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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________________ to _________________
Commission file number 1-6196
PIEDMONT NATURAL GAS COMPANY, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-0556998
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1915 Rexford Road, Charlotte, North Carolina 28211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-364-3120
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 3, 1995
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Common Stock, no par value 26,796,480
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands)
January 31, October 31,
ASSETS 1995 1994
------ ---- ----
Utility Plant, at original cost $1,001,050 $978,218
Less accumulated depreciation 250,560 243,325
---------- --------
Utility plant, net 750,490 734,893
---------- --------
Other Physical Property (net of accumulated
depreciation of $12,206 in 1995 and $11,753
in 1994) 25,461 25,188
---------- --------
Current Assets:
Cash and cash equivalents 6,473 6,523
Restricted cash 16,092 14,961
Receivables (less allowance for doubtful
accounts of $2,199 in 1995 and $947
in 1994) 84,632 22,597
Gas in storage 26,028 44,725
Deferred cost of gas 16,647 5,162
Refundable income taxes 10,194 10,194
Other 13,251 13,231
---------- --------
Total current assets 173,317 117,393
---------- --------
Deferred Charges and Other Assets 13,268 10,296
---------- --------
Total $ 962,536 $887,770
========== ========
CAPITALIZATION AND LIABILITIES
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Capitalization:
Common stock equity:
Common stock $ 191,474 $187,592
Retained earnings 137,693 114,400
---------- --------
Total common stock equity 329,167 301,992
Long-term debt 313,000 313,000
---------- --------
Total capitalization 642,167 614,992
---------- --------
Current Liabilities:
Current maturities of long-term debt and
sinking fund requirements 5,000 5,000
Notes payable 64,000 63,500
Accounts payable 50,507 35,903
Deferred income taxes 11,787 11,314
Taxes accrued 23,847 8,019
Refunds due customers 34,725 22,124
Other 15,895 18,183
---------- --------
Total current liabilities 205,761 164,043
---------- --------
Deferred Credits and Other Liabilities 114,608 108,735
---------- --------
Total $ 962,536 $887,770
========== ========
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Income (Unaudited)
(in thousands except per share amounts)
Three Months Twelve Months
Ended Ended
January 31 January 31
--------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
Operating Revenues $202,476 $233,108 $544,721 $583,240
Cost of Gas 104,707 145,619 299,662 354,488
-------- -------- -------- --------
Margin 97,769 87,489 245,059 228,752
-------- -------- -------- --------
Other Operating Expenses:
Operations 24,145 23,026 93,804 87,583
Maintenance 3,705 3,604 15,627 15,344
Depreciation 7,872 6,031 26,412 22,645
General taxes 8,836 8,679 26,722 25,316
Income taxes 17,841 15,519 21,380 21,125
-------- -------- -------- --------
Total other operating expenses 62,399 56,859 183,945 172,013
-------- -------- -------- --------
Operating Income 35,370 30,630 61,114 56,739
Other Income, Net 2,605 3,665 3,885 5,065
-------- -------- -------- --------
Income Before Utility Interest Charges 37,975 34,295 64,999 61,804
Utility Interest Charges 7,742 6,552 27,003 23,731
-------- -------- -------- --------
Net Income $ 30,233 $ 27,743 $ 37,996 $ 38,073
======== ======== ======== ========
Average Shares of Common Stock
Outstanding 26,665 26,183 26,467 26,051
Earnings Per Share of Common Stock $1.13 $1.06 $1.44 $1.46
Cash Dividends Declared Per Share
of Common Stock $0.26 $0.245 $1.04 $0.98
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Cash Flows (Unaudited)
(in thousands)
Three Months Twelve Months
Ended Ended
January 31 January 31
--------------- ---------------
1995 1994 1995 1994
---- ---- ---- ----
Cash Flows from Operating Activities:
Net income $30,233 $27,743 $37,996 $38,073
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 8,825 6,868 30,164 25,800
Other, net 2,511 (13,454) 6,050 (3,520)
Change in operating assets and
liabilities (13,015) 15,714 (10,122) 12,182
------ ------- ------ -------
Net cash provided by operating
activities 28,554 36,871 64,088 72,535
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility construction expenditures (23,403) (18,342) (108,595) (86,486)
Other (861) (652) (4,076) (2,283)
------- ------- ------- -------
Net cash used in investing activities (24,264) (18,994) (112,671) (88,769)
------- ------- ------- -------
Cash Flows from Financing Activities:
Increase (Decrease) in bank
loans, net 500 (9,000) 31,000 (5,500)
Issuance of long-term debt - - 40,000 90,000
Retirement of long-term debt - - (5,000) (49,025)
Issuance of common stock through
dividend reinvestment and employee
stock plans 2,099 2,210 8,350 8,021
Dividends paid (6,939) (6,412) (27,524) (25,519)
------- ------- ------- -------
Net cash provided by (used in)
financing activities (4,340) (13,202) 46,826 17,977
------- ------- ------- -------
Net Increase (Decrease) in Cash and
Cash Equivalents (50) 4,675 (1,757) 1,743
Cash and Cash Equivalents at
Beginning of Period 6,523 3,555 8,230 6,487
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period $ 6,473 $ 8,230 $ 6,473 $ 8,230
======= ======= ======= =======
Cash Paid During the Period for:
Interest $ 7,235 $ 5,387 $26,175 $24,084
Income Taxes $ 124 $ 1,124 $26,114 $22,702
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. The condensed consolidated financial statements have not been audited by
independent auditors. These financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included
in the Company's 1994 Annual Report.
2. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting
only of normal recurring accruals) necessary to present fairly the
financial position of the Company at January 31, 1995, and October 31,
1994, and the results of its operations and its cash flows for the three
months and twelve months ended January 31, 1995 and 1994.
3. The Company's business is seasonal in nature. The results of operations
for the three-month period ended January 31, 1995, are not necessarily
indicative of the results to be expected for the full year.
4. Certain financial statement items for 1994 have been reclassified in
order to conform with the 1995 presentation.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
The Company finances its current cash requirements through internally generated
cash, the issuance of new common stock through dividend reinvestment and
employee stock purchase plans and committed bank lines of credit totaling $57
million. In addition, the Company sells common stock and long-term debt to
cover cash requirements when market or other conditions warrant such long-term
financing.
The natural gas business is highly seasonal in nature as variations in weather
conditions generally result in greater earnings during the winter months.
Injections of natural gas into storage occur during periods of warm weather
(principally April 1 through October 31) for withdrawal from storage during
periods of cold weather (principally November 1 through March 31). This
seasonality contributes to the decrease in gas in storage and increase in
receivables from October 31, 1994, to January 31, 1995.
In September 1994, the Company filed a shelf registration with the Securities
and Exchange Commission to sell up to 1,725,000 shares of common stock. The
net proceeds from the sale of the equity securities will be used for general
corporate purposes, including construction of additional facilities, the
repayment of short-term debt and working capital needs. The Company intends to
offer these shares for sale to the public in late March if market conditions
are favorable.
At January 31, 1995, the Company's capital structure consisted of long-term
debt of 49% and common equity of 51%.
Results of Operations
Margin for the three months ended January 31, 1995, increased $10.3 million
compared with the same period last year due to regulatory rate changes which
increased rates and updated gas cost components. The weather normalization
adjustment (WNA) increased operating revenues by $8.9 million for the three
months ended January 31, 1995, and decreased operating revenues by $3.1 million
for the similar prior period. Delivered volumes of natural gas for the current
three-month period decreased from the similar prior period by 3.1 million
dekatherms. Weather for the three months ended January 31, 1995, was 21%
warmer than the similar prior period. Margin earned per dekatherm of gas
delivered for the three months ended January 31, 1995, increased over the
similar prior period by $.39.
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Margin for the twelve months ended January 31, 1995, increased $16.3 million
compared with the similar prior period primarily due to the impact of the WNA.
The WNA increased operating revenues by $12.1 million in the current period and
decreased operating revenues by $4.4 million in the similar prior period. To a
lesser extent, the regulatory rate changes noted above also affected margin for
the twelve-month periods. Delivered volumes of natural gas for the current
twelve months decreased from the similar prior period by 2.3 million
dekatherms. Weather for the twelve months ended January 31, 1995, was 21%
warmer than the similar prior period. Margin earned per dekatherm of gas
delivered for the twelve months ended January 31, 1995, increased over the
similar prior period by $.17.
Cost of gas per dekatherm of gas sold for the three months and twelve months
ended January 31, 1995, decreased by $.20 and $.02, respectively, compared with
similar prior periods, primarily due to reduced commodity gas costs and a lower
demand cost component in the current periods. Changes in purchased gas costs
have no significant impact on margin as the Company recovers 100% of its
prudently incurred gas costs through various regulatory mechanisms.
Operations and maintenance expenses for the three months and twelve months
ended January 31, 1995, increased over similar prior periods primarily due to
increases in maintenance and repairs of mains, uncollectible accounts, payroll
and employee benefit costs.
Depreciation expense for the three months and twelve months ended January 31,
1995, increased over similar prior periods due to the growth of plant in
service and to increases in depreciation rates for North Carolina operations
effective November 1, 1994.
General taxes for the three months and twelve months ended January 31, 1995,
increased over similar prior periods primarily due to increases in property
taxes from rate increases and additions to taxable property and to increases in
payroll taxes. These increases were partially offset by decreases in gross
receipts taxes resulting from decreased revenues.
Other income for the three months and twelve months ended January 31, 1995,
decreased from similar prior periods primarily due to decreases in earnings
from merchandise and propane operations and, for the twelve-month period, a
decrease in earnings from jobbing operations. These decreases were partially
offset by increases in earnings from energy marketing services.
Utility interest charges for the three months and twelve months ended January
31, 1995, increased over similar prior periods due to increases in the amounts
of long-term debt, short-term debt and refunds due customers outstanding and to
increases in short-term interest rates.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on February 24,
1995, for the purpose of electing three directors, ratifying the selection of
independent auditors and approving a proposal to authorize the issuance of
300,000 additional shares of common stock under the Company's Employee Stock
Purchase Plan (the ESP Plan). The record date for the determination of
shareholders entitled to notice of and to vote at the meeting was January 11,
1995. Proxies for the meeting were solicited pursuant to section 14(a) of the
Securities and Exchange Act of 1934. There was no solicitation in opposition
to management's solicitations.
All of management's nominees for directors for terms expiring in 1998 as listed
in the proxy statement were elected as indicated below:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
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Jerry W. Amos
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22,676,105 -0- 207,577 3,805,908
John H. Maxheim
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22,676,112 -0- 207,570 3,805,908
Walter S. Montgomery, Jr.
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22,673,511 -0- 210,171 3,805,908
Directors continuing in office until 1996 are Muriel W. Helms, Donald S.
Russell, Jr., and John E. Simkins, Jr. Directors continuing in office until
1997 are C. M. Butler III, Sam J. DiGiovanni and John F. McNair III.
The proposal to ratify the selection by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of the Company for the fiscal
year ending October 31, 1995, was approved by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
----- ------- ---------- -----
22,585,122 139,233 159,327 3,805,908
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The proposal to authorize the issuance of 300,000 additional shares of common
stock for the ESP Plan was approved by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
----- ------- ---------- -----
21,711,614 730,350 441,718 3,805,908
Item 5. Other Information
Expansion of Services
As previously reported, the Company filed a petition in September 1994 with the
North Carolina Utilities Commission (NCUC) for a certificate of public
convenience and necessity to serve four counties in North Carolina not
presently receiving natural gas service and an application to establish an
expansion fund and place $14.8 million of supplier refunds into the fund for
such expansion. A similar application to serve these counties was filed by a
company not currently operating in North Carolina. Hearings have been held
before the NCUC on the application to serve the four counties; however, no
decision has been rendered. The outcome of this proceeding is not presently
determinable. The application to establish an expansion fund has been set for
hearing on March 28, 1995.
Transition Cost Recovery
With the restructuring of the interstate gas pipeline industry under Federal
Energy Regulatory Commission (FERC) Order No. 636, the interstate pipelines
were required to "unbundle" the gas sales, transportation and storage services
provided by them and to transport gas to their customers. The FERC approved
mechanisms for the pipelines to recover from customers certain "transition
costs" related to the unbundling with the largest component of these transition
costs being the cost of realigning existing gas supply contracts (Gas Supply
Realignment or GSR costs).
Pursuant to rules and regulations of the Tennessee Public Service Commission
(TPSC), the Company is permitted to pass through to its customers any
transition costs, including GSR costs. Effective November 1, 1993, the Company
began recovering transition costs assessed by Tennessee Gas Pipeline Company
through purchased gas adjustment procedures approved by the TPSC. As a result
of a complaint by a group of the Company's industrial customers challenging the
Company's allocation methodology for these transition costs, the TPSC has
instituted a proceeding to determine the proper allocation methodology for the
Company and the other local distribution companies in Tennessee. This matter
has been set for hearing on March 9, 1995. The outcome of this proceeding is
not presently determinable.
General Rate Matters
On February 10, 1995, the NCUC approved an annual increase in rates of $1.8
million to cover the Company's investment and operating costs
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in Cardinal Pipeline Company, L.L.C. Cardinal Pipeline is a limited liability
company owned approximately 36% by Piedmont Intrastate Pipeline Company, a
wholly-owned subsidiary of the Company, and 64% by another local distribution
company in North Carolina.
In January 1995, the NCUC and the Public Service Commission of South Carolina
(PSCSC) concluded their annual prudency reviews of the Company's gas costs.
Both the NCUC and the PSCSC found the Company to be prudent in its gas
purchasing practices.
Environmental Matters
Manufactured Gas Plant Sites
The Company has owned or operated manufactured gas plant (MGP) facilities at 11
sites in its three-state service area. Four of these sites are still owned by
the Company and the remaining seven are owned by other individuals or
companies. At eight of the 11 sites, former or current owners or former
operators other than the Company are viable entities.
Seven of the sites are in North Carolina, located in Burlington, Charlotte,
Greensboro, Hickory, High Point, Salisbury and Winston-Salem. The North
Carolina Department of Environment, Health and Natural Resources, Division of
Solid Waste Management, Superfund Section (the State), has announced its
intention ultimately to address all MGP sites in North Carolina. Sites can be
addressed in one of two ways, either under the federal Comprehensive
Environmental Response, Compensation and Liability Act/Superfund Amendments and
Reauthorization Act (CERCLA/SARA) or under the State Inactive Hazardous Waste
Sites Program (the Program).
If the site is addressed under CERCLA/SARA, the State performs a Preliminary
Assessment and additional stages of investigation on the site, prepares a draft
Hazardous Waste Site Ranking Score for the site and forwards the draft score
and report to the United States Environmental Protection Agency (the EPA) for
review. The State has undertaken a Preliminary Assessment or additional stage
of investigation on five of the seven North Carolina MGP sites to which the
Company has a connection.
The Program allows a site to be addressed through voluntary investigation or
remediation undertaken pursuant to an Administrative Order on Consent (AOC).
Several years ago, the State began the Manufactured Gas Plant Initiative.
Under the initiative, the State approached a group of six utility companies,
including the Company, and four municipalities who are former or current owners
or former operators of MGPs. The State sought the group's cooperation to
develop a uniform and reasonable program to address the assessment and
remediation of these sites. The ten entities organized themselves into a group
known as the North Carolina MGP Group (the Group).
The State and the Group negotiated a memorandum of understanding that
establishes a framework for accomplishing a cooperative assessment
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and remediation program for these sites. The State and the Group also
developed a model investigation AOC to be used by the State and a specific
party or parties at an MGP site to guide the investigation of the site. The
EPA has been notified of the initiative and appears committed to refrain from
further addressing these sites under the federal Superfund program as long as
adequate progress is being made.
The MGP initiative covers all seven of the North Carolina MGP sites to which
the Company has a connection. The Company, with the current owner, has entered
into an investigative AOC for the Greensboro site and investigation activities
have begun.
As to the three sites in South Carolina and the one site in Tennessee, the
respective state agencies have sent no notices and taken no action of which the
Company is aware.
Further evaluations will determine what investigation and remediation costs, if
any, will be necessary at specific MGP sites. Discussions and perhaps other
actions will be necessary to determine how costs will be shared among
potentially responsible parties at specific sites. Because site-specific
information is limited, and because cost-sharing arrangements with other
parties have not been concluded, the Company cannot presently determine its
potential responsibility for costs at individual MGP sites.
Underground Tanks
The Company is in the process of evaluating and remediating sites with respect
to its present or former ownership of underground tanks. Comprehensive
evaluations of such sites are substantially complete. Of the 11 sites in North
Carolina and South Carolina, six require corrective action. The State has
established a trust fund which reimburses the owner or operator for the costs
of evaluating and remediating the underground tank sites in excess of a
designated variable dollar amount per site. None of the underground tank sites
in Tennessee requires remediation.
Summary
Based on a generic MGP site study prepared by the Gas Research Institute and
estimates determined in the underground storage tank comprehensive site
evaluations, the Company has recorded a liability and an associated regulatory
asset of $1.7 million for potential future environmental costs. The three
state regulatory commissions regulating the Company have authorized deferral
accounting, or the creation of a regulatory asset, for expenditures made in
connection with environmental matters. A determination as to whether or not
environmental expenditures, net of recoveries from other responsible parties,
will be recovered from ratepayers will be made at the appropriate time in
general rate case proceedings. In North Carolina, current procedures permit
the Company to recover 100% of its prudently incurred MGP clean-up costs but do
not permit the recovery of any carrying costs on such amounts from the time
they are expended until the time they are collected. The Company believes that
the resolution of these environmental matters will not have a material adverse
effect on the Company's financial position or results of operations.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule (for Securities and Exchange
Commission use only).
(b) Reports on Form 8-K -
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIEDMONT NATURAL GAS COMPANY, INC.
(Registrant)
Date March 9, 1995 /s/ Ted C. Coble
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Ted C. Coble
Vice President and Treasurer, and
Assistant Secretary
(Principal Financial Officer)
Date March 9, 1995 /s/ Barry L. Guy
--------------- --------------------------------
Barry L. Guy
Vice President and Controller
(Principal Accounting Officer)
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