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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

þ     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2005

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ 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 March 1, 2005
   
Common Stock, no par value   76,681,352
 
 

Page 1 of 27

 

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

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

                 
    January 31,     October 31,  
    2005     2004  
ASSETS
                
Utility Plant, at original cost
   $ 2,495,388     $ 2,474,796  
Less accumulated depreciation
     639,158       624,973  
 
            
Utility plant, net
     1,856,230       1,849,823  
 
            
Other Physical Property (net of accumulated depreciation of $1,824 in 2005 and $1,782 in 2004)
     931       973  
 
            
Current Assets:
                
Cash and cash equivalents
     25,475       5,676  
Restricted cash
     12,791       12,732  
Marketable securities, at market value (cost, $869)
     2,424       1,857  
Receivables (less allowance for doubtful accounts of $5,583 in 2005 and $1,086 in 2004)
     221,487       70,987  
Unbilled utility revenues
     133,035       25,711  
Gas in storage
     109,830       128,465  
Amounts due from customers
     39,877       34,716  
Prepayments
     2,776       38,709  
Other
     16,601       16,356  
 
            
Total current assets
     564,296       335,209  
 
            
 
                
Investments, Deferred Charges and Other Assets:
                
Equity method investments in non-utility activities
     71,123       65,322  
Goodwill
     48,250       48,151  
Other
     35,448       36,399  
 
            
Total investments, deferred charges and other assets
     154,821       149,872  
 
            
 
                
Total
   $ 2,576,278     $ 2,335,877  
 
            
 
                
CAPITALIZATION AND LIABILITIES
               
 
                
Capitalization:
                
Common stock equity:
                
Common stock, no par value, 100,000 shares authorized; outstanding, 76,757 in 2005 and 76,670 in 2004
   $ 565,336     $ 563,667  
Retained earnings
     346,185       291,397  
Accumulated other comprehensive income (loss)
     (1,338 )     (166 )
 
            
Total common stock equity
     910,183       854,898  
Long-term debt
     660,000       660,000  
 
            
Total capitalization
     1,570,183       1,514,898  
 
            
 
                
Current Liabilities:
                
Notes payable
     189,500       109,500  
Accounts payable
     160,505       99,599  
Deferred income taxes
     56,967       20,687  
Taxes accrued
     14,573       17,403  
Amounts due to customers
     14,055       19,081  
Other
     48,547       39,897  
 
            
Total current liabilities
     484,147       306,167  
 
            
 
                
Deferred Credits and Other Liabilities:
                
Deferred income taxes
     208,119       202,155  
Unamortized federal investment tax credits
     4,355       4,492  
Asset retirement obligations
     272,059       266,700  
Other
     37,415       41,465  
 
            
Total deferred credits and other liabilities
     521,948       514,812  
 
            
 
                
Total
   $ 2,576,278     $ 2,335,877  
 
            
    See notes to condensed consolidated financial statements.

2

 

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

                                 
    Three Months Ended     Twelve Months Ended  
    January 31     January 31  
    2005     2004     2005     2004  
Operating Revenues
   $ 680,556     $ 618,785     $ 1,591,510     $ 1,346,116  
Cost of Gas
     477,936       422,305       1,097,001       928,450  
 
                        
 
                                
Margin
     202,620       196,480       494,509       417,666  
 
                        
 
                                
Operating Expenses:
                                
Operations and maintenance
     50,253       49,672       200,863       163,284  
Depreciation
     20,748       20,453       82,571       68,367  
General taxes
     8,441       6,002       29,451       24,031  
Income taxes
     44,259       43,004       52,703       47,167  
 
                        
 
                                
Total operating expenses
     123,701       119,131       365,588       302,849  
 
                        
 
                                
Operating Income
     78,919       77,349       128,921       114,817  
 
                        
 
                                
Other Income (Expense):
                                
Income from equity method investments
     5,813       8,680       24,515       22,878  
Gain on sale of equity method investments
     —       5,128       (445 )     5,128  
Allowance for equity funds used during construction
     257       304       982       1,190  
Non-operating income
     415       171       2,530       2,218  
Charitable contributions
     (68 )     (168 )     (9,025 )     (743 )
Non-operating expense
     (36 )     (29 )     (331 )     (178 )
Income taxes
     (2,317 )     (5,591 )     (7,325 )     (12,379 )
 
                        
 
                                
Total other income (expense), net of tax
     4,064       8,495       10,901       18,114  
 
                                
Utility Interest Charges
     11,805       11,211       48,041       41,112  
 
                        
 
                                
Income Before Minority Interest in Income of Consolidated Subsidiary
     71,178       74,633       91,781       91,819  
 
                                
Less Minority Interest in Income (Loss) of Consolidated Subsidiary
     (99 )     11       (61 )     830  
 
                        
 
                                
Net Income
   $ 71,277     $ 74,622     $ 91,842     $ 90,989  
 
                        
 
                                
Average Shares of Common Stock:
                                
Basic
     76,710       68,239 *     76,489 *     67,252 *
Diluted
     76,925       68,444 *     76,759 *     67,490 *
 
Earnings Per Share of Common Stock:
                                
Basic
   $ 0.93     $ 1.09 *   $ 1.20 *   $ 1.35 *
Diluted
   $ 0.93     $ 1.09 *   $ 1.20 *   $ 1.35 *
 
                                
Cash Dividends Per Share of Common Stock
   $ 0.215     $ 0.2075 *   $ 0.86 *   $ 0.83 *

    *Reflects a two-for-one stock split effective October 11, 2004.
 
     
 
    See notes to condensed consolidated financial statements.

3

 

Piedmont Natural Gas Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

                                 
    Three Months Ended     Twelve Months Ended  
    January 31     January 31  
    2005     2004     2005     2004  
Cash Flows from Operating Activities:
                                
Net income
   $ 71,277     $ 74,622     $ 91,842     $ 90,989  
Adjustments to reconcile net income to net cash provided by operating activities:
                                
Depreciation and amortization
     22,064       21,668       87,732       72,293  
Income from equity method investments
     (5,813 )     (8,680 )     (24,515 )     (22,878 )
Gain on sale of equity method investments
     —       (5,128 )     445       (5,128 )
Change in assets and liabilities
     (112,111 )     (26,395 )     (76,811 )     (12,325 )
Other
     3,650       4,000       (5,172 )     (1,162 )
 
                        
Net cash provided by (used in) operating activities
     (20,933 )     60,087       73,521       121,789  
 
                        
 
                                
Cash Flows from Investing Activities:
                                
Utility construction expenditures
     (35,170 )     (27,685 )     (149,246 )     (89,567 )
Reimbursements from bond fund
     11,751       5,870       47,378       9,632  
Capital contributions to equity method investments
     (270 )     —       (384 )     (1,377 )
Capital distributions from equity method investments
     1,423       8,037       19,676       16,975  
Proceeds from sale of equity method investments
     —       36,096       —       36,096  
Purchase of NCNG and EasternNC, net in 2004 of cash received of $7,185
     —       —       (271 )     (450,168 )
Other
     (386 )     789       578       1,244  
 
                        
Net cash provided by (used in) investing activities
     (22,652 )     23,107       (82,269 )     (477,165 )
 
                        
 
                                
Cash Flows from Financing Activities:
                                
Increase in notes payable, net
     80,000       13,500       66,500       79,000  
Repayment of commercial paper
     —       (445,559 )     —       —  
Proceeds from issuance of long-term debt
     —       198,334       —       198,334  
Debt offering costs
     —       (166 )     (229 )     (319 )
Repayment of long-term debt
     —       —       (2,000 )     (47,000 )
Proceeds from sale of common stock, net of expenses
     —       174,094       (266 )     174,094  
Issuance of common stock through dividend reinvestment and employee stock plans
     6,396       4,012       22,403       17,087  
Repurchases of common stock
     (6,524 )     —       (11,011 )     —  
Dividends paid
     (16,488 )     (13,990 )     (65,765 )     (55,635 )
 
                        
Net cash provided by (used in) financing activities
     63,384       (69,775 )     9,632       365,561  
 
                        
 
                                
Net Increase in Cash and Cash Equivalents
     19,799       13,419       884       10,185  
Cash and Cash Equivalents at Beginning of Period
     5,676       11,172       24,591       14,406  
 
                        
Cash and Cash Equivalents at End of Period
   $ 25,475     $ 24,591     $ 25,475     $ 24,591  
 
                        
 
                                
Cash Paid During the Period for:
                                
Interest
   $ 20,264     $ 15,591     $ 48,542     $ 39,789  
Income taxes
   $ 523     $ 11     $ 44,907     $ 25,705  
 
                                
Noncash Investing and Financing Activities Related to Acquistions of NCNG and EasternNC:
                                
Fair value/book value of assets (liabilities) acquired
           $ 1,117     $ 3,811     $ 512,252  
Cash paid
             —       (271 )     (457,353 )
Adjustment of estimated working capital to actual
             —       271       2,010  
 
                          
Liabilities assumed
           $ 1,117     $ 3,811     $ 56,909  
 
                          

See notes to condensed consolidated financial statements.

4

 

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

                 
    Three Months  
    Ended January 31  
    2005     2004  
Net Income
   $ 71,277     $ 74,622  
Other Comprehensive Income:
                
Minimum pension liability adjustment, net of tax of ($1,778)
     (2,748 )     —  
Unrealized gain on marketable securities, net of tax of $220
     348       —  
Unrealized income of equity method investments hedging activities, net of tax of $941 in 2005 and $221 in 2004
     1,499       337  
Reclassification of equity method investments hedging activities included in net income, net of tax of ($217) in 2005 and $339 in 2004
     (271 )     520  
 
            
Total Comprehensive Income
   $ 70,105     $ 75,479  
 
            

      See notes to condensed consolidated financial statements.

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. These financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in our 2004 Annual Report.

2. In our opinion, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of financial position at January 31, 2005 and October 31, 2004, and the results of operations and cash flows for the three and twelve months ended January 31, 2005 and 2004. Our business is seasonal in nature. The results of operations for the three months ended January 31, 2005, do not necessarily reflect the results to be expected for the full year.

We make estimates and assumptions when preparing the condensed 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 condensed 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. The amounts recorded as regulatory assets in the consolidated balance sheets as of January 31, 2005 and October 31, 2004, were $69.7 million and $65.1 million, respectively. The amounts recorded as regulatory liabilities in the consolidated balance sheets as of January 31, 2005 and October 31, 2004, were $295.6 million and $297.6 million, respectively.

4. All of our goodwill is attributable to the regulated utility segment. The balance in goodwill as of October 31, 2004 and January 31, 2005, and the changes for the three months ended January 31, 2005, are presented below.

         
In thousands
       
Balance as of October 31, 2004
   $ 48,151  
Minority interest in loss of Eastern North Carolina Natural Gas Company (EasternNC)
     99  
 
      
Balance as of January 31, 2005
   $ 48,250  
 
      

5. Components of the net periodic benefit cost for our defined-benefit pension plans and other postretirement benefit plan for the three months and twelve months ended January 31, 2005 and 2004, are presented below.

6

 

                                 
    Pension Benefits     Other Benefits  
In thousands   2005     2004     2005     2004 *  
Three Months Ended January 31                                
Service cost
   $ 2,691     $ 2,482     $ 348     $ 341  
Interest cost
     3,166       3,021       538       663  
Expected return on plan assets
     (4,065 )     (3,997 )     (258 )     (231 )
Amortization of transition obligation
     —       —       220       220  
Amortization of prior-service cost
     233       233       321       258  
Amortization of actuarial (gain) loss
     47       —       —       95  
 
                        
Net periodic benefit cost
   $ 2,072     $ 1,739     $ 1,169     $ 1,346  
 
                        
 
                                
Twelve Months Ended January 31
                                
Service cost
   $ 9,907     $ 7,027     $ 1,345     $ 989  
Interest cost
     12,229       10,639       2,422       2,322  
Expected return on plan assets
     (16,288 )     (14,044 )     (950 )     (844 )
Amortization of transition obligation
     —       10       879       879  
Amortization of prior-service cost
     931       931       1,094       1,030  
Amortization of actuarial (gain) loss
     47       (630 )     185       244  
 
                        
Net periodic benefit cost
   $ 6,826     $ 3,933     $ 4,975     $ 4,620  
 
                        

*   Expense includes NCNG beginning October 1, 2003.

6. We compute basic earnings per share using the weighted average number of shares of Common Stock outstanding during each period. A reconciliation of basic and diluted earnings per share for the three and twelve months ended January 31, 2005 and 2004, is presented below.

                                 
    Three Months     Twelve Months  
In thousands except per share amounts   2005     2004     2005     2004  
Net Income
   $ 71,277     $ 74,622     $ 91,842     $ 90,989  
 
                        
 
                                
Average shares of Common Stock outstanding for basic earnings per share
     76,710       68,239 *     76,489 *     67,252 *
Contingently issuable shares under the Long-Term Incentive Plan
     215       205 *     270 *     238 *
 
                        
Average shares of dilutive stock
     76,925       68,444 *     76,759 *     67,490 *
 
                        
 
                                
Earnings Per Share of Common Stock:
                                
Basic
   $ .93     $ 1.09 *   $ 1.20 *   $ 1.35 *
Diluted
   $ .93     $ 1.09 *   $ 1.20 *   $ 1.35 *