UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............ to ............
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)
(704) 864-6731
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, $1 par value, outstanding
at April 30, 1997................ .................................19,619,700
1
<PAGE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by the registrant without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, the registrant believes that the
disclosures herein are adequate to make the information presented not
misleading. It is recommended that these condensed financial statements be read
in conjunction with the financial statements and the notes thereto included in
the registrant's latest annual report on Form 10-K.
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31 March 31
------------------ ------------------ -------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $150,146 $142,053 $243,800 $216,975 $335,707 $285,343
Cost of gas 82,977 80,553 135,179 118,959 184,358 147,050
-------- -------- -------- -------- -------- --------
Gross margin 67,169 61,500 108,621 98,016 151,349 138,293
-------- -------- -------- -------- -------- --------
Operating expenses and taxes:
Operating and maintenance 15,328 14,389 31,085 27,601 58,687 53,584
Provision for depreciation 5,521 4,897 10,916 9,694 20,971 18,918
General taxes 6,503 6,229 10,896 9,933 16,968 15,082
Income taxes 14,052 12,808 18,922 17,238 16,181 14,786
-------- -------- -------- -------- -------- --------
41,404 38,323 71,819 64,466 112,807 102,370
-------- -------- -------- -------- -------- --------
Operating income 25,765 23,177 36,802 33,550 38,542 35,923
Other income, net 1,064 1,074 2,057 1,508 3,899 1,742
Interest deductions 4,442 3,674 8,566 7,351 15,958 13,702
-------- -------- -------- -------- -------- --------
Net income $ 22,387 $ 20,577 $ 30,293 $ 27,707 $ 26,483 $ 23,963
======== ======== ======== ======== ======== ========
Average common shares
outstanding 19,513 18,959 19,404 18,865 19,265 18,749
Earnings per share $1.15 $1.09 $1.56 $1.47 $1.37 $1.28
Cash dividends declared
per share $.22 $.2125 $.44 $.425 $.88 $.85
</TABLE>
3
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Mar 31 Sep 30 Mar 31
1997 1996 1996
-------- -------- --------
Gas utility plant $652,405 $629,218 $595,263
Less - Accumulated depreciation 194,610 183,529 175,582
-------- -------- --------
457,795 445,689 419,681
-------- -------- --------
Non-utility property, net 664 691 716
-------- -------- --------
Current assets:
Cash and temporary investments 3,782 3,361 4,089
Restricted cash and temporary investments 11,410 6,395 5,467
Receivables, less allowance for
doubtful accounts 51,794 17,899 49,813
Materials and supplies 7,206 6,705 5,937
Stored gas inventory 9,567 15,863 4,383
Deferred gas costs, net 18,601 17,525 17,996
Prepayments and other 2,474 2,275 2,118
-------- -------- --------
104,834 70,023 89,803
-------- -------- --------
Deferred charges and other assets 11,295 8,486 8,405
-------- -------- --------
Total $574,588 $524,889 $518,605
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common equity -
Common stock, $1 par $ 19,546 $ 19,204 $ 18,979
Capital in excess of par value 119,662 114,008 110,769
Retained earnings 77,138 55,423 67,709
-------- -------- --------
216,346 188,635 197,457
Long-term debt 183,350 140,150 143,900
-------- -------- --------
399,696 328,785 341,357
-------- -------- --------
Current liabilities:
Maturities of long-term debt 9,300 6,800 9,300
Accounts payable 20,288 20,301 43,926
Accrued taxes 14,124 3,075 13,064
Customer prepayments and deposits 3,591 6,014 3,172
Cash dividends and interest 8,643 7,319 7,695
Restricted supplier refunds 6,564 6,395 5,467
Other 4,398 3,960 3,009
-------- -------- --------
66,908 53,864 85,633
Interim bank loans 23,500 59,500 10,000
-------- -------- --------
90,408 113,364 95,633
-------- -------- --------
Deferred credits and other liabilities:
Income taxes, net 57,717 56,233 55,007
Investment tax credits 3,697 4,210 4,129
Accrued pension cost 9,119 12,214 12,703
Deferred revenues 3,589 - 155
Other 10,362 10,083 9,621
-------- -------- --------
84,484 82,740 81,615
-------- -------- --------
Total $574,588 $524,889 $518,605
======== ======== ========
4
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands)
Twelve Months Ended
March 31
-------------------
1997 1996
-------- -------
Balance beginning of period $67,709 $59,740
Add - Net income 26,483 23,963
Deduct - Common stock dividends
and other 17,054 15,994
------- -------
Balance end of period $77,138 $67,709
======= =======
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended Twelve Months Ended
March 31 March 31
----------------- -------------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $30,293 $27,707 $26,483 $23,963
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation, depletion and other 12,512 11,819 24,687 22,840
Deferred income taxes, net 1,484 2,401 2,710 4,822
------- ------- ------- -------
44,289 41,927 53,880 51,625
Change in operating assets and liabilities:
Receivables, net (35,262) (37,414) (3,849) (22,989)
Inventories 5,795 7,398 (6,453) 2,106
Accounts payable (13) 23,514 (23,638) 25,750
Accrued pension cost (3,095) (228) (3,583) (280)
Other 7,641 (5,051) 2,443 (16,897)
------- ------- ------- -------
19,355 30,146 18,800 39,315
------- ------- ------- -------
Cash Flows From Investing Activities:
Construction expenditures (23,976) (23,133) (61,271) (57,066)
Non-utility and other (1,399) (561) (2,640) (1,530)
------- ------- ------- -------
(25,375) (23,694) (63,911) (58,596)
------- ------- ------- -------
Cash Flows From Financing Activities:
Sale of senior debentures, net of expenses 49,404 49,314 49,404 49,314
Issuance of common stock through
dividend reinvestment, stock purchase
and stock option plans 5,841 4,274 9,242 7,175
Increase (decrease) in interim bank
loans, net (36,000) (41,000) 13,500 (6,500)
Retirement of long-term debt
and common stock (4,329) (7,980) (10,637) (15,525)
Cash dividends (8,475) (7,964) (16,705) (15,706)
------- ------- ------- -------
6,441 (3,356) 44,804 18,758
------- ------- ------- -------
Net increase (decrease) in cash and
temporary investments 421 3,096 (307) (523)
Cash and temporary investments
at beginning of period 3,361 993 4,089 4,612
------- ------- ------- -------
Cash and temporary investments
at end of period $ 3,782 $ 4,089 $ 3,782 $ 4,089
======= ======= ======= =======
Cash paid during the period for:
Interest (net of amount capitalized) $ 7,109 $ 5,960 $14,937 $11,923
Income taxes 7,120 5,080 13,520 10,914
</TABLE>
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements and notes should
be read in conjunction with the financial statements and notes included in
PSNC's 1996 Annual Report. In the opinion of management, all adjustments
necessary for a fair statement of the results of operations for the interim
periods have been recorded. Certain amounts previously reported have been
reclassified to conform with the current period's presentation.
PSNC's business is seasonal in nature; therefore, the financial results
for any interim period are not necessarily indicative of those which may be
expected for the annual period.
2. In October 1995, the Financial Accounting Standards Board issued its
Statement of Financial Accounting Standards 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 was
adopted by PSNC beginning October 1, 1996.
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 in PSNC's 1996 Annual Report. PSNC will 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.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Changes in Results of Operations
(Amounts in thousands except
degree day and customer data) Three Months Ended March 31
-----------------------------------------
Increase
1997 1996 (Decrease) %
-------- -------- --------- --
Gross margin $ 67,169 $ 61,500 $ 5,669 9
Less - Franchise taxes 4,827 4,566 261 6
-------- -------- --------
Net margin $ 62,342 $ 56,934 $ 5,408 9
======== ======== ========
Total volume throughput (DT):
Residential 9,499 12,068 (2,569) (21)
Commercial/small industrial 5,195 6,593 (1,398) (21)
Large commercial/industrial 8,732 6,893 1,839 27
-------- -------- --------
23,426 25,554 (2,128) (8)
======== ======== ========
System average degree days:
Actual 1,512 2,073* (561) (27)
Normal 1,820 1,838* (18) (1)
Percent of normal 83% 113%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 5,842 $ (4,762) $ 10,604
Customers at end of period: (1)
Residential 268,244 259,122 9,122 4
Commercial/small industrial 39,815 36,654 3,161 9
Large commercial/industrial 2,399 392 2,007 NMF
-------- -------- --------
310,458 296,168 14,290 5
======== ======== ========
* Reflects an additional day for leap year.
(1) During the twelve months ended March 31, 1997, approximately 2,600
customers were reclassified from residential to commercial/small industrial,
and approximately 2,000 from commercial/small industrial to large
commercial/industrial.
Net margin for the three months ended March 31, 1997 increased $5,408,000
as compared to the same period last year. This increase in net margin is
attributable to the items shown below (in thousands):
Commercial/ Large
Small Commercial/
Residential Industrial Industrial Other Total
----------- ---------- ----------- ------ ------
Price variance *
General rate increase
effective 10/96 $3,564 $1,394 $(1,997) $ - $2,961
Volume variances, net 712 (537) 1,957 - 2,132
Other - - - 315 315
------ ------ ------- ------ ------
Total $4,276 $ 857 $ (40) $ 315 $5,408
====== ====== ======= ====== ======
* Includes changes in sales mix.
7
<PAGE>
This increase in net margin is due primarily to the general rate increase
effective October 1, 1996 and an increase in the number of customers served.
(Amounts in thousands except
degree day data) Six Months Ended March 31
-----------------------------------------
Increase
1997 1996 (Decrease) %
-------- -------- --------- --
Gross margin $108,621 $ 98,016 $ 10,605 11
Less - Franchise taxes 7,849 6,984 865 12
-------- -------- ---------
Net margin $100,772 $ 91,032 $ 9,740 11
======== ======== =========
Total volume throughput (DT):
Residential 15,375 17,769 (2,394) (13)
Commercial/small industrial 8,766 10,314 (1,548) (15)
Large commercial/industrial 17,459 14,689 2,770 19
-------- -------- ---------
41,600 42,772 (1,172) (3)
======== ======== =========
System average degree days:
Actual 2,825 3,527* (702) (20)
Normal 3,109 3,127* (18) (1)
Percent of normal 91% 113%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 5,054 $ (6,792) $ 11,846
* Reflects an additional day for leap year.
Net margin for the six months ended March 31, 1997 increased $9,740,000 as
compared to the same period last year. This increase in net margin is
attributable to the items shown below (in thousands):
Commercial/ Large
Small Commercial/
Residential Industrial Industrial Other Total
----------- ---------- ---------- ----- ------
Price variance*
General rate increase
effective 10/96 $ 5,763 $2,274 $(3,201) $ - $ 4,836
Volume variances, net 2,292 (538) 2,972 - 4,726
Other - - - 178 178
------- ------ ------- ----- -------
Total $ 8,055 $1,736 $ (229) $ 178 $ 9,740
======= ====== ======= ===== =======
* Includes changes in sales mix.
This increase in net margin is due primarily to the general rate increase
effective October 1, 1996 and an increase in the number of customers served.
8
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
(Amounts in thousands except
degree day data) Twelve Months Ended March 31
-----------------------------------------
Increase
1997 1996 (Decrease) %
-------- -------- --------- --
Gross margin $151,349 $138,293 $ 13,056 9
Less - Franchise taxes 10,750 9,143 1,607 18
-------- -------- ---------
Net margin $140,599 $129,150 $ 11,449 9
======== ======== =========
Total volume throughput (DT):
Residential 20,005 21,329 (1,324) (6)
Commercial/small industrial 12,759 13,680 (921) (7)
Large commercial/industrial 31,710 28,471 3,239 11
-------- -------- ---------
64,474 63,480 994 2
======== ======== =========
System average degree days:
Actual 3,154 3,778* (624) (17)
Normal 3,384 3,402* (18) (1)
Percent of normal 93% 111%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 3,113 $ (5,788) $ 8,901
* Reflects an additional day for leap year.
Net margin for the twelve months ended March 31, 1997 increased
$11,449,000 as compared to the same period last year. This increase in net
margin is attributable to the items shown below (in thousands):
Commercial/ Large
Small Commercial/
Residential Industrial Industrial Other Total
----------- ---------- ---------- ----- ------
Price variance*
General rate increase
effective 10/96 $ 5,854 $2,352 $(3,143) $ - $ 5,063
Volume variances, net 3,641 190 3,654 - 7,485
Resolution - S. Expansion - - - (734) (734)
Other - - - (365) (365)
------- ------ ------- ------- -------
Total $ 9,495 $2,542 $ 511 $(1,099) $11,449
======= ====== ======= ======= =======
* Includes changes in sales mix.
This increase in net margin is due primarily to an increase in the number
of customers served and the general rate increase effective October, 1996.
9
<PAGE>
Operating and maintenance expenses for the three, six and twelve months
ended March 31, 1997 increased 7%, 13% and 10%, respectively, as compared to the
same periods last year. For the six and twelve months ended March 31, 1997,
approximately $1,440,000 of the increase resulted from expenses related to the
voluntary early retirement program offered during the first quarter of fiscal
1997, as discussed in Note 11 to the financial statements in PSNC's 1996 Annual
Report. Net of this one-time charge, operating and maintenance expenses
increased 7% for both the six- and twelve-month periods ended March 31, 1997.
Operating and maintenance expenses increased for all three periods due to
increases in costs associated with outsourcing meter reading, the provision for
uncollectible accounts, which is based on revenues, increased professional fees,
outside services for consultants in the information systems and public relations
areas, employee education and other employee-related benefits. Also contributing
for the increase for the six- and twelve-month periods was increased power usage
at PSNC's liquefied natural gas facility. Partially offsetting the six and
twelve month increases were reduced expenses for hospitalization insurance due
to an adjustment in December 1996 to eliminate the health insurance reserve
since the Company is now affiliated with a health maintenance organization
provider.
Depreciation expense increased for the three, six and twelve months ended
March 31, 1997 due to utility plant additions. General taxes for the three, six
and twelve months ended March 31, 1997 increased 4%, 10%, and 13%, respectively,
as compared to the same periods last year. These increases are mainly due to
increased franchise taxes based on operating revenues that increased 6%, 12%,
and 18% as compared to the same periods last year.
Other income for the three months ended March 31, 1997 decreased $10,000 as
compared to the same period last year. Improvements in merchandising operations
resulted in an increase of $216,000, which was offset by a $157,000 decrease in
miscellaneous income related to a decrease in secondary market transactions due
to warmer than normal weather. Also contributing was a $55,000 decrease in
subsidiary net income related to a decrease in natural gas brokering activities
due to warmer than normal weather. For the six- and twelve-month periods, other
income increased $549,000 and $2,157,000, respectively. These increases are
primarily due to interest income associated with deferred gas costs and improved
merchandising operations, offset by a one-time expense of $235,000 for the
merchandise and jobbing salaries related to the voluntary early retirement
program. The six-month period ended March 31, 1997 included a decrease of
$194,000 related to the previously mentioned decrease in secondary market
transactions. The twelve-month period included a $265,000 gain from the sale of
land during June 1996.
Interest deductions for the three, six and twelve months ended March 31,
1997 increased 21%, 17% and 16%, respectively, as compared to the same periods
last year. The primary reason for the increase in the three-month period is the
interest expense increase due to the December 17, 1996 issuance of $50,000,000
of 7.45% Senior Debentures due 2026. Interest deductions for the six- and
twelve-month periods also increased due to the January 10, 1996 issuance of
$50,000,000 of 6.99% Senior
10
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
Debentures due 2026. Offsetting the increases in all periods is a decrease in
interest expense on short-term debt resulting from decreased interest rates.
The change in earnings per share for all three periods reflects increases
of 3% in the average number of common shares outstanding as compared to the same
periods last year. These increases are primarily due to shares issued through
PSNC's stock purchase and automatic dividend reinvestment and stock option
plans.
Changes in Financial Condition
The capital expansion program, through the construction of lines, services,
systems, and facilities, and the purchase of equipment, is designed to help PSNC
meet the growing demand for its product. PSNC's fiscal 1997 construction budget
is approximately $64,400,000, compared to actual construction expenditures for
fiscal 1996 of $60,428,000. The construction program is regularly reviewed by
management and is dependent upon PSNC's continuing ability to generate adequate
funds internally and to sell new issues of debt and equity securities on
acceptable terms. Construction expenditures during the six and twelve months
ended March 31, 1997 were $23,976,000 and $61,271,000, respectively, as compared
to $23,133,000 and $57,066,000 for the same periods a year ago.
PSNC generally finances its operations with internally generated funds,
supplemented with bank lines of credit to satisfy seasonal requirements. PSNC
also borrows under its bank lines of credit to finance portions of its
construction expenditures pending refinancing through the issuance of equity or
long-term debt at a later date. 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, 1997, lines of credit with these banks range from a minimum
of $37,000,000 to a winter-period maximum of $81,000,000. PSNC also has
uncommitted annual lines of credit with four of these banks 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 a portion of construction
expenditures, stored gas inventories and other corporate needs.
On December 17, 1996, PSNC sold $50,000,000 of 7.45% Senior Debentures due
2026 in a public offering. The net proceeds of $49,404,000 were used to pay down
a significant portion of the then outstanding short-term debt.
At March 31, 1997, restricted cash and temporary investments were
$11,410,000, an increase of $5,015,000 from September 30, 1996. This net
increase was due primarily to the restricted cash contribution from Sonat
Marketing Company L.P. (Sonat Marketing). As discussed in Note 11 to the
financial statements in PSNC's 1996 Annual Report, PSNC Production Corporation
and Sonat Marketing, a subsidiary of Sonat Inc., created Sonat Public Service
Company L.L.C. Sonat Marketing contributed $4,944,000
11
<PAGE>
for its 50% ownership of which approximately $4,845,000 is currently restricted.
Sonat Marketing is entitled to a partial refund of its contribution not yet
earned if the economics of the transaction are adversely modified by any
regulatory body over a five-year period. Restrictions on the cash investment
will be released annually in equal amounts over a four-year period.
Stored gas inventories increased $5,184,000 as compared to March 1996. This
increase was due to additional quantities stored, an increase in the average
cost of natural gas and the addition of a storage service.
The increase in deferred charges and other assets as compared to September
30, 1996 was primarily the result of the deferred debt expense associated with
the December 17, 1996 sale of 7.45% Senior Debentures previously discussed and
investments in PSNC's subsidiaries.
The decrease in accounts payable at March 31, 1997 of $23,638,000 as
compared to March 31, 1996 is the result of a reduction in gas purchases for the
period due to weather, which was 54% warmer.
The increase in other current liabilities at March 31, 1997 is primarily
due to recording the current portion of the deferred revenue associated with the
creation of Sonat Public Service Company L.L.C. The noncurrent portion is
recorded in the deferred revenue account.
The decrease in accrued pension cost at March 31, 1997 is due to the
recognition of $1,475,000 of the unrecognized net gains and assets in the
pension plan during December 1996, related to the voluntary early retirement
program.
Regulatory Matters
PSNC began providing natural gas service in McDowell County during December
1996. This was the first project undertaken by PSNC using monies from its North
Carolina Utilities Commission (NCUC) approved expansion fund. The original
estimate to complete this project was approximately $14,500,000, of which
$8,193,500 will be financed by PSNC's expansion fund. Through March 31, 1997,
$14,015,000 was spent on the project. A total of $7,781,000 has been received
from the expansion fund. PSNC will receive an additional $412,500 over the next
five years in the form of local government assistance payments that will be
deposited into its expansion fund.
PSNC currently provides natural gas service to the eastern portion of
Haywood County and plans to extend service to western Haywood County, including
Waynesville, Clyde and Lake Junaluska by late 1997 or early 1998. The current
estimated cost to serve this area is $7,182,000. On December 30, 1996, PSNC
filed an application with the NCUC requesting expansion funds for this project.
On April 22, 1997, the NCUC approved this project and authorized disbursements
from the expansion fund of $4,127,000.
12
<PAGE>
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. In September 1995, PSNC, Piedmont Natural Gas Company,
Inc. (Piedmont), Transcontinental Gas Pipe Line Corporation (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
southeast of Raleigh, will add 140 million cubic feet per day of additional firm
capacity (100 million for PSNC and 40 million for NCNG), and will cost an
estimated $75 million. On December 23, 1996, the LLC filed an application with
the NCUC for approval of this project. A public hearing is scheduled for May 20,
1997.
Pine Needle LNG Co., LLC was formed by subsidiaries of Transco, Piedmont,
NCNG, Amerada Hess, PSNC and the Municipal Gas Authority of Georgia. This
liquefied natural gas storage 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. 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. It 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. The NCUC filed an application
for rehearing of this order, which FERC denied on November 27, 1996, and the
NCUC filed a petition for review of FERC's November 27 order with the United
States Court of Appeals for the District of Columbia Circuit; the Company cannot
predict the outcome of this appeal. On March 5, 1997, the FERC issued an order
denying the requests for rehearing of a landowner and the NC Department of
Environment, Health, and Natural Resources; as of May 8, 1997, the Company had
not received any notice that any party had a filed a timely petition for review
of this order.
On November 14, 1996, PSNC filed an application with the NCUC requesting
deferred accounting for the costs of a project to ensure that PSNC's computer
operating systems function properly in the year 2000. Similar costs will be
incurred by businesses worldwide and the Emerging Issues Task Force of the
Financial Accounting Standards Board has determined that these costs should be
expensed as incurred. PSNC requested that approximately $3,000,000 of estimated
contractor labor be deferred for subsequent recovery in a future rate case. On
January 30, 1997, the Public Staff of the NCUC responded to the application by
stating that such costs are neither extraordinary nor material, and should be
expensed as incurred. On April 29, 1997, the NCUC issued an order authorizing
the deferral of each year's costs and requiring a three-year amortization of
these costs beginning in the year incurred. PSNC will seek to recover any
unamortized costs at the time of its next general rate case.
13
<PAGE>
EXHIBIT 11
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31 March 31
------------------------ ----------------------- -------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 22,387 $ 20,577 $ 30,293 $ 27,707 $ 26,483 $ 23,963
-------- -------- -------- -------- -------- --------
Average common shares outstanding 19,513 18,959 19,404 18,865 19,265 18,749
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 103 95 103 92 83 77
-------- -------- -------- -------- -------- --------
Average common shares outstanding
as adjusted 19,616 19,054 19,507 18,957 19,348 18,826
-------- -------- -------- -------- -------- --------
Earnings per share, as adjusted $1.14 $1.08 $1.55 $1.46 $1.37 $1.27
===== ===== ===== ===== ===== =====
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 in dilution of less than 3%.
</TABLE>
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As more fully disclosed in Part I under "Environmental Matters" and in
Part II in Note 7 to the financial statements in the Annual Report on Form 10-K
for the period ending September 30, 1996, 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 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on January 31, 1997, the
following members were elected or reelected to serve on the Board of Directors
for a term expiring at the annual meeting in the month and year indicated or
until their successors are elected and qualified.
Director Term Ending Votes in Favor Votes Withheld
- -------------------- ------------ ------------- --------------
William A. V. Cecil January 2000 14,589,796 886,830
H. Max Craig, Jr. January 2000 15,342,506 134,120
G. Smedes York January 2000 15,359,432 117,194
The following eight directors are the other directors whose term of
office continued after the meeting:
William C. Burkhardt, Bert Collins, John W. Copeland, Van E. Eure, William L.
O'Brien, Jr., D. Wayne Peterson, Ben R. Rudisill, II, and Charles E. Zeigler,
Jr.
The Company's 1997 Nonqualified Stock Option Plan pursuant to which the
Board of Directors may grant certain key employees options to purchase shares of
the Company's Common Stock was approved at the Annual Meeting of Shareholders.
For- 10,969,116 Against- 638,121 Abstain- 279,447 Broker non-votes- 3,589,942
The shareholders also ratified the selection of Arthur Andersen LLP as
PSNC's independent public accountants for the fiscal year ending September 30,
1997.
For - 15,347,233 Against - 55,583 Abstain - 73,810
Item 5. Other Information
None.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Part I Exhibits:
11 - Statement re: computation of per share earnings.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
PSNC filed one report, dated April 10, 1997, on Form 8-K
during the quarter ending March 31, 1997, pursuant to Item 5 of that form. No
financial statements were filed as part of that report.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE COMPANY
OF NORTH CAROLINA, INCORPORATED
-------------------------------
(Registrant)
Date 5-13-97 /s/Charles E. Zeigler, Jr.
- ------------- -------------------------------
Charles E. Zeigler, Jr.
Chairman, President and
Chief Executive Officer
Date 5-13-97 /s/Jack G. Mason
- ------------- -------------------------------
Jack G. Mason
Vice President - Treasurer
and Chief Financial Officer
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 457,795
<OTHER-PROPERTY-AND-INVEST> 664
<TOTAL-CURRENT-ASSETS> 104,834
<TOTAL-DEFERRED-CHARGES> 11,295
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 574,588
<COMMON> 19,546
<CAPITAL-SURPLUS-PAID-IN> 119,662
<RETAINED-EARNINGS> 77,138
<TOTAL-COMMON-STOCKHOLDERS-EQ> 216,346
0
0
<LONG-TERM-DEBT-NET> 183,350
<SHORT-TERM-NOTES> 23,500
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 9,300
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 142,092
<TOT-CAPITALIZATION-AND-LIAB> 574,588
<GROSS-OPERATING-REVENUE> 243,800
<INCOME-TAX-EXPENSE> 18,922
<OTHER-OPERATING-EXPENSES> 52,897
<TOTAL-OPERATING-EXPENSES> 71,819
<OPERATING-INCOME-LOSS> 36,802
<OTHER-INCOME-NET> 2,057
<INCOME-BEFORE-INTEREST-EXPEN> 38,859
<TOTAL-INTEREST-EXPENSE> 8,566
<NET-INCOME> 30,293
0
<EARNINGS-AVAILABLE-FOR-COMM> 30,293
<COMMON-STOCK-DIVIDENDS> 8,475
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 19,355
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.55
</TABLE>
