1 ================================================================================ 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 April 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ ------------------- Commission file number 1-6196 PIEDMONT NATURAL GAS COMPANY, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) North Carolina 56-0556998 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1915 Rexford Road, Charlotte, North Carolina 28211 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 704-364-3120 ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 4, 1998 - -------------------------------------------------------------------------------- Common Stock, no par value 30,510,927 ================================================================================ Page 1 of 11 pages 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) ---------------------------------------------------------------- April 30, October 31, 1998 1997 ASSETS Unaudited Audited ---------- ---------- Utility Plant, at original cost $1,289,833 $1,256,772 Less accumulated depreciation 362,473 342,418 ---------- ---------- Utility plant, net 927,360 914,354 ---------- ---------- Other Physical Property (net of accumulated depreciation of $16,930 in 1998 and $15,947 in 1997) 26,591 27,382 ---------- ---------- Current Assets: Cash and cash equivalents 62,282 5,210 Restricted cash 25,316 21,385 Receivables (less allowance for doubtful accounts of $3,107 in 1998 and $2,027 in 1997) 62,007 32,367 Gas in storage 22,071 47,676 Deferred cost of gas 7,360 7,327 Refundable income taxes 2,068 7,115 Other 9,250 11,076 ---------- ---------- Total current assets 190,354 132,156 ---------- ---------- Deferred Charges and Other Assets 23,030 24,264 ---------- ---------- Total $1,167,335 $1,098,156 ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity: Common stock $ 272,070 $ 262,576 Retained earnings 214,841 157,250 ---------- ---------- Total common stock equity 486,911 419,826 Long-term debt 381,000 381,000 ---------- ---------- Total capitalization 867,911 800,826 ---------- ---------- Current Liabilities: Current maturities of long-term debt and sinking fund requirements 10,000 10,000 Notes payable 0 25,000 Accounts payable 62,738 65,103 Deferred income taxes 3,508 10,276 Taxes accrued 14,603 11,041 Refunds due customers 44,884 15,097 Other 17,451 19,012 ---------- ---------- Total current liabilities 153,184 155,529 ---------- ---------- Deferred Credits and Other Liabilities 146,240 141,801 ---------- ---------- Total $1,167,335 $1,098,156 ========== ========== See notes to condensed consolidated financial statements. -2- 3 PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES Condensed Statements of Consolidated Income (Unaudited) (in thousands except per share amounts) ------------------------------------------------------- Three Months Six Months Twelve Months Ended Ended Ended April 30 April 30 April 30 ------------------- ------------------- ------------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Operating Revenues $261,477 $259,306 $574,732 $571,839 $778,411 $758,262 Cost of Gas 147,496 150,187 337,658 344,350 453,974 451,698 -------- -------- -------- -------- -------- -------- Margin 113,981 109,119 237,074 227,489 324,437 306,564 -------- -------- -------- -------- -------- -------- Other Operating Expenses: Operations 25,958 26,233 51,523 53,207 109,005 107,168 Maintenance 3,389 4,163 6,761 8,500 14,421 17,047 Depreciation 10,491 9,663 20,981 19,391 40,777 37,400 General taxes 8,811 9,229 20,301 20,652 32,531 33,271 Income taxes 22,406 20,208 47,588 42,729 36,823 30,654 -------- -------- -------- -------- -------- -------- Total other operating expenses 71,055 69,496 147,154 144,479 233,557 225,540 -------- -------- -------- -------- -------- -------- Operating Income 42,926 39,623 89,920 83,010 90,880 81,024 Other Income, Net 951 1,111 3,476 3,673 3,864 3,490 -------- -------- -------- -------- -------- -------- Income Before Utility Interest Charges 43,877 40,734 93,396 86,683 94,744 84,514 Utility Interest Charges 8,414 8,460 16,684 17,097 33,543 32,914 -------- -------- -------- -------- -------- -------- Net Income $ 35,463 $ 32,274 $ 76,712 $ 69,586 $ 61,201 $ 51,600 ======== ======== ======== ======== ======== ======== Average Shares of Common Stock Outstanding: Basic 30,414 29,807 30,343 29,725 30,189 29,537 Diluted 30,696 29,971 30,637 29,892 30,465 29,702 Earnings Per Share: Basic $ 1.17 $ 1.08 $ 2.53 $ 2.34 $ 2.03 $ 1.75 Diluted $ 1.16 $ 1.08 $ 2.50 $ 2.33 $ 2.01 $ 1.74 Cash Dividends Declared Per Share of Common Stock $ 0.325 0.305 $ 0.63 0.595 $ 1.24 1.175 See notes to condensed consolidated financial statements. -3- 4 PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES Condensed Statements of Consolidated Cash Flows (Unaudited) (in thousands) ----------------------------------------------------------- Three Months Six Months Twelve Months Ended Ended Ended April 30 April 30 April 30 ------------------- ------------------- ------------------- 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Cash Flows from Operating Activities: Net income $ 35,463 $ 32,274 $ 76,712 $ 69,586 $ 61,201 $ 51,600 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,549 11,013 23,089 22,107 44,950 42,158 Other, net 88 2,845 2,010 4,593 6,876 7,799 Change in operating assets and liabilities 53,265 58,684 26,016 52,669 5,275 10,334 --------- --------- --------- --------- --------- --------- Net cash provided by operating activities 100,365 104,816 127,827 148,955 118,302 111,891 --------- --------- --------- --------- --------- --------- Cash Flows from Investing Activities: Utility construction expenditures (17,237) (22,998) (33,795) (43,937) (81,891) (94,544) Other (26) (274) (336) (410) (1,520) (2,351) --------- --------- --------- --------- --------- --------- Net cash used in investing activities (17,263) (23,272) (34,131) (44,347) (83,411) (96,895) --------- --------- --------- --------- --------- --------- Cash Flows from Financing Activities: Increase (Decrease) in bank loans, net (30,000) (26,000) (25,000) (39,000) -- -- Issuance of long-term debt -- -- -- -- -- 40,000 Retirement of long-term debt -- -- -- -- (10,000) (7,000) Issuance of common stock through dividend reinvestment and employee stock plans 3,809 3,715 7,497 7,216 14,701 16,272 Dividends paid (9,883) (9,090) (19,121) (17,687) (37,441) (34,714) --------- --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities (36,074) (31,375) (36,624) (49,471) (32,740) 14,558 --------- --------- --------- --------- --------- --------- Net Increase in Cash and Cash Equivalents 47,028 50,169 57,072 55,137 2,151 29,554 Cash and Cash Equivalents at Beginning of Period 15,254 9,962 5,210 4,994 60,131 30,577 --------- --------- --------- --------- --------- --------- Cash and Cash Equivalents at End of Period $ 62,282 $ 60,131 $ 62,282 $ 60,131 $ 62,282 $ 60,131 ========= ========= ========= ========= ========= ========= Cash Paid During the Period for: Interest $ 5,123 $ 5,438 $ 16,615 $ 16,118 $ 33,821 $ 32,899 Income taxes $ 44,061 $ 33,740 $ 46,576 $ 34,279 $ 46,933 $ 66,395 See notes to condensed consolidated financial statements. -4- 5 PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) 1. The condensed consolidated financial statements have not been audited by independent auditors. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's 1997 Annual Report. 2. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position of the Company at April 30, 1998, and October 31, 1997, and the results of its operations and its cash flows for the three months, six months and twelve months ended April 30, 1998 and 1997. 3. The Company's business is seasonal in nature. The results of operations for the three-month and six-month periods ended April 30, 1998, are not necessarily indicative of the results to be expected for the full year. 4. Basic earnings per share are computed based on the weighted average number of shares of Common Stock outstanding during each period. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share". A reconciliation of basic and diluted earnings per share is presented below: Three Months Six Months Twelve Months Ended Ended Ended April 30 April 30 April 30 -------------------- -------------------- -------------------- (in thousands except per share amounts) 1998 1997 1998 1997 1998 1997 ------- ------- ------- ------- ------- ------- Net Income $35,463 $32,274 $76,712 $69,586 $61,201 $51,600 ======= ======= ======= ======= ======= ======= Average Shares of Common Stock Outstanding for Basic Earnings Per Share 30,414 29,807 30,343 29,725 30,189 29,537 Contingently Issuable Shares Under the Long-Term Incentive Plan 282 164 294 167 276 165 ------- ------- ------- ------- ------- ------- Average Shares of Dilutive Stock 30,696 29,971 30,637 29,892 30,465 29,702 ======= ======= ======= ======= ======= ======= Earnings Per Share: Basic $ 1.17 $ 1.08 $ 2.53 $ 2.34 $ 2.03 $ 1.75 Diluted $ 1.16 $ 1.08 $ 2.50 $ 2.33 $ 2.01 $ 1.74 -5- 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition The Company finances its current cash requirements through internally generated cash, the issuance of new common stock through dividend reinvestment and employee stock purchase plans and committed bank lines of credit totaling $75 million. In addition, the Company sells common stock and long-term debt to cover cash requirements when market or other conditions warrant such long-term financing. Because of the seasonal nature of the natural gas business, a substantial portion of the annual earnings are realized in the winter period, which is the first six months of the fiscal year. Injections of natural gas into storage occur during periods of warm weather (principally April 1 through October 31) for withdrawal from storage during periods of cold weather (principally November 1 through March 31). Due to this seasonality and the demand for gas during the winter season, inventory of stored gas decreased and receivables increased from October 31, 1997, to April 30, 1998. The Company has a substantial capital expansion program to sustain its approximately 6% current annual growth in customer base. The capital expansion program is dependent on the continuing ability to generate the necessary funds required for this growth. Utility construction expenditures for the three, six and twelve months ended April 30, 1998, were $17.7 million, $34.8 million and $83.4 million, respectively, compared with $23.4 million, $44.8 million and $96 million, respectively, for similar prior periods. At April 30, 1998, capitalization consisted of long-term debt of 44% and common equity of 56%. Results of Operations Margin for the three months ended April 30, 1998, increased $4.9 million compared with the same period last year due to regulatory-approved changes and increased volumes of gas sold or transported, including secondary market transactions. Delivered volumes of natural gas (system throughput) for the current three-month period increased over the similar prior period by 2.7 million dekatherms, a 6% increase. Volumes from secondary market sales increased over the similar prior period by 1.7 million dekatherms, a 16% increase. Weather for the three months ended April 30, 1998, was 9% colder than the similar prior period. The weather normalization adjustment (WNA), in effect from November 1 through March 31, increased operating revenues by $5.8 million for the three months ended April 30, 1998, compared with an increase of $8.9 million for the similar prior period. -6- 7 Margin for the six months ended April 30, 1998, increased $9.6 million compared with the similar prior period due to regulatory-approved changes and increased volumes of gas sold or transported, including secondary market transactions. System throughput for the current six months increased over the similar prior period by 5.5 million dekatherms, a 6% increase. Volumes from secondary market sales increased over the similar prior period by 7.2 million dekatherms, a 48% increase. Weather for the six months ended April 30, 1998, was 2% colder than the similar prior period. The WNA increased operating revenues by $5 million in the current six-month period, compared with an increase of $10.6 million for the similar prior period. Margin for the twelve months ended April 30, 1998, increased $17.9 million compared with the similar prior period due to regulatory-approved changes and increased volumes of gas sold or transported, including secondary market transactions. System throughput for the current twelve months increased over the similar prior period by 8.9 million dekatherms, a 7% increase. Volumes from secondary market sales increased over the similar prior period by 7.3 million dekatherms, a 30% increase. Weather for the twelve months ended April 30, 1998, was 4% colder than the similar prior period. The WNA increased operating revenues by $5 million in the current twelve-month period, compared with an increase of $10.6 million for the similar prior period. The Company's rate schedules include gas cost recovery provisions that permit the recovery of prudently incurred gas costs. Annual prudence reviews covering a historical twelve-month period are required in North Carolina and South Carolina but are not required in Tennessee. Rates in all three states are revised periodically without formal rate proceedings to reflect changes in the cost of gas. Charges to cost of gas are based on the amount recoverable under approved rate schedules. The net of any over- or under-recoveries of gas costs is charged or credited to cost of gas and included in refunds due customers in the financial statements. Operations and maintenance expenses for the three months, six months and twelve months ended April 30, 1998, decreased from similar prior periods primarily due to decreases in rental payments, advertising, office supplies and employee benefit costs. These decreases were partially offset by increases in outside labor, and for the twelve-month period, by increases in payroll and the provision for uncollectibles. Depreciation expense for the three months, six months and twelve months ended April 30, 1998, increased over similar prior periods due to the growth of plant in service. General taxes for the three months, six months and twelve months ended April 30, 1998, decreased from similar prior periods -7- 8 primarily due to decreases in gross receipts taxes, partially offset by increases in payroll taxes. The decrease in the three-month period also included a decrease in franchise taxes from the similar prior period. Other income for the three months and six months ended April 30, 1998, decreased from similar prior periods primarily due to decreases in earnings from merchandise activities and energy marketing services. The decrease in the three-month period was partially offset by an increase in earnings from propane operations. The six-month period was decreased further by a decrease in earnings from propane operations. Other income for the twelve months ended April 30, 1998, increased over the similar prior period due to increases in earnings from propane operations and jobbing activities as well as increases in interest income and income from the performance incentive plan in Tennessee. The increase in the twelve-month period was partially offset by decreases in earnings from energy marketing services and merchandise operations. Utility interest charges for the three months and six months ended April 30, 1998, decreased from similar prior periods primarily due to decreases in interest on long-term debt due to lower balances outstanding and interest on short-term debt due to lower balances outstanding but at slightly higher interest rates. The decrease in the three-month and six-month periods was partially offset by an increase in interest on refunds due customers due to higher balances outstanding. Utility interest charges for the twelve months ended April 30, 1998, increased over the similar prior period due to increases in interest from higher balances outstanding on long-term debt and refunds due customers. The increase in the twelve-month period was partially offset by a decrease in interest on short-term debt due to lower amounts outstanding during the period. -8- 9 PART II. OTHER INFORMATION Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 12 Computation of Ratio of Earnings to Fixed Charges. 27.498 Financial Data Schedule (for Securities and Exchange Commission use only). 27.497 Financial Data Schedule (for Securities and Exchange Commission use only). 27.197 Financial Data Schedule (for Securities and Exchange Commission use only). 27.797 Financial Data Schedule (for Securities and Exchange Commission use only). 27.1097 Financial Data Schedule (for Securities and Exchange Commission use only). 27.1096 Financial Data Schedule (for Securities and Exchange Commission use only). 27.1095 Financial Data Schedule (for Securities and Exchange Commission use only). (b) Reports on Form 8-K - None. -9- 10 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 June 11, 1998 /s/ David J. Dzuricky --------------- -------------------------- David J. Dzuricky Senior Vice President-Finance (Principal Financial Officer) Date June 11, 1998 /s/ Barry L. Guy --------------- --------------------- Barry L. Guy Vice President and Controller (Principal Accounting Officer) -10-