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 June 30, 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 28053-1398
GASTONIA, NORTH CAROLINA (Zip Code)
(Address of principal executive offices)
(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 July 31, 1997....................................................19,732,403
1
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
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
June 30 June 30 June 30
------------------ ------------------ -------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
Operating revenues $ 60,106 $ 58,807 $303,906 $275,782 $337,006 $302,500
Cost of gas 30,715 32,382 165,894 151,341 182,691 162,017
-------- -------- -------- -------- -------- --------
Gross margin 29,391 26,425 138,012 124,441 154,315 140,483
-------- -------- -------- -------- -------- --------
Operating expenses and taxes:
Operating and maintenance 15,138 13,465 46,223 41,065 60,360 54,146
Provision for depreciation 5,605 4,851 16,521 14,545 21,725 19,188
General taxes 3,518 3,468 14,414 13,402 17,018 15,732
Income taxes 587 736 19,509 17,974 16,032 15,184
-------- -------- -------- -------- -------- --------
24,848 22,520 96,667 86,986 115,135 104,250
-------- -------- -------- -------- -------- --------
Operating income 4,543 3,905 41,345 37,455 39,180 36,233
Other income, net 822 1,089 2,878 2,597 3,632 2,723
Interest deductions 4,080 3,553 12,646 10,904 16,485 14,158
-------- -------- -------- -------- -------- --------
Net income $ 1,285 $ 1,441 $ 31,577 $ 29,148 $ 26,327 $ 24,798
======== ======== ======== ======== ======== ========
Average common shares
outstanding 19,639 19,066 19,482 18,932 19,408 18,869
Earnings per share $.07 $.08 $1.62 $1.54 $1.36 $1.31
Cash dividends declared
per share $.23 $.22 $.67 $.645 $.89 $.8575
3
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Jun 30 Sep 30 Jun 30
1997 1996 1996
-------- -------- --------
Gas utility plant $666,749 $629,218 $614,243
Less - Accumulated depreciation 198,560 183,529 179,414
-------- -------- --------
468,189 445,689 434,829
-------- -------- --------
Non-utility property, net 654 691 705
-------- -------- --------
Current assets:
Cash and temporary investments 1,965 3,361 3,376
Restricted cash and temporary investments 14,577 6,395 5,776
Receivables, less allowance for
doubtful accounts 32,174 17,899 23,825
Materials and supplies 7,597 6,705 6,498
Stored gas inventory 15,337 15,863 9,483
Deferred gas costs, net 13,081 17,525 12,782
Prepayments and other 2,454 2,275 2,048
-------- -------- --------
87,185 70,023 63,788
-------- -------- --------
Deferred charges and other assets 14,258 8,486 8,072
-------- -------- --------
Total $570,286 $524,889 $507,394
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common equity -
Common stock, $1 par $ 19,662 $ 19,204 $ 19,076
Capital in excess of par value 121,486 114,008 112,116
Retained earnings 73,900 55,423 64,953
-------- -------- --------
215,048 188,635 196,145
Long-term debt 183,350 140,150 143,900
-------- -------- --------
398,398 328,785 340,045
-------- -------- --------
Current liabilities:
Maturities of long-term debt 9,300 6,800 9,300
Accounts payable 19,558 20,301 23,641
Accrued taxes 9,057 3,075 9,155
Customer prepayments and deposits 3,859 6,014 2,920
Cash dividends and interest 7,156 7,319 7,056
Restricted supplier refunds 9,732 6,395 5,776
Other 4,771 3,960 3,589
-------- -------- --------
63,433 53,864 61,437
Interim bank loans 23,000 59,500 24,000
-------- -------- --------
86,433 113,364 85,437
-------- -------- --------
Deferred credits and other liabilities:
Income taxes, net 58,684 56,233 56,024
Investment tax credits 3,677 4,210 4,119
Accrued pension cost 9,205 12,214 11,679
Deferred revenues 3,345 - 232
Other 10,544 10,083 9,858
-------- -------- --------
85,455 82,740 81,912
-------- -------- --------
Total $570,286 $524,889 $507,394
======== ======== ========
4
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(In thousands)
Twelve Months Ended
June 30
-------------------
1997 1996
------- -------
Balance beginning of period $64,953 $56,365
Add - Net income 26,327 24,798
Deduct - Common stock dividends
and other 17,380 16,210
------- -------
Balance end of period $73,900 $64,953
======= =======
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended Twelve Months Ended
June 30 June 30
----------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
Cash Flows From Operating Activities:
Net income $31,577 $29,148 $26,327 $24,798
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation, depletion and other 19,115 17,744 25,365 23,301
Deferred income taxes, net 2,451 3,418 2,661 4,396
------- ------- ------- -------
53,143 50,310 54,353 52,495
Change in operating assets and liabilities:
Receivables, net (15,982) (11,748) (10,234) (12,746)
Inventories (367) 1,737 (6,953) (1,158)
Accounts payable (743) 3,229 (4,083) 10,422
Accrued pension cost (3,008) (1,251) (2,474) (1,278)
Other 6,239 (2,914) (1,099) (10,296)
------- ------- ------- -------
39,282 39,363 29,510 37,439
------- ------- ------- -------
Cash Flows From Investing Activities:
Construction expenditures (40,401) (43,689) (57,140) (65,099)
Non-utility and other (3,872) (1,374) (4,300) (2,011)
------- ------- ------- -------
(44,273) (45,063) (61,440) (67,110)
------- ------- ------- -------
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 7,807 5,746 9,736 7,096
Increase (decrease) in interim bank
loans, net (36,500) (27,000) (1,000) 5,500
Retirement of long-term debt
and common stock (4,334) (7,980) (10,642) (15,496)
Cash dividends (12,782) (11,997) (16,979) (15,948)
------- ------- ------- -------
3,595 8,083 30,519 30,466
------- ------- ------- -------
Net increase (decrease) in cash and
temporary investments (1,396) 2,383 (1,411) 795
Cash and temporary investments
at beginning of period 3,361 993 3,376 2,581
------- ------- ------- -------
Cash and temporary investments
at end of period $ 1,965 $ 3,376 $ 1,965 $ 3,376
======= ======= ======= =======
Cash paid during the period for:
Interest (net of amount capitalized) $12,796 $10,180 $16,403 $12,474
Income taxes 11,560 7,845 15,195 10,663
5
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
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 June 30
---------------------------------
Increase
1997 1996 (Decrease) %
-------- -------- -------- --
Gross margin $ 29,391 $ 26,425 $ 2,966 11
Less - Franchise taxes 1,905 1,870 35 2
-------- -------- --------
Net margin $ 27,486 $ 24,555 $ 2,931 12
======== ======== ========
Total volume throughput (DT):
Residential 3,277 3,610 (333) (9)
Commercial/small industrial 2,246 2,549 (303) (12)
Large commercial/industrial 8,138 7,548 590 8
-------- -------- --------
13,661 13,707 (46) -
======== ======== ========
System average degree days:
Actual 406 318 88 28
Normal 258 258 - -
Percent of normal 157% 123%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 907 $ (1,942) $ 2,849
Customers at end of period: (1)
Residential 262,780 247,666 15,114 6
Commercial/small industrial 39,385 40,106 (721) (2)
Large commercial/industrial 2,405 400 2,005 NMF
-------- -------- --------
304,570 288,172 16,398 6
======== ======== ========
(1) During the twelve months ended June 30, 1997, approximately 2,000
customers were reclassified from commercial/small industrial to large
commercial/industrial.
Net margin for the three months ended June 30, 1997 increased $2,931,000
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 $1,399 $ 402 $ (959) $ - $ 842
Volume variances, net 1,462 (110) 622 - 1,974
Other - - - 115 115
------ ----- ------- ------ ------
Total $2,861 $ 292 $ (337) $ 115 $2,931
====== ===== ======= ====== ======
* Includes changes in sales mix.
7
This increase in net margin is due primarily to the general rate increase
effective October 1, 1996 and to an increase in the number of customers served.
(Amounts in thousands except
degree day data) Nine Months Ended June 30
--------------------------------
Increase
1997 1996 (Decrease) %
-------- -------- -------- --
Gross margin $138,012 $124,441 $ 13,571 11
Less - Franchise taxes 9,754 8,854 900 10
-------- -------- --------
Net margin $128,258 $115,587 $ 12,671 11
======== ======== ========
Total volume throughput (DT):
Residential 18,653 21,379 (2,726) (13)
Commercial/small industrial 11,011 12,863 (1,852) (14)
Large commercial/industrial 25,597 22,237 3,360 15
-------- -------- --------
55,261 56,479 (1,218) (2)
======== ======== ========
System average degree days:
Actual 3,231 3,845* (614) (16)
Normal 3,367 3,385* (18) (1)
Percent of normal 96% 114%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 5,961 $ (8,735) $ 14,696
* Reflects an additional day for leap year.
Net margin for the nine months ended June 30, 1997 increased $12,671,000 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 $ 7,162 $2,675 $(4,160) $- $ 5,677
Volume variances, net 3,754 (648) 3,594 - 6,700
Other - - - 294 294
------- ------ ------- ----- -------
Total $10,916 $2,027 $ (566) $ 294 $12,671
======= ====== ======= ===== =======
* Includes changes in sales mix.
This increase in net margin is due primarily to the general rate increase
effective October 1, 1996 and to an increase in the number of customers served.
8
MANAGEMENT'S DISCUSSION (Continued)
(Amounts in thousands except
degree day data) Twelve Months Ended June 30
--------------------------------
Increase
1997 1996 (Decrease) %
-------- -------- -------- --
Gross margin $154,315 $140,483 $ 13,832 10
Less - Franchise taxes 10,785 9,692 1,093 11
-------- -------- --------
Net margin $143,530 $130,791 $ 12,739 10
======== ======== ========
Total volume throughput (DT):
Residential 19,672 22,417 (2,745) (12)
Commercial/small industrial 12,456 14,247 (1,791) (13)
Large commercial/industrial 32,300 28,826 3,474 12
-------- -------- --------
64,428 65,490 (1,062) (2)
======== ======== ========
System average degree days:
Actual 3,242 3,868* (626) (16)
Normal 3,384 3,402* (18) (1)
Percent of normal 96% 114%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 5,963 $ (8,735) $ 14,698
* Reflects an additional day for leap year.
Net margin for the twelve months ended June 30, 1997 increased
$12,739,000 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 $ 7,182 $2,704 $(4,090) $ - $ 5,796
Volume variances, net 3,981 (497) 3,857 - 7,341
Resolution - S. Expansion - - - (734) (734)
Other - - - 336 336
------- ------ ------- ------ -------
Total $11,163 $2,207 $ (233) $ (398) $12,739
======= ====== ======= ====== =======
* Includes changes in sales mix.
This increase in net margin is due primarily to the general rate increase
effective October 1, 1996 and to an increase in the number of customers served.
9
Operating and maintenance expenses for the three, nine and twelve months
ended June 30, 1997 increased 12%, 13% and 12%, respectively, as compared to the
same periods last year. For the nine and twelve months ended June 30, 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 9% for both the nine- and twelve-month periods ended June 30, 1997.
Operating and maintenance expenses increased for all three periods due to
increases in costs associated with outsourcing meter reading, telecommunications
expenses, 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 to the increase for the nine- and
twelve-month periods was increased power usage at PSNC's liquefied natural gas
facility. Partially offsetting the nine- and twelve-month increases were reduced
expenses for hospitalization insurance due to a $605,000 adjustment in December
1996 to eliminate the health insurance reserve since the Company is now
affiliated with a health maintenance organization provider. Another offset for
all three periods is a refund of $181,000 related to favorable life insurance
claims experience for the 1996 plan year.
Depreciation expense increased for the three, nine and twelve months ended
June 30, 1997 due to utility plant additions. General taxes for the nine and
twelve months ended June 30, 1997 both increased 8% as compared to the same
periods last year. These increases are mainly due to increased franchise taxes
based on perating revenues that increased 10% and 11%, respectively, as
compared to the same periods last year.
Other income for the three months ended June 30, 1997 decreased $267,000 as
compared to the same period last year, while increasing $281,000 and $909,000,
respectively, for the nine- and twelve-month periods. The change in other income
for all three periods is comprised of several items. Income from subsidiary
operations decreased $197,000, $338,000, and $105,000, respectively, for the
three, nine and twelve months ended June 30, 1997. The decrease in subsidiary
income for all three periods is due mainly to the December 1996 formation of
Sonat Public Service Company L.L.C. of which PSNC and Sonat Marketing, Inc. each
owns 50%. Through this joint venture, all earnings, including earnings from
secondary market transactions, are split evenly between both partners. Income
from subsidiary operations also decreased for the nine- and twelve-month periods
due to weather that was 16% warmer than both of the prior year periods which
negatively impacted margin earned from secondary market transactions. This
decrease is partially offset for all three periods by the five-year amortization
of deferred revenue and the related interest income generated from the formation
of the joint venture. Merchandise and jobbing income increased for all three
respective periods by $69,000, $125,000 and $157,000. The increase for the nine-
and twelve-month periods was partially offset by a one-time expense of $235,000
related to the voluntary early retirement program. The increase in interest
income for all three periods was due primarily to interest related to deferred
gas costs of $45,000, $558,000 and $932,000, respectively. Also interest income
increased due to a loan
10
MANAGEMENT'S DISCUSSION (Continued)
made to a real estate developer for purposes of constructing office and
warehouse space for PSNC. This loan was paid upon PSNC's acquisition of the
property in August 1997. Impacting other income for all three periods in the
previous year was a $265,000 gain related to the sale of land in June 1996.
Interest deductions for the three, nine and twelve months ended June 30,
1997 increased 15%, 16% 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 nine- and
twelve-month periods also increased due to the January 10, 1996 issuance of
$50,000,000 of 6.99% Senior Debentures due 2026. Offsetting the increases for
the nine- and twelve-month 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 plans.
On April 9, 1997, the Board of Directors increased PSNC's quarterly cash
dividend by $.01 per share, from $.22 to $.23, payable July 1, 1997, to
shareholders of record June 10, 1997.
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 nine and twelve months
ended June 30, 1997 were $40,401,000 and $57,140,000, respectively, as compared
to $43,689,000 nd 65,099,000 for the same periods a year ago. Although
construction expenditures for the nine months ended June 30, 1997 are
approximately $10,000,000 below budget, management anticipates meeting the
construction expenditure budget amount for fiscal 1997.
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
11
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 June 30, 1997, restricted cash and temporary investments were
$14,577,000, an increase of $8,182,000 from September 30, 1996. This net
increase was due in part 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 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. Also contributing to the increase in
restricted cash and temporary investments are refunds of $9,732,000 received
from PSNC's pipeline supplier that have not yet been deposited into the
expansion fund in the Office of the State Treasurer. This fund was created by an
order of the North Carolina Utilities Commission (NCUC), dated June 3, 1993, to
finance the construction of natural gas lines into unserved areas of PSNC's
service territory that otherwise would not be economically feasible to serve.
The increase in receivables at June 30, 1997 as compared to June 30, 1996
includes a $7,500,000 loan made to a real estate developer for the purpose of
constructing office and warehouse space for PSNC. This receivable was paid upon
PSNC's acquisition of the property in August 1997.
Stored gas inventories increased $5,854,000 as compared to June 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.
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 from customers all prudently
incurred gas costs. On a monthly basis, any difference in amounts paid and
collected for these costs is recorded for subsequent refund to or collection
from PSNC's customers. Deferred gas costs at June 30, 1997 represent
undercollections from customers of $13,081,000. These undercollections primarily
reflect the unanticipated surge in the price of natural gas during January 1997.
PSNC's deferred gas costs balances are approved by the NCUC
12
in annual gas cost prudence reviews and are refunded to or collected from
customers over a subsequent twelve-month period. Amounts that have not been
refunded to or collected from customers bear interest at an annual rate of 10%
as required by the NCUC. PSNC's strategy is to manage the balance of deferred
gas costs to a minimal level over a twelve-month period. Deferred gas costs at
September 30, 1996 reflect undercollections of demand costs from customers of
$17,525,000.
The increase in deferred charges and other assets as compared to both
September 30, 1996 and June 30, 1996 is primarily the result of the investments
in PSNC's subsidiaries and deferred debt expense associated with the December
17, 1996 sale of 7.45% Senior Debentures previously discussed.
The increase in other current liabilities at June 30, 1997 as compared to
both September 1996 and June 1996 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 deferred revenues.
The decrease in accrued pension cost at June 30, 1997 is due to the
recognition of $1,475,000 of unrecognized net gains and assets in the pension
plan related to the voluntary early retirement program.
Regulatory Matters
PSNC began providing natural gas service in McDowell County during December
1996. The project to serve McDowell County was the first project undertaken by
PSNC using monies from its 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 June 30, 1997, $14,169,000 was
spent on the project, of which $7,781,000 was 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 expand service to 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.
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
13
LLC filed an application with the NCUC for approval of this project. A public
hearing was held on May 20, 1997, and the applicants are awaiting an order from
the NCUC.
Pine Needle LNG Co., LLC ("Pine Needle") was formed by subsidiaries of
Transco, Piedmont, NCNG, Amerada Hess, PSNC and the Municipal Gas Authority of
Georgia. Pine Needle will own a liquefied natural gas storage facility, with an
estimated cost of $107 million. This facility 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 peration 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 then filed a petition for review of FERC's November 27 order with the
United States Court of Appeals for the District of Columbia Circuit; PSNC 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; this order was not appealed by the
parties and is final.
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
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.
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 is under no obligation to update such statements.
14
EXHIBIT 11
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
June 30 June 30 June 30
------------------ ------------------ -------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
Net income $ 1,285 $ 1,441 $ 31,577 $ 29,148 $ 26,327 $ 24,798
-------- -------- -------- -------- -------- --------
Average common shares outstanding 19,639 19,066 19,482 18,932 19,408 18,869
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 99 73 99 82 93 76
-------- -------- -------- -------- -------- --------
Average common shares outstanding
as adjusted 19,738 19,139 19,581 19,014 19,501 18,945
-------- -------- -------- -------- -------- --------
Earnings per share, as adjusted $ .07 $ .08 $1.61 $1.53 $1.35 $1.31
===== ===== ===== ===== ===== =====
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%.
15
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Part I Exhibits:
10-A-33 Amended and Restated Natural Gas Sales Agreement
between PSNC and Transco Energy Marketing Company
dated November 1, 1990.
10-A-33.1 Amendment to Amended and Restated Natural Gas Sales
Agreement between PSNC and Transco Energy Marketing
Company dated November 1, 1990.
10-A-34 Firm Transportation Service Agreement under
Rate Schedule FT, dated August 1, 1991,
between PSNC and Transcontinental Gas Pipe
Line Corporation.
10-A-35 Firm Storage Service Agreement under Rate
Schedule FSS, dated November 7, 1995,
between PSNC and Columbia Gas Transmission
Corporation.
10-A-36 Storage Service Transportation Agreement
under Rate Schedule SST, dated November 7,
1995, between PSNC and Columbia Gas Transmission
Corporation.
16
10-A-37 Interruptible Transportation Service Agreement
under Rate Schedule TS, dated March 31, 1997,
between PSNC and Columbia Gas Transmission
Corporation.
10-A-38 Gas Sales Agreement (Southern Expansion) dated
November 1, 1990 between PSNC and Transco
Energy Marketing Company.
10-F - Form of Severance Agreement between the Company and
its Executive Officers.
11 - Statement re: computation of per share earnings.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed on April 10 a Current Report on
Form 8-K dated April 9, 1997, describing the Stockholders
Rights Plan adopted by the Board of Directors.
The Company filed on April 14 a Current Report on
Form 8-K/A dated April 10, 1997, describing the Stockholders
Rights Plan adopted by the Board of Directors.
17
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 8-11-97 /s/Charles E. Zeigler, Jr
------- --------------------------
Charles E. Zeigler, Jr.
Chairman, President and
Chief Executive Officer
Date 8-11-97 /s/Jack G. Mason
------- --------------------------
Jack G. Mason
Vice President - Treasurer
and Chief Financial Officer
18