May 2, 1972, between PSNC and Transcontinental Gas
Pipe Line Corporation. (Registration No. 2-53708, Exhibit
5.4).
*10-B-4 - Liquefied Natural Gas Storage Service Agreement under Rate
Schedule LG-A, dated August 5, 1974, between PSNC and
Transcontinental Gas Pipe Line Corporation. (Registration
No. 2-53708, Exhibit 5.6).
*10-B-5 - Eminence Storage Service Agreement under Rate Schedule ESS,
dated November 1, 1993, and Amendment, dated December 1,
1993, between PSNC and Transcontinental Gas Pipe Line
Corporation. (File No. 0-1218, 10-K--1993, Exhibit 10-B-5).
*10-B-6 - Washington Storage Service Agreement under Rate Schedule
WSS, dated August 1, 1991, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 0-1218, 10-Q--March
31, 1994, Exhibit 10-B-6).
*10-C-1 - 1987 Nonqualified Stock Option Plan. (Registration No.
33-17996, Exhibit 4.1).
*10-C-2 - 1992 Nonqualified Stock Option Plan. (Registration No. 33-
48909, Exhibit 4).
*10-D-3 - Construction, Operating and Management Agreement by and
between Public Service Company of North Carolina, Inc. and
Cardinal Pipeline Company, LLC, dated March 23, 1994. (File
No. 0-12-18, 10-Q--March 31, 1994, Exhibit 10-D-3).
*10-E - Underwriting Agreement, dated January 10, 1996, between PSNC
and Morgan Stanley & Co. Incorporated. (File No. 1-11429,
10-Q--December 31, 1995, Exhibit 10-E).
11 - Statement re computation of per share earnings.
*19 - Letter regarding change in method of accounting for the
commodity cost of gas purchased and delivered to customers
but not billed and recorded as revenue during the current
period. (File No. 0-1218, 10-Q--March 31, 1981, Exhibit
19).
21 - Subsidiaries of Registrant.
56
<PAGE>
Exhibit
Number
23 - Consent of Independent Public Accountants. (Set forth on
page 47 of this annual report).
27 - Financial Data Schedule.
*99 - Revised Item 21 of Part II to the Registration Statement on
Form S-8, Registration No. 33-27903. (File No. 0-1218, 10-
K--1990, Exhibit 28-C).
57
<PAGE>
EXHIBIT 11
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Earnings available for common $23,898,218 $21,421,227 $19,976,406
----------- ----------- -----------
Average common shares outstanding 18,995,035 18,509,049 17,012,261
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 72,358 54,281 60,520
----------- ----------- -----------
Average common shares outstanding as
adjusted 19,067,393 18,563,330 17,072,781
----------- ----------- -----------
Earnings per share, as adjusted $1.25 $1.15 $1.17
===== ===== =====
- ------------
This calculation is submitted in accordance with Regulation S-K item 601(b) (11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results indilution of less than 3%.
58
<PAGE>
EXHIBIT 21
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
SUBSIDIARIES OF REGISTRANT (1)
Clean Energy Enterprises, Inc.
Cardinal Pipeline Company, LLC (2)
PSNC Blue Ridge Corporation
PSNC Cardinal Pipeline Company
PSNC Production Corporation
PSNC Propane Corporation
Sonat Public Service Company L.L.C. (3)
(1) The above subsidiaries are incorporated or organized in the
state of North Carolina, with the exception of Sonat Public
Service Company L.L.C., which is a Delaware LLC. PSNC
Exploration Corporation was dissolved August, 1996.
(2) 64% ownership by PSNC.
(3) 50% ownership by PSNC Production Corporation.
59
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<PERIOD-START> OCT-01-1995
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