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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 April 30, 2004

or

o   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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes  x  No o

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 7, 2004
Common Stock, no par value
  38,197,628

Page 1 of 30 pages

 

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

Piedmont Natural Gas Company, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
(In thousands)

                 
    April 30,   October 31,
    2004
   2003
ASSETS
                
Utility Plant, at original cost
   $ 2,428,440     $ 2,389,122  
Less accumulated depreciation
     604,761       576,823  
 
    
 		      
 		  
Utility plant, net
     1,823,679       1,812,299  
 
    
 		      
 		  
Other Physical Property (net of accumulated depreciation of $1,840 in 2004 and $1,740 in 2003)
     1,061       1,115  
 
    
 		      
 		  
Current Assets:
                
Cash and cash equivalents
     81,372       11,172  
Restricted cash
     6,806       6,749  
Receivables (less allowance for doubtful accounts of $9,373 in 2004 and $2,743 in 2003)
     136,200       58,662  
Unbilled utility revenues
     32,263       34,630  
Gas in storage
     44,081       121,723  
Refundable income taxes
     1,102       23,758  
Prepayments
     7,333       31,085  
Other
     22,827       19,865  
 
    
 		      
 		  
Total current assets
     331,984       307,644  
 
    
 		      
 		  
Investments, Deferred Charges and Other Assets:
                
Investments in non-utility activities, at equity
     62,588       96,191  
Goodwill
     52,366       50,924  
Unamortized debt expense
     5,501       3,748  
Other
     20,298       24,485  
 
    
 		      
 		  
Total investments, deferred charges and other assets
     140,753       175,348  
 
    
 		      
 		  
Total
   $ 2,297,477     $ 2,296,406  
 
    
 		      
 		  
CAPITALIZATION AND LIABILITIES
                
Capitalization:
                
Common stock equity:
                
Common stock, no par value, 100,000 shares authorized; outstanding, 38,177 in 2004 and 33,655 in 2003
   $ 557,505     $ 372,651  
Retained earnings
     344,994       259,476  
Accumulated other comprehensive income
     (1,236 )     (1,932 )
 
    
 		      
 		  
Total common stock equity
     901,263       630,195  
Long-term debt
     660,000       460,000  
 
    
 		      
 		  
Total capitalization
     1,561,263       1,090,195  
 
    
 		      
 		  
Current Liabilities:
                
Current maturities of long-term debt and sinking fund requirements
     2,000       2,000  
Notes payable
     —       109,500  
Commercial paper
     —       445,559  
Accounts payable
     90,092       90,901  
Deferred income taxes
     32,101       16,949  
Income taxes accrued
     28,143       612  
General taxes accrued
     7,646       19,594  
Refunds due customers
     27,868       5,382  
Accrued gas cost on unbilled utility revenues
     4,109       2,995  
Other
     37,553       31,670  
 
    
 		      
 		  
Total current liabilities
     229,512       725,162  
 
    
 		      
 		  
Deferred Credits and Other Liabilities:
                
Deferred income taxes
     201,108       188,503  
Unamortized federal investment tax credits
     4,768       5,042  
Asset retirement obligations
     256,111       245,879  
Other
     44,715       41,625  
 
    
 		      
 		  
Total deferred credits and other liabilities
     506,702       481,049  
 
    
 		      
 		  
Total
   $ 2,297,477     $ 2,296,406  
 
    
 		      
 		  

See notes to consolidated financial statements.

2

 

Piedmont Natural Gas Company, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In thousands except per share amounts)

                                                 
    Three Months   Six Months   Twelve Months
    Ended   Ended   Ended
    April 30
   April 30
   April 30
    2004
   2003
   2004
   2003
   2004
   2003
Operating Revenues
   $ 482,398     $ 407,774     $ 1,101,183     $ 901,265     $ 1,420,740     $ 1,150,670  
Cost of Gas
     336,543       297,760       758,848       629,557       967,233       784,939  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Margin
     145,855       110,014       342,335       271,708       453,507       365,731  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Operating Expenses:
                                                
Operations and Maintenance
     50,539       37,881       100,211       76,376       175,942       143,514  
Depreciation
     20,210       15,309       40,663       30,559       73,268       59,803  
General Taxes
     7,421       6,367       13,423       12,747       25,085       24,228  
Income Taxes
     21,781       15,865       64,785       51,779       53,065       37,772  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Total operating expenses
     99,951       75,422       219,082       171,461       327,360       265,317  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Operating Income
     45,904       34,592       123,253       100,247       126,147       100,414  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Other Income (Expense):
                                                
Non-utility activities, at equity
     12,700       9,995       21,380       13,768       25,584       10,950  
Gain on sale of equity investments
     (445 )     —       4,683       —       4,683       —  
Allowance for equity funds used during construction
     344       339       648       621       1,242       1,478  
Non-operating income
     921       644       1,091       1,156       2,495       1,829  
Non-operating expense
     (761 )     (277 )     (957 )     (415 )     (1,405 )     (694 )
Income taxes
     (5,046 )     (4,332 )     (10,637 )     (6,084 )     (13,111 )     (5,542 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Total other income (expense), net of tax
     7,713       6,369       16,208       9,046       19,488       8,021  
Utility Interest Charges
     12,324       9,961       23,535       20,297       43,523       40,237  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Income Before Minority Interest in Income of Consolidated Subsidiary
     41,293       31,000       115,926       88,996       102,112       68,198  
Less Minority Interest in Income of Consolidated Subsidiary
     34       —       45       —       865       —  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Net Income
   $ 41,259     $ 31,000     $ 115,881     $ 88,996     $ 101,247     $ 68,198  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Average Shares of Common Stock:
                                                
Basic
     38,082       33,333       36,079       33,258       34,793       33,078  
Diluted
     38,167       33,444       36,173       33,372       34,902       33,223  
Earnings Per Share of Common Stock:
                                                
Basic
   $ 1.08     $ 0.93     $ 3.21     $ 2.68     $ 2.91     $ 2.06  
Diluted
   $ 1.08     $ 0.93     $ 3.20     $ 2.67     $ 2.90     $ 2.05  
Cash Dividends Per Share of Common Stock
   $ 0.430     $ 0.415     $ 0.845     $ 0.815     $ 1.675     $ 1.615  

See notes to consolidated financial statements.

3

 

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
    2004
   2003
   2004
   2003
   2004
   2003
Cash Flows from Operating Activities:
                                                
Net income
   $ 41,259     $ 31,000     $ 115,881     $ 88,996     $ 101,247     $ 68,198  
Adjustments to reconcile net income to net cash provided by operating activities:
                                                
Depreciation and amortization
     20,617       15,544       41,548       31,025       74,685       60,684  
Undistributed earnings from equity investments
     (12,700 )     (9,995 )     (21,380 )     (13,768 )     (25,584 )     (10,950 )
Gain on sale of equity investments
     445       —       (4,683 )     —       (4,683 )     —  
Change in assets and liabilities
     148,018       67,643       115,149       33,944       32,845       (33,416 )
Other, net
     2,217       11,558       11,031       10,338       28,107       23,181  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Net cash provided by operating activities
     199,856       115,750       257,546       150,535       206,617       107,697  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Cash Flows from Investing Activities:
                                                
Utility construction expenditures
     (24,206 )     (17,476 )     (44,655 )     (34,555 )     (88,035 )     (76,957 )
Capital contributions to equity investments
     —       (1,377 )     —       (2,223 )     —       (4,402 )
Capital distributions from equity investments
     15,447       5,938       23,484       7,188       26,484       24,067  
Proceeds from sale of equity investments
     —       —       36,096       —       36,096       —  
Purchase of gas distribution system
     —       —       —       2,153       —       (23,847 )
Purchase of NCNG and EasternNC, net of cash received of $7,185
     —       —       —       —       (450,168 )     —  
Other
     (34 )     (41 )     (46 )     (78 )     (87 )     (118 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Net cash provided by (used in) investing activities
     (8,793 )     (12,956 )     14,879       (27,515 )     (475,710 )     (81,257 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Cash Flows from Financing Activities:
                                                
Decrease in bank loans, net
     (123,000 )     (44,000 )     (109,500 )     (46,500 )     —       —  
Decrease in commercial paper
     —       —       (445,559 )     —       —       —  
Issuance of long-term debt
     —       —       200,000       —       200,000       —  
Retirement of long-term debt
     —       —       —       —       (47,000 )     (2,000 )
Proceeds from issuance of common stock, net of expenses
     (266 )     —       173,828       —       173,828       —  
Issuance of common stock through dividend reinvestment and employee stock plans
     5,357       4,463       9,369       9,313       17,981       19,322  
Dividends paid
     (16,373 )     (13,828 )     (30,363 )     (27,098 )     (58,179 )     (53,404 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Net cash provided by (used in) financing activities
     (134,282 )     (53,365 )     (202,225 )     (64,285 )     286,630       (36,082 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Net Increase (Decrease) in Cash and Cash Equivalents
     56,781       49,429       70,200       58,735       17,537       (9,642 )
Cash and Cash Equivalents at Beginning of Period
     24,591       14,406       11,172       5,100       63,835       73,477  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Cash and Cash Equivalents at End of Period
   $ 81,372     $ 63,835     $ 81,372     $ 63,835     $ 81,372     $ 63,835  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Cash Paid During the Period for:
                                                
Interest
   $ 3,926     $ 3,727     $ 19,516     $ 19,796     $ 39,988     $ 39,560  
Income taxes
   $ 9,910     $ 23,710     $ 9,921     $ 23,892     $ 16,525     $ 28,109  
Noncash Investing and Financing Activities Related to Acquisitions of NCNG and EasternNC:
                                                
Fair value/book value of assets acquired
   $ —             $ 1,106             $ 512,241          
Cash paid
     —               —               (457,353 )        
Adjustment of estimated working capital to actual
     —               —               2,010          
 
    
 		              
 		              
 		          
Liabilities assumed
   $ —             $ 1,106             $ 56,898          
 
    
 		              
 		              
 		          

See notes to condensed consolidated financial statements.

4

 

Piedmont Natural Gas Company, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
(In thousands)

                                 
    Three Months   Six Months
    Ended April 30
   Ended April 30
    2004
   2003
   2004
   2003
Net Income
   $ 41,259     $ 31,000     $ 115,881     $ 88,996  
Other Comprehensive Income:
                                
Unrealized income (loss) on equity investments hedging activities, net of tax of ($223) and ($136) in the three months ended April 30, 2004 and 2003, respectively, and net of tax of ($2) and ($293) in the six months ended April 30, 2004 and 2003, respectively
     (346 )     (207 )     (9 )     (444 )
Reclassification adjustment for (income) loss included in net income, net of tax of $120 and $489 in the three months ended April 30, 2004 and 2003, respectively, and net of tax of $459 and $1,289 in the six months ended April 30, 2004 and 2003, respectively
     185       750       705       1,970  
 
    
 		      
 		      
 		      
 		  
Total Comprehensive Income
   $ 41,098     $ 31,543     $ 116,577     $ 90,522  
 
    
 		      
 		      
 		      
 		  
Reconciliation of Accumulated Other Comprehensive Income:
                                
Balance, beginning of period
     ($1,075 )     ($2,000 )     ($1,932 )     ($2,983 )
Current period reclassification to earnings
     185       750       705       1,970  
Current period change
     (346 )     (207 )     (9 )     (444 )
 
    
 		      
 		      
 		      
 		  
Balance, end of period
     ($1,236 )     ($1,457 )     ($1,236 )     ($1,457 )
 
    
 		      
 		      
 		      
 		  

See notes to consolidated financial statements.

5

 

Piedmont Natural Gas Company, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

1.   Independent auditors have not audited the consolidated financial statements. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in our 2003 Annual Report.
 
2.   In our opinion, the unaudited consolidated financial statements include all normal recurring adjustments necessary for a fair statement of financial position at April 30, 2004 and October 31, 2003, and the results of operations and cash flows for the three months, six months and twelve months ended April 30, 2004 and 2003.
 
    We make estimates and assumptions when preparing the consolidated financial statements. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.
 
3.   We follow Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation” (Statement 71). Statement 71 provides that rate-regulated public utilities account for and report assets and liabilities consistent with the economic effect of the manner in which independent third-party regulators establish rates. In applying Statement 71, we capitalize certain costs and benefits as regulatory assets and liabilities, respectively, pursuant to orders of the state regulatory commissions, either in general rate proceedings or expense deferral proceedings, in order to provide for recovery from or refund to utility customers in future periods.
 
4.   All of our goodwill is attributable to the regulated utility segment. The following presents the balance in goodwill as of October 31, 2003 and April 30, 2004, and the changes for the six months ended April 30, 2004.

         
In thousands
        
Balance as of October 31, 2003
   $ 50,924  
Purchase price allocation adjustment for North Carolina Natural Gas Corporation (NCNG)
     1,488  
Minority interest in Eastern North Carolina Natural Gas Company (EasternNC)
     (46 )
 
    
 		  
Balance as of April 30, 2004
   $ 52,366  
 
    
 		  

    The purchase price allocation adjustment is primarily due to an increase in the liability for pension restoration, deferred directors’ fees, inventory adjustments and other working capital adjustments based on additional information obtained subsequent to the initial purchase price allocation.
 
    We are in the process of evaluating and measuring certain assets acquired and liabilities assumed in the acquisition, primarily working capital. The allocation of the purchase price is subject to refinement according to terms specified in the stock purchase agreement and is expected to be completed in fiscal 2004.
 
5.   Effective February 1, 2004, we adopted SFAS No. 132, “Employers’ Disclosure about Pensions and Other Postretirement Benefits (Revised)” (Statement 132). Statement 132 requires additional disclosures about assets, obligations, cash flows and net periodic benefit cost of defined-benefit

6

 

    pension plans and other postretirement benefit plans. The components of net periodic benefit cost for our defined-benefit pension plan and our postretirement health care and life insurance benefit plans for the three months, six months and twelve months ended April 30, 2004 and 2003, are presented below.

                                 
    Pension Benefits
   Other Benefits *
In thousands
   2004
   2003
   2004
   2003
Three Months Ended April 30
                                
Components of net periodic benefit cost:
                                
Service cost
   $ 2,349     $ 1,515     $ 341     $ 203  
Interest cost
     3,021       2,496       663       538  
Expected return on plan assets
     (3,997 )     (3,327 )     (231 )     (205 )
Amortization of transition obligation
     —       3       220       220  
Amortization of prior-service cost
     233       233       258       258  
Amortization of actuarial (gain) loss
     —       (210 )     95       49  
 
    
 		      
 		      
 		      
 		  
Net periodic benefit cost
   $ 1,606     $ 710     $ 1,346     $ 1,063  
 
    
 		      
 		      
 		      
 		  
Six Months Ended April 30