Registration No. 333-
FORM S-3
PIEDMONT NATURAL GAS COMPANY, INC.
North Carolina (State or other jurisdiction of incorporation or organization) | 56-0556998 (I.R.S. Employer Identification No.) |
1915 Rexford Road
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
David J. Dzuricky
with copies to:
Jerry W. Amos, Esq. Nelson, Mullins, Riley & Scarborough, LLP Suite 2400, Bank Of America Corporate Center 100 North Tryon Street Charlotte, NC 28202-4021 (704) 417-3000 | Christopher J. Moore, Esq. Orrick, Herrington & Sutcliffe LLP 666 Fifth Avenue New York, New York 10103-0001 (212) 506-5000 |
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement as determined by market conditions and other factors.
CALCULATION OF REGISTRATION FEE
Amount | Proposed maximum | Proposed maximum | Amount of | |||||
Title of each class of | to be | offering price | aggregate | registration | ||||
securities to be registered | registered | per unit(1)(2) | offering price(1)(2) | fee | ||||
Debt Securities(3), Common Stock (no par value Per share)(4), Purchase Contracts(5) and Units(6) | $500,000,000 | 100% | $500,000,000 | $40,450 | ||||
(1) | Estimated solely for the purpose of calculating the registration fee. |
(2) | Excluding accrued interest and accrued amortization of discount, if any, to the date of delivery. |
(3) | Plus such additional principal amount of Debt Securities as may be necessary such that, if Debt Securities are issued with an original issue discount, the aggregate initial offering price of all Debt Securities and Common Stock will equal $500,000,000. |
(4) | Includes (a) such indeterminate number of shares of Common Stock of the Registrant (and accompanying Rights), if any as (i) shall be issuable or deliverable upon conversion of any Debt Securities registered hereby which are convertible into such Common Stock, (ii) as may be issuable or deliverable in connection with the settlement of any Purchase Contracts and (iii) as may be required for delivery upon conversion, exercise or settlement of any such convertible securities or Purchase Contracts as a result of the anti-dilution provisions thereof. The Rights are subject to the registrant’s Rights Agreement, dated as of February 27, 1998, as amended, between the registrant and Wachovia Bank, N.A., as Rights Agent, and until a triggering event thereunder, the Rights trade with, and cannot be separated from, the Common Stock. |
(5) | There are being registered hereby such indeterminate number of Purchase Contracts as may be issued at indeterminate prices. Such Purchase Contracts may be issued together with any of the other securities being registered hereby. Purchase Contracts may require the holder thereof to purchase or sell any of the other securities registered hereby or to purchase or sell (i) securities of an entity unaffiliated with the Registrant, a basket of such securities, an index or indices of such securities or any combination of the above, (ii) currencies or (iii) commodities. |
(6) | There are being registered hereby such indeterminate number of Units as may be issued at indeterminate prices. Units may consist of any combination of the securities being registered hereby. |
The Registrant hereby amends this Registration Statement and Post-Effective Amendment No. 1 on such date or dates as may be necessary to delay their effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement and Post-Effective Amendment No. 1 shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement and Post-Effective Amendment No. 1 shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
SUBJECT TO COMPLETION DATED [ ], 2003
PROSPECTUS
PIEDMONT NATURAL GAS COMPANY, INC.
By this prospectus, we offer up to
$690,000,000
of debt securities, common stock,
WE WILL PROVIDE SPECIFIC TERMS OF THESE SECURITIES IN SUPPLEMENTS TO THIS PROSPECTUS. THIS PROSPECTUS MAY NOT BE USED TO SELL SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT. YOU SHOULD READ THIS PROSPECTUS AND THE PROSPECTUS SUPPLEMENTS CAREFULLY BEFORE YOU INVEST.
We may offer our securities directly or through underwriters, agents or dealers. The supplements to this prospectus will describe the terms of any particular plan of distribution, including any underwriting arrangements. The “Plan of Distribution” section of this prospectus also provides more information on this topic.
Our principal executive offices are maintained at 1915 Rexford Road, Post Office Box 33068, Charlotte, North Carolina 28233, and our telephone number is (704) 364-3120.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 2003.
TABLE OF CONTENTS
About this Prospectus | 2 | |||
Where You Can Find More Information | 2 | |||
Forward-Looking Statements | 3 | |||
The Company | 5 | |||
Use of Proceeds | 6 | |||
Ratio of Earnings to Fixed Charges | 6 | |||
Selected Historical Consolidated Financial Information | 7 | |||
Selected Unaudited Pro Forma Combined Condensed Consolidated Financial Data | 9 | |||
Unaudited Pro Forma Combined Condensed Consolidated Financial Statements | 10 | |||
Securities We May Issue | 17 | |||
Prospectus Supplements | 17 | |||
Description of Debt Securities | 17 | |||
Description of Common Stock | 29 | |||
Description of Stock Purchase Contracts and Stock Purchase Units | 31 | |||
Plan of Distribution | 31 | |||
Legal Opinions | 32 | |||
Experts | 33 | |||
Audited Financial Statements of North Carolina Natural Gas Corporation | A-1 |
ABOUT THIS PROSPECTUS
This prospectus is part of two registration statements that we have previously filed with the Securities and Exchange Commission, or SEC, using a “shelf” registration process. Under this shelf process, we may, over a period not expected to exceed two years, sell the securities described in this prospectus in one or more offerings up to a total dollar amount of $690,000,000. This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading “Where You Can Find More Information.”
In this prospectus, unless the context otherwise requires, “we,” “us,” “our” and “the Company” refer to Piedmont Natural Gas Company, Inc., and its consolidated subsidiaries.
We may use this prospectus to offer from time to time up to $690,000,000 of:
• | our debt securities, | |
• | our common stock, | |
• | our purchase contracts, or | |
• | units. |
For more detailed information about the securities, you can read the exhibits to the registration statements. Those exhibits have been either filed with the registration statements or incorporated by reference to earlier SEC filings listed in the registration statements.
Available Information
We file annual, quarterly and special reports, proxy statements and other information with the SEC under the Securities Exchange Act. You may read and copy this information at, and you may also obtain copies of this information by mail from, the Public Reference Room of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.
The SEC also maintains an Internet world wide web site that contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC. The address of that site ishttp://www.sec.gov.You can also obtain additional information about us at our web site:http://www.piedmontng.com.Information on our website is not part of this prospectus.
Our common stock is listed on the New York Stock Exchange, and you can inspect reports, proxy statements and other information about us at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
We have filed with the SEC two registration statements on Form S-3 that register the securities we are offering. The registration statements, including the attached exhibits and schedules, contain additional relevant information about us and the securities offered. The rules and regulations of the SEC allow us to omit certain information included in the registration statements from this prospectus.
Incorporation of Certain Documents by Reference
The SEC allows us to “incorporate by reference” information into this prospectus that we have filed with it. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this prospectus, except for any information that is superseded by information
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This prospectus includes by reference the following documents that we have previously filed with the SEC and that we have not included or delivered with this document:
• | our Annual Report on Form 10-K for the year ended October 31, 2002, | |
• | our Quarterly Reports on Form 10-Q for the quarters ended January 31, 2003 and April 30, 2003, and | |
• | our Current Reports on Form 8-K filed with the SEC on November 6, 2002, December 23, 2002, January 8, 2003, February 28, 2003, May 30, 2003 and June 13, 2003. |
These documents contain important information about us, our common stock and our financial condition.
We incorporate by reference additional documents that we may file with the SEC between the date of this prospectus and the date of the closing of each offering. These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this document from us without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit to this prospectus. You can obtain documents incorporated by reference in this prospectus by requesting them in writing or by telephone from us at the following address or telephone number:
Office of The Secretary
By incorporating the foregoing documents, we do not intend to incorporate any exhibit or other information that, in accordance with applicable law or SEC rule or regulation, was “furnished” but not filed.
FORWARD-LOOKING STATEMENTS
We have made statements in this prospectus and the documents that we incorporate by reference that constitute forward-looking statements concerning, among others, plans, objectives, proposed capital expenditures and future events or performance. Our statements reflect our current expectations and involve a number of risks and uncertainties. Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those suggested by the forward-looking statements. Important factors that could cause actual results to differ include:
• | Regulatory issues, including those that affect allowed rates of return, terms and conditions of service, rate structures and financings. In addition to the impact of our three state regulatory commissions, we purchase natural gas transportation and storage services from interstate and intrastate pipeline companies whose rates and services are regulated by the Federal Energy Regulatory Commission (FERC) and the North Carolina Utilities Commission (NCUC), respectively. |
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• | Residential, commercial and industrial growth in our service areas. The ability to grow our customer base and the pace of that growth are impacted by general business and economic conditions such as interest rates, inflation, fluctuations in the capital markets and the overall strength of the economy in our service areas and the country. | |
• | Deregulation, unanticipated impacts of restructuring and competition in the energy industry. We face competition from electric companies and energy marketing and trading companies. As a result of deregulation, we expect this highly competitive environment to continue. | |
• | The potential loss of large-volume industrial customers due to alternate fuels or to bypass or the shift by such customers to special competitive contracts at lower per-unit margins. | |
• | Regulatory issues, customer growth, deregulation, economic and capital market conditions, the costs and availability of natural gas and weather conditions can impact our ability to meet internal performance goals. | |
• | The capital-intensive nature of our business, including governmental approvals, development project delays or changes in project costs. Weather, general economic conditions and the cost of funds to finance our capital projects can materially alter the cost of a project. | |
• | Changes in the availability and cost of natural gas. To meet firm customer requirements, we must acquire sufficient gas supplies and pipeline capacity to ensure delivery to our distribution system while also ensuring that our supply and capacity contracts will allow us to remain competitive. Natural gas is an unregulated commodity subject to market supply and demand and price volatility. We have a diversified portfolio of local peaking facilities, transportation and storage contracts with interstate pipelines and supply contracts with major producers and marketers to satisfy the supply and delivery requirements of our customers. Because these producers, marketers and pipelines are subject to operating and financial risks associated with exploring, drilling, producing, gathering, marketing and transporting natural gas, their risks also increase our exposure to supply and price fluctuations. We engage in hedging activity to reduce price volatility for our customers. | |
• | Changes in weather conditions. Weather conditions and other natural phenomena can have a large impact on our earnings. Severe weather conditions can impact our suppliers and the pipelines that deliver gas to our distribution system. Extended mild or severe weather, either during the winter period or the summer period, can have a significant impact on the demand for and the cost of natural gas. | |
• | Changes in environmental regulations and cost of compliance. | |
• | Earnings from our equity investments. We have investments in unregulated retail energy marketing services, interstate liquefied natural gas (LNG) storage operations, intrastate and interstate pipeline operations and unregulated retail propane operations. These companies have risks that are inherent to their industries and, as an equity investor, we assume such risks. |
All of these factors are difficult to predict and many are beyond our control. Accordingly, while we believe the assumptions underlying these forward-looking statements to be reasonable, there can be no assurance that these statements will approximate actual experience or that the expectations derived from them will be realized. When used in our documents or oral presentations, the words “anticipate,” “believe,” “intend,” “plan,” “estimate,” “expect,” “objective,” “projection,” “budget,” “forecast,” “goal” or similar words or future or conditional verbs such as “will,” “would,” “should,” “could” or “may” are intended to identify forward-looking statements.
Forward looking statements reflect our current expectations only as of the date they are made. We assume no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.
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THE COMPANY
Piedmont Natural Gas Company, Inc., is an energy services company primarily engaged in the distribution of natural gas to 740,000 residential, commercial and industrial customers in North Carolina, South Carolina and Tennessee. We are the second-largest natural gas utility in the Southeast. We are also invested in a number of non-utility, energy-related businesses, including companies involved in unregulated retail natural gas and propane marketing and interstate and intrastate natural gas storage and transportation. We also sell residential and commercial gas appliances in Tennessee. In the Carolinas, our service area is comprised of numerous cities, towns and communities including Anderson, Greenville, Spartanburg and Gaffney in South Carolina and Charlotte, Salisbury, Greensboro, Winston-Salem, High Point, Burlington, Hickory, Spruce Pine and Reidsville in North Carolina. In Tennessee, our service area is the metropolitan area of Nashville. As discussed in more detail under the heading “The Company — Recent Developments,” we have agreed to purchase additional natural gas properties that will expand our service area into eastern North Carolina.
In 1994, our predecessor, which was incorporated in 1950, was merged into a newly formed North Carolina corporation for the purpose of changing our state of incorporation to North Carolina.
We have two reportable business segments, domestic natural gas distribution and retail energy marketing services. The domestic natural gas business is conducted by us and two wholly owned subsidiaries of our subsidiary, Piedmont Energy Partners — Piedmont Intrastate Pipeline Company and Piedmont Interstate Pipeline Company. Piedmont Intrastate is a member of Cardinal Pipeline Company, L.L.C., which owns and operates an intrastate natural gas pipeline in North Carolina. Piedmont Interstate is a member of Pine Needle LNG Company, L.L.C., which owns an interstate liquified natural gas (LNG) peak-demand facility in North Carolina. The retail energy marketing services business is conducted by SouthStar Energy Services LLC, a limited liability company in which our wholly owned subsidiary, Piedmont Energy Company, has a 30% equity interest. SouthStar sells natural gas to residential, commercial and industrial customers in the southeastern United States. SouthStar conducts most of its business in the state of Georgia.
Our wholly owned subsidiary Piedmont Propane Company owns 20.69% of the membership interest in US Propane, L.P., which owns all of the general partnership interest and approximately 26% of the limited partnership interest in Heritage Propane Partners, L.P. (NYSE:HPG). Heritage is the nation’s fourth-largest retail marketer of propane in the United States, serving more than 650,000 customers in 29 states.
Our utility operations are subject to regulation by the NCUC, the Public Service Commission of South Carolina and the Tennessee Regulatory Authority as to rates, service area, adequacy of service, safety standards, extensions and abandonment of facilities, accounting and depreciation. We are also subject to regulation by the NCUC as to the issuance of securities. We are also subject to or affected by various federal regulations.
Our principal executive offices are maintained at 1915 Rexford Road, Post Office Box 33068, Charlotte North Carolina 28233, and our telephone number is (704) 364-3120. Our web site ishttp:/www.piedmontng.com. Information on our web site is not part of this prospectus.
Recent Developments
On October 16, 2002, we entered into an agreement to purchase for $417.5 million in cash 100% of the common stock of North Carolina Natural Gas Corporation (NCNG). NCNG, a natural gas distribution subsidiary of Progress Energy, Inc. (Progress), serves approximately 176,000 customers in eastern North Carolina, including 56,000 customers served by four municipalities who are wholesale customers of NCNG. The purchase price for the NCNG common stock will be increased or
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USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, we will use the net proceeds from the sale of the securities to repay the short-term debt to be used to initially finance the purchase of NCNG and Progress’ equity interest in EasternNC, for general corporate purposes, including construction of additional facilities, the repayment of other short-term debt and working capital needs. Pending such use, we may temporarily invest the net proceeds in investment grade securities. We may, from time to time, engage in additional capital financing of a character and in amounts to be determined by us in light of our needs at such time or times and in light of prevailing market conditions. If we elect at the time of an issuance of the securities to make different or more specific use of proceeds other than as stated above, we will describe such use in the prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges for the twelve-month period ended April 30, 2003, and each of our fiscal years in the five-year period ended October 31, 2002:
Twelve Months | ||||||||||||||||||||||||
Ended | Years Ended October 31 | |||||||||||||||||||||||
April 30, | ||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | 1998 | |||||||||||||||||||
Ratio of Earnings to Fixed Charges(1) | 3.90 | 3.36 | 3.10 | 3.33 | 3.71 | 3.63 |
(1) | For purposes of computing the consolidated ratios, “earnings” represent our net income from continuing operations plus applicable income taxes and fixed charges, and “fixed charges” represent interest expense, amortization of debt discount, premium and expense, and a portion of lease payments considered to represent an interest factor. |
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
Piedmont Natural Gas Company
Set forth below is our selected historical consolidated financial information as of the dates and for the periods indicated. We derived the consolidated income statement data for the fiscal years ended October 31, 2002, 2001 and 2000, and the consolidated balance sheet data at October 31, 2002 and 2001, from audited financial statements incorporated by reference in this prospectus and contained in our most recent Annual Report on Form 10-K. The remaining data is derived from financial statements incorporated by reference in this prospectus and contained in our Quarterly Report on Form 10-Q for the period ended April 30, 2003. These quarterly financial statements have not been audited, but, in the opinion of management, contain all adjustments, including normal recurring accruals, necessary to present fairly our financial position and results of operations and cash flows for the applicable periods. See “Where You Can Find More Information” in this prospectus.
Six Months Ended | |||||||||||||||||||||
April 30 | Years Ended October 31 | ||||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||||||
(In thousands except per share amounts) | |||||||||||||||||||||
Income Statement Data | |||||||||||||||||||||
Margin (Utility Operating Revenues less Cost of Gas) | $ | 271,708 | $ | 241,770 | $ | 335,794 | $ | 337,978 | $ | 318,331 | |||||||||||
Utility Operating Revenues | 901,265 | 582,622 | 832,028 | 1,107,856 | 830,377 | ||||||||||||||||
Net Income | 88,996 | 83,015 | 62,217 | 65,485 | 64,031 | ||||||||||||||||
Cash Dividends Per Share of Common Stock | $ | .815 | $ | .785 | $ | 1.585 | $ | 1.52 | $ | 1.44 | |||||||||||
Earnings Per Share of Common Stock: | |||||||||||||||||||||
Basic | $ | 2.68 | $ | 2.54 | $ | 1.90 | $ | 2.03 | $ | 2.03 | |||||||||||
Diluted | $ | 2.67 | $ | 2.53 | $ | 1.89 | $ | 2.02 | $ | 2.01 |
At October 31 | ||||||||||||
At April 30, 2003 | 2002 | 2001 | ||||||||||
(In thousands) | ||||||||||||
Balance Sheet Data | ||||||||||||
Total Assets | $ | 1,541,624 | $ | 1,445,088 | $ | 1,393,658 | ||||||
Long-Term Debt | 462,000 | 462,000 | 509,000 | |||||||||
Stockholders’ Equity | 664,507 | 589,596 | 560,379 |
North Carolina Natural Gas Corporation (NCNG)
Set forth below is the selected historical consolidated financial information of NCNG. We will be purchasing 100% of the common stock of NCNG and Progress’ equity interest in Eastern North Carolina Natural Gas Company (EasternNC). Progress’ equity interest in EasternNC consists of 50% of EasternNC’s outstanding common stock and 100% of EasternNC’s outstanding preferred stock. While closing has not yet occurred and the purchase agreement remains subject to certain conditions, we believe the completion of this transaction is probable. We derived the income statement data for the fiscal years ended December 31, 2002, 2001 and 2000, and the balance sheet data at December 31, 2002 and 2001, from the audited financial statements of NCNG which are set forth in
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Six Months Ended | ||||||||||||||||||||
March 31 | Years Ended December 31 | |||||||||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Operating Revenues | $ | 257,269 | $ | 146,365 | $ | 316,481 | $ | 318,808 | $ | 345,598 | ||||||||||
Income (Loss) from Continuing Operations | 11,607 | 11,562 | (120,453 | )(1) | 2,868 | 9,915 | ||||||||||||||
Net Income (Loss) | 11,607 | 11,562 | (172,747 | )(1)(2) | 2,868 | 9,915 |
At March 31 | At December 31 | |||||||||||||||
2003 | 2002 | 2002 | 2001 | |||||||||||||
(In thousands) | ||||||||||||||||
Balance Sheet Data | ||||||||||||||||
Total Assets | $ | 533,477 | $ | 696,664 | $ | 529,442 | $ | 695,784 | ||||||||
Long-Term Debt | — | — | — | — | ||||||||||||
Stockholder’s Equity | 255,533 | 435,339 | 248,029 | 426,631 |
(1) | Includes an impairment charge of $126.3 million to goodwill attributable to Progress’ original acquisition of NCNG in 1999. Without this impairment charge, NCNG’s income from continuing operations would have been $5.8 million for the year ended December 31, 2002. |
(2) | Includes the cumulative effective of an accounting change to reduce the carrying value of goodwill by $52.3 million upon the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” |
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SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED
Set forth below is selected unaudited pro forma combined condensed consolidated financial data after accounting for the proposed acquisitions of NCNG and Progress’ equity interest in EasternNC and the issuance of securities for the repayment of short-term debt used to initially finance the acquisitions. The pro forma adjustments are based upon available information and certain assumptions that we believe are identifiable and objectively measurable. The selected unaudited pro forma combined condensed consolidated financial data is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial condition of the combined company that would have occurred had the acquisitions occurred at the beginning of the period presented, nor is the selected unaudited pro forma combined condensed consolidated financial data necessarily indicative of future operating results or the financial position of the combined company. The selected unaudited pro forma combined condensed consolidated financial data was derived from and should be read in conjunction with the unaudited pro forma combined condensed consolidated financial statements and the related notes included in “Unaudited Pro Forma Combined Condensed Consolidated Financial Statements” in this prospectus and should be read in conjunction with our consolidated financial statements incorporated by reference in this prospectus and those of NCNG provided elsewhere in this prospectus.
Six Months Ended | Years Ended | |||||||
April 30, 2003 and | October 31, 2002 and | |||||||
March 31, 2003 | December 31, 2002 | |||||||
(In thousands) | ||||||||
Income Statement Data | ||||||||
Margin | $ | 330,591 | $ | 421,600 | ||||
Operating Revenues | 1,158,495 | 1,148,451 | ||||||
Income from Continuing Operations | 98,226 | 63,262 |
At April 30, 2003 and | ||||||||
March 31, 2003 | ||||||||
(In thousands) | ||||||||
Balance Sheet Data | ||||||||
Total Assets | $ | 2,072,964 | ||||||
Long-Term Debt | 712,000 | |||||||
Shareholders’ Equity | 857,507 |
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UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
Unaudited Pro Forma Information
The unaudited pro forma information reflects the historical combined condensed consolidated financial data of Piedmont and NCNG after accounting for the proposed acquisitions of NCNG and Progress’ equity interest in EasternNC and the issuance of securities for the repayment of short-term debt used to initially finance these acquisitions.
NCNG is a public service company primarily engaged in transporting and distributing natural gas to customers in portions of North Carolina. NCNG is a wholly owned subsidiary of Progress. The consolidated financial statements of NCNG include the activities of NCNG and its majority-owned subsidiaries, NCNG Pineneedle Investment Corporation, NCNG Cardinal Pipeline Investment Corporation and Cape Fear Energy Corporation.
The acquisitions of NCNG and Progress’ equity interest in EasternNC are reported as a purchase business combination, as more fully explained under “Accounting Treatment” below. The following information together with the historical consolidated financial statements of Piedmont, which are incorporated by reference into this prospectus, and the historical consolidated financial statements and related notes of NCNG included in this prospectus should be read together to obtain a more complete understanding of the two companies.
The Unaudited Pro Forma Combined Condensed Consolidated Statements of Income assume the acquisitions became effective on November 1, 2001. The Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet assumes the acquisitions became effective on April 30, 2003.
The unaudited pro forma information is not necessarily indicative of the results of operations that might have occurred had the acquisitions actually closed on November 1, 2001, or the actual financial position that might have resulted had the acquisitions actually closed on April 30, 2003. This information is also not necessarily indicative of the future results of operations or financial position of Piedmont.
The Transaction
On October 16, 2002, we entered into an agreement to purchase for $417.5 million in cash 100% of the common stock of NCNG. NCNG, a natural gas distribution subsidiary of Progress, serves approximately 176,000 customers in eastern North Carolina, including 56,000 customers served by four municipalities who are wholesale customers of NCNG. The purchase price for the NCNG common stock will be increased or decreased by the amount of NCNG’s working capital on the closing date which is expected to be the end of July or August 2003. We expect to merge NCNG into Piedmont immediately following the closing. The purchase price of $417.5 million is approximately 1.07 times NCNG’s net plant as of March 31, 2003. We also agreed to purchase for $7.5 million in cash Progress’ equity interest in EasternNC. EasternNC is a regulated utility that was issued a certificate of public convenience and necessity to provide natural gas service to 14 counties in eastern North Carolina. Progress’ equity interest in EasternNC consists of 50% of EasternNC’s outstanding common stock and 100% of EasternNC’s outstanding preferred stock. The purchase agreement obligates us to purchase additional authorized but unissued shares for such preferred stock for $14.4 million. Each of the proposed transactions is subject to a number of conditions, including approval of the NCUC.
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Accounting Treatment
The acquisitions will be accounted for by the purchase method of accounting. Under the purchase method, certain identifiable assets will be recorded at their book values in accordance with Statement of Financial Accounting Standards No. 71, “Accounting for the Effects of Certain Types of Regulation.” The remaining difference, if any, between the purchase price, including direct costs of the acquisitions, and the book values will be recorded as goodwill. Allocations included in the unaudited pro forma information are based on preliminary analysis of the purchase price allocation.
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Unaudited Pro Forma Combined Condensed Consolidated
Piedmont | NCNG | |||||||||||||||||
Year Ended | Year Ended | |||||||||||||||||
October 31, 2002 | December 31, 2002 | Pro Forma | Pro Forma | |||||||||||||||
(Historical) | (Historical) | Adjustments | Combined | |||||||||||||||
(In thousands except per share amounts) | ||||||||||||||||||
Operating Revenues | $ | 832,028 | $ | 316,481 | $ | (58 | )A | $ | 1,148,451 | |||||||||
Cost of Gas | 496,234 | 230,617 | — | 726,851 | ||||||||||||||
Margin | 335,794 | 85,864 | (58 | ) | 421,600 | |||||||||||||
Other Operating Expenses: | ||||||||||||||||||
Operations and maintenance expenses | 133,427 | 45,247 | 178,674 | |||||||||||||||
Goodwill impairment | — | 126,277 | (126,277 | )J | — | |||||||||||||
Depreciation | 57,593 | 19,836 | 77,429 | |||||||||||||||
General taxes | 23,863 | 4,303 | 28,166 | |||||||||||||||
Diversified business expenses | — | 1 | (1 | )A | — | |||||||||||||
Income taxes | 30,784 | — | 1,783 | A | 29,430 | |||||||||||||
3,806 | I | |||||||||||||||||
(6,943 | )K | |||||||||||||||||
Total other operating expenses | 245,667 | 195,664 | (127,632 | ) | 313,699 | |||||||||||||
Operating Income (Loss) | 90,127 | (109,800 | ) | 127,574 | 107,901 | |||||||||||||
Other Income (Expense), net of tax | 12,694 | 2,266 | 57 | A | 14,758 | |||||||||||||
(23 | )A | |||||||||||||||||
(236 | )A | |||||||||||||||||
Utility Interest Charges | 40,604 | 10,877 | 17,554 | F | 59,397 | |||||||||||||
(9,638 | )I | |||||||||||||||||
Income Taxes | — | 2,042 | (23 | )A | — | |||||||||||||
(236 | )A | |||||||||||||||||
(1,783 | )A | |||||||||||||||||
Income (Loss) from Continuing Operations | $ | 62,217 | $ | (120,453 | ) | $ | 121,498 | $ | 63,262 | |||||||||
Average shares of Common Stock: | ||||||||||||||||||
Basic | 32,763 | 5,714 | 38,477 | |||||||||||||||
Diluted | 32,937 | 5,714 | 38,651 | |||||||||||||||
Earnings per Share of Common Stock: | ||||||||||||||||||
Basic | $ | 1.90 | $ | 1.64 | ||||||||||||||
Diluted | $ | 1.89 | $ | 1.64 |
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements.
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Piedmont | NCNG | |||||||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||||||
April 30, 2003 | March 31, 2003 | Pro Forma | Pro Forma | |||||||||||||||
(Historical) | (Historical) | Adjustments | Combined | |||||||||||||||
(In thousands except per share amounts) | ||||||||||||||||||
Operating Revenues | $ | 901,265 | $ | 257,269 | $ | (39 | )A | $ | 1,158,495 | |||||||||
Cost of Gas | 629,557 | 198,347 | — | 827,904 | ||||||||||||||
Margin | 271,708 | 58,922 | (39 | ) | 330,591 | |||||||||||||
Other Operating Expenses: | ||||||||||||||||||
Operations and maintenance expenses | 76,376 | 22,708 | 99,084 | |||||||||||||||
Depreciation | 30,559 | 10,335 | 40,894 | |||||||||||||||
General taxes | 12,747 | 2,165 | 14,912 | |||||||||||||||
Diversified business expenses | 1 | (1 | )A | — | ||||||||||||||
Income taxes | 51,779 | — | 6,882 | A | 57,100 | |||||||||||||
1,910 | I | |||||||||||||||||
(3,471 | )K | |||||||||||||||||
Total other operating expenses | 171,461 | 35,209 | 5,320 | 211,990 | ||||||||||||||
Operating Income | 100,247 | 23,713 | (5,359 | ) | 118,601 | |||||||||||||
Other Income (Expense), net of tax | 9,046 | 697 | 38 | A | 9,690 | |||||||||||||
(15 | )A | |||||||||||||||||
(76 | )A | |||||||||||||||||
Utility Interest Charges | 20,297 | 5,830 | 8,776 | F | ||||||||||||||
(4,838 | )I | 30,065 | ||||||||||||||||
Income Taxes | — | 6,973 | (15 | )A | ||||||||||||||
(76 | )A | — | ||||||||||||||||
(6,882 | )A | |||||||||||||||||
Income (Loss) from Continuing Operations | $ | 88,996 | $ | 11,607 | $ | (2,377 | ) | $ | 98,226 | |||||||||
Average shares of Common Stock: | ||||||||||||||||||
Basic | 33,258 | 5,714 | 38,972 | |||||||||||||||
Diluted | 33,372 | 5,714 | 39,086 | |||||||||||||||
Earnings per Share of Common Stock: | ||||||||||||||||||
Basic | $ | 2.68 | $ | 2.52 | ||||||||||||||
Diluted | $ | 2.67 | $ | 2.51 |
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements.
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Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet
Piedmont | NCNG | ||||||||||||||||||
At April 30, | At March 31, | ||||||||||||||||||
2003 | 2003 | Pro Forma | Pro Forma | ||||||||||||||||
(Historical) | (Historical) | Adjustments | Combined | ||||||||||||||||
(In thousands) | |||||||||||||||||||
ASSETS | |||||||||||||||||||
Utility Plant | $ | 1,764,910 | $ | 574,938 | $ | $ | 2,339,848 | ||||||||||||
Less accumulated depreciation | 601,005 | 184,237 | 785,242 | ||||||||||||||||
Utility plant, net | 1,163,905 | 390,701 | 1,554,606 | ||||||||||||||||
Other Physical Property, net | 1,055 | 928 | 1,983 | ||||||||||||||||
Current Assets | 258,961 | 86,392 | (12,418 | )A | 342,316 | ||||||||||||||
16,375 | B | ||||||||||||||||||
(6,994 | )C | ||||||||||||||||||
Investments, Deferred Charges and Other Assets | 117,703 | 55,456 | 7,500 | D | 174,059 | ||||||||||||||
(49,652 | )E | ||||||||||||||||||
41,427 | F | ||||||||||||||||||
1,625 | F | ||||||||||||||||||
Total | $ | 1,541,624 | $ | 533,477 | $ | (2,137 | ) | $ | 2,072,964 | ||||||||||
CAPITALIZATION AND LIABILITIES | |||||||||||||||||||
Capitalization: | |||||||||||||||||||
Common stock equity: | |||||||||||||||||||
Common stock | $ | 364,039 | $ | 417,653 | $ | 200,000 | F | $ | 564,039 | ||||||||||
Capital in excess of par value | (417,653 | )G | |||||||||||||||||
Retained earnings (deficit) | 301,925 | (156,237 | ) | (7,000 | )F | 294,925 | |||||||||||||
156,237 | G | ||||||||||||||||||
Accumulated other comprehensive income (loss) | (1,457 | ) | (5,883 | ) | 5,883 | G | (1,457 | ) | |||||||||||
Total common stock equity | 664,507 | 255,533 | (62,533 | ) | 857,507 | ||||||||||||||
Long-term debt | 462,000 | — | 250,000 | F | 712,000 | ||||||||||||||
Total capitalization | 1,126,507 | 255,533 | 187,467 | 1,569,507 | |||||||||||||||
Current Liabilities | 210,095 | 229,398 | (12,418 | )A | 281,075 | ||||||||||||||
4,000 | F | ||||||||||||||||||
(150,000 | )I | ||||||||||||||||||
Deferred Credits and Other Liabilities | 205,022 | 48,546 | (31,186 | )H | 222,382 | ||||||||||||||
Total | $ | 1,541,624 | $ | 533,477 | $ | (2,137 | ) | $ | 2,072,964 | ||||||||||
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements.
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Notes To Unaudited Pro Forma Combined Condensed
The Unaudited Pro Forma Combined Condensed Consolidated Financial Data is based on the following assumptions (in thousands except per share amounts):
A. Certain revenues, expenses, assets and liabilities of NCNG have been reclassified to conform with Piedmont’s presentation. The income tax effects of such reclassifications, if any, are computed at NCNG’s composite income tax rate of 39.485%. | |
B. Increase in cash of $16,375 is the excess of the proceeds from securities issued to finance the acquisitions over the stated purchase price. | |
C. The purchase of working capital is in addition to the stated purchase price. At the date of this pro forma balance sheet, the excess of current assets over current liabilities results in a cash payment by Piedmont to Progress of $6,994. | |
D. The purchase price for the interest in EasternNC is $7,500. | |
E. NCNG’s other assets of $49,652, primarily consisting of goodwill, unamortized debt costs, deferred environmental costs and investment in Cape Fear Energy Corporation, are excluded as they will not be acquired by Piedmont. | |
F. The proceeds from the issuance of common stock and long-term debt will be used to repay the short-term debt used to initially finance the acquisitions. Based on our assumptions, the following is a summary of the calculation of the proceeds from the issuance of common stock and long-term debt and the allocation of the purchase price to the fair value of the net assets acquired. |
Common Stock: | |||||||||
Number of shares | 5,714 | ||||||||
Gross proceeds | $ | 200,000 | |||||||
Expenses charged to Retained Earnings | 7,000 | ||||||||
Net proceeds | $ | 193,000 | |||||||
Long-Term Debt | |||||||||
Principal amount at 100% of issuance price | $ | 250,000 | |||||||
Issuance costs | 1,625 | ||||||||
Net proceeds | 248,375 | ||||||||
Total proceeds from issuance of common stock and long-term debt | 441,375 | ||||||||
Purchase of EasternNC | (7,500 | ) | |||||||
Cash from securities in excess of purchase price | (16,375 | ) | |||||||
Purchase price | 417,500 | ||||||||
NCNG’s net assets at March 31, 2003 | 255,533 | ||||||||
Indicated goodwill | 161,967 | ||||||||
Working capital true-up | 6,994 | ||||||||
Notes payable not assumed | (150,000 | ) | |||||||
Non-current assets not acquired | 49,652 | ||||||||
Non-current liabilities not assumed | (31,186 | ) | |||||||
Estimated transaction costs | 4,000 | ||||||||
Estimated goodwill | $ | 41,427 | |||||||
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Other assumptions related to the issuance of long-term debt are: | ||||||||||
Maturity date | 30 years | |||||||||
Interest rate | 7 | % | ||||||||
Interest charges: | ||||||||||
Annually | $ | 17,500 | ||||||||
Quarterly | $ | 4,375 | ||||||||
Amortization of issuance costs (straight-line): | ||||||||||
Annually | $ | 54 | ||||||||
Quarterly | $ | 13 |
Piedmont and NCNG expect to record direct costs of the acquisition (including fees of financial advisors, legal counsel, independent auditors and others). The estimated direct costs are $4,000 and are added to goodwill and reflected in accounts payable. The estimated charges and nature of costs included therein are subject to change as more accurate estimates become available. The pro forma statements of income do not reflect the costs and expenses associated with integrating the operations of the two companies, nor any of the anticipated recurring expense savings arising from the integration. | |
Goodwill of $41,427 is recognized, representing the excess of the purchase price plus transaction costs over the net assets acquired. The final allocation of the purchase price will be based on the values of identified assets and liabilities as of the date the business combination is completed. |
G. The application of the purchase method of accounting eliminates the preexisting balances of NCNG’s common stock, capital in excess of par value, retained earnings and accumulated other comprehensive loss. | |
H. NCNG’s other liabilities of $31,186, consisting of accumulated deferred income taxes, unamortized investment tax credits and a regulatory liability for income taxes, are excluded as they will not be assumed by Piedmont. | |
I. NCNG’s interest charges on notes payables are eliminated, net of income taxes at NCNG’s composite income tax rate of 39.485%, as the debt generating such charges will not be assumed by Piedmont. | |
J. In its third quarter ended September 30, 2002, NCNG performed the annual impairment test of goodwill and recognized an impairment of $126.7 million based on the expected proceeds from the sale of NCNG to Piedmont. Because of the non-recurring nature of this charge, the goodwill impairment was eliminated from the pro forma statement of income. Because NCNG considered this charge to be a permanent book/tax difference, no income tax effect was recorded by NCNG. | |
K. The income tax effect, if any, on the pro forma adjustments, except for the reclassifications discussed in Note A and the elimination of NCNG’s interest charges discussed in Note I, are computed at the statutory rates of 35% for federal and 7% for state, for a composite rate of 39.55%. |
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SECURITIES WE MAY ISSUE
We may use this prospectus to offer from time to time up to $690,000,000 of:
• | our debt securities, | |
• | our common stock, | |
• | our purchase contracts, or | |
• | units. |
PROSPECTUS SUPPLEMENTS
This prospectus provides you with a general description of the securities we may offer. Each time we offer securities, we will provide a prospectus supplement that will contain specific information about the terms of the offering. The prospectus supplement may also add to or change information contained in this prospectus. If so, the prospectus supplement should be read as superseding this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading “Where You Can Find More Information.”
For more details on the terms of the securities, you should read the exhibits filed with our registration statements.
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities from time to time in one or more distinct series. This section summarizes the material terms of the debt securities that we anticipate will be common to all series. Most of the financial and other terms of any series of debt securities that we offer and any differences from the common terms will be described in the prospectus supplement to be attached to the front of this prospectus.
As required by U.S. federal law for all bonds and notes of companies that are publicly offered, a document called an “indenture” will govern any debt securities that we issue. An indenture is a contract between us and a financial institution acting as trustee on your behalf. We have entered into an indenture with Citibank, N.A., who will act as trustee. The indenture will be subject to the Trust Indenture Act of 1939. The trustee has the following two main roles:
• | the trustee can enforce your rights against us if we default under the indenture. There are some limitations on the extent to which the trustee acts on your behalf, described later in this prospectus; and | |
• | the trustee will perform certain administrative duties for us, which include sending you interest payments and notices. |
Because this section is a summary of the material terms of the indenture, it does not describe every aspect of the debt securities. We urge you to read the indenture because it, and not this description, will define your rights as a holder of debt securities. For example, in this section, we use capitalized words to signify terms that are specifically defined in the indenture. Some of the definitions are repeated in this prospectus, but for the rest you will need to read the indenture. We have filed or will file the indenture and any supplements to it as exhibits to the registration statements that we have filed with the SEC. See “Where You Can Find More Information” for information on how to obtain copies of the indenture and any supplements. References to the “Indenture” in this prospectus mean the indenture we have filed as an exhibit to the registration statements relating to this offering that we have filed with the SEC. References to the “Trustee”
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General
The Debt Securities may be issued from time to time in one or more series. Although the amount of securities offered by this prospectus will be limited to $690,000,000, the indenture does not contain any limitations on the amount of Debt Securities that may be issued under it at any time or from time to time in one or more series.
The Debt Securities will be our unsecured obligations and will rank equally and ratably with all of our other unsecured indebtedness. As of April 30, 2003, we had issued and outstanding long-term debt with an aggregate principal amount of $509,000,000. The Debt Securities will be issued only in fully registered form.
You should read the prospectus supplement for the following terms of the series of Debt Securities offered by the prospectus supplement. Our Board of Directors will establish the following terms before issuance of the series:
• | the specific title of the offered Debt Securities; | |
• | any limit on the aggregate principal amount of the offered Debt Securities; | |
• | the person to whom any interest on the offered Debt Securities will be payable, if other than the person in whose name that offered Debt Security is registered at the close of business on the record date for such interest; | |
• | the date or dates on which the principal of the offered Debt Securities is payable; | |
• | the rate or rates at which the offered Debt Securities will bear interest, if any, or the formula that will be used to determine which such rate or rates, and the date or dates from which any such interest will accrue, and the date or dates for any interest payable; | |
• | the place or places where the principal, premium (if any) and interest on the offered Debt Securities will be payable, and the method of such payment; | |
• | the period or periods within which the price or prices at which and the terms and conditions upon which the offered Debt Securities may be redeemed, in whole or in part, at our option; | |
• | our obligations, if any, to purchase or redeem the offered Debt Securities under any sinking fund or analogous provision or at the option of holders of such securities and the period or periods within which, the price or prices at which and the terms and conditions upon which the offered Debt Securities will be redeemed or purchased, in whole or in part, pursuant to such obligation; | |
• | the denominations in which the offered Debt Securities will be issuable, if other than denominations of $1,000 and any integral multiple thereof; | |
• | if the amount of payments of principal, premium (if any) or interest on the offered Debt Securities may be determined with reference to an index, the manner in which such amounts shall be determined; | |
• | whether the offered Debt Securities will be issuable in whole or in part in the form of one or more global securities (as defined under “Global Securities”) and, if so, the securities depository or depositories for such global security or securities and the circumstances under which any such global security or securities may be registered for transfer or exchange, or authenticated and delivered, in the name of a person other than such depository or its nominee, other than as set forth in the Indenture; |
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• | if other than the principal amount thereof, the portion of the principal amount of the offered Debt Securities which shall be payable upon declaration of acceleration of the maturity thereof; | |
• | any modification, amendment or addition to our covenants; | |
• | whether the offered Debt Securities will be subject to defeasance or covenant defeasance, or such other means of satisfaction and discharge as may be specified in the prospectus supplement; | |
• | any additional events of default; and | |
• | any other terms or provisions of the offered Debt Securities not inconsistent with the provisions of the Indenture. |
The Indenture does not limit the amount of Debt Securities that we are authorized to issue from time to time. We may issue Debt Securities with terms different from those of Debt Securities already issued. Without the consent of the holders of outstanding Debt Securities, we may reopen a previous issue of a series of Debt Securities and issue additional Debt Securities of that series unless the reopening was restricted when we created that series.
There is no requirement that we issue Debt Securities in the future under the Indenture, and we may use other indentures or documentation, containing different provisions, in connection with future issues of other Debt Securities.
We may issue the Debt Securities as “Original Issue Discount Securities,” which are Debt Securities, including any zero-coupon Debt Securities, that are issued and sold at a discount from their stated principal amount. Original Issue Discount Securities provide that, upon acceleration of their maturity, an amount less than their principal amount will become due and payable. We will describe the U.S. federal income tax consequences and other considerations applicable to original issue discount securities in any applicable prospectus supplement.
Global Securities
We will issue each Debt Security under the indenture in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. A global security represents one or any other number of individual Debt Securities. Generally, all Debt Securities represented by the same global securities will have the same terms. We may, however, issue a global security that represents multiple Debt Securities that have different terms and are issued at different times. We call this kind of global security a master global security.
Each Debt Security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all Debt Securities issued in book-entry form. We will describe the specific terms of the depository arrangements with respect to any Debt Securities represented by a global security in the applicable prospectus supplement.
A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under “Special Situations When a Global Security Will Be Terminated.” As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all Debt Securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another
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Special Considerations for Global Securities. As an indirect holder, your rights relating to a global security will be governed by the account rules of your financial institution and of the depositary, as well as general laws relating to securities transfers. We do not recognize an indirect holder as a holder of Debt Securities and instead deal only with the depositary that holds the global security.
If we issue Debt Securities only in the form of a global security, you should be aware of the following:
• | you cannot cause the Debt Securities to be registered in your name, and cannot obtain non-global certificates for your interest in the Debt Securities, except in the special situations that we describe below; | |
• | you will be an indirect holder and must look to your own bank or broker for payments on the Debt Securities and protection of your legal rights relating to the Debt Securities; | |
• | you may not be able to sell interests in the Debt Securities to some insurance companies and to other institutions that are required by law to own their securities in non-book-entry form; | |
• | you may not be able to pledge your interest in a global security in circumstances where certificates representing the Debt Securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective; | |
• | the depositary’s policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to your interest in a global security. We and the Trustee have no responsibility for any aspect of the depositary’s actions or for its records of ownership interests in a global security. We and the Trustee also do not supervise the depositary in any way; and | |
• | DTC requires that those who purchase and sell interests in a global security within its book-entry system use immediately available funds and your broker or bank may require you to do so as well, and financial institutions that participate in the depositary’s book-entry system, and through which you hold your interest in a global security, may also have their own policies affecting payments, notices and other matters relating to the debt security. Your chain of ownership may contain more than one financial intermediary. We do not monitor and are not responsible for the actions of any of those intermediaries. |
Special Situations When a Global Security Will Be Terminated. In a few special situations described below, a global security will be terminated and interests in it will be exchanged for certificates in non-global form representing the Debt Securities it represented. After that exchange, the choice of whether to hold the Debt Securities directly or in street name will be up to you. You must consult your own bank or broker to find out how to have your interests in a global security transferred on termination to your own name, so that you will be a holder.
The special situations for termination of a global security are as follows:
• | if the depositary notifies us that it is unwilling, unable or no longer qualified to continue as depositary for that global security and we do not appoint another institution to act as depositary within 60 days; and | |
• | if we notify the Trustee that we wish to terminate that global security, or if an event of default has occurred with regard to Debt Securities represented by that global security and has not been cured or waived; we discuss defaults later under “Defaults and Rights of Acceleration.” |
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If a global security is terminated, only the depositary, and not we or the Trustee, is responsible for deciding the names of the institutions in whose names the Debt Securities represented by the global security will be registered and, therefore, who will be the holders of those Debt Securities.
Exchange Registration And Transfer
We will not be required to exchange or register a transfer of (i) any series of Debt Securities for a period of 15 days after the mailing of the notice of any redemption of such series, or (ii) any such series selected, called or being called for redemption except, in the case of any such series to be redeemed in part, that portion not being redeemed.
Debt Securities Issued in Non-Global Form
Debt Securities not issued in global form will be issued:
• | only in fully registered form; | |
• | without interest coupons; and | |
• | unless we indicate otherwise in the prospectus supplement, in denominations of $1,000 and amounts that are multiples of $1,000. |
Holders may exchange their Debt Securities that are not in global form for Debt Securities of smaller denominations or combined into fewer Debt Securities of larger denominations, as long as the total principal amount is not changed.
Holders may exchange or transfer their Debt Securities at the office of the Trustee. We will appoint the Trustee to act as our agent for registering Debt Securities in the names of holders transferring Debt Securities. We may appoint another entity to perform these functions or perform them ourselves.
Holders will not be required to pay a service charge to transfer or exchange their Debt Securities, but they may be required to pay for any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holder’s proof of legal ownership.
If we have designated additional transfer agents for your Debt Security, they will be named in your prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.
If a Debt Security is issued as a global security, only the depositary will be entitled to transfer and exchange the Debt Security as described in this subsection, since it will be the sole holder of the Debt Security.
Redemption
Any terms for the optional or mandatory redemption of the Debt Securities will be set forth in the applicable prospectus supplement. Except as shall otherwise be provided with respect to the Debt Securities redeemable at the option of the holder, such Debt Securities will be redeemable only upon notice, by mail, not less than 30 nor more than 60 days prior to the date fixed for redemption and, if less than all of a series of Debt Securities are to be redeemed, the Trustee shall select the particular Debt Securities to be redeemed in such manner as it deems fair and appropriate. If less than all of the Debt Securities represented by a global security are to be redeemed, the beneficial interest to be redeemed will be selected by the Depository as described in the applicable prospectus supplement.
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Covenants
The Indenture contains the covenants summarized below, which are applicable so long as any of the Debt Securities are outstanding.
Property. To the extent necessary for our business to be properly conducted, we will cause (or, with respect to property owned in common with others, make reasonable effort to cause) all of our properties used or useful in the conduct of our business to be maintained and kept in good condition, repair and working order. We will also cause (or, with respect to property owned in common with others, make reasonable effort to cause) all necessary repairs, renewals, replacements, betterments and improvements to be made to such properties. This covenant does not prevent us from discontinuing, or causing the discontinuance of, the operation and maintenance of any of our properties if such discontinuance is, in our judgment, desirable in the conduct of our business.
Limitation on Liens. We will not create, assume or suffer to exist, and will not permit any subsidiary to create, assume or suffer to exist, except in our favor, any mortgage, pledge or other lien or encumbrance of or upon any of our properties or assets (including stock and other securities of subsidiaries) without making effective provisions to secure equally and ratably the Debt Securities then outstanding and other indebtedness entitled to be so secured, except that we or a subsidiary, without so securing the Debt Securities, may create, assume or suffer to exist
• | certain purchase money and existing liens in connection with property acquisitions and the extension, renewal or refunding of the same, | |
• | pledges of current assets, in the ordinary course of business to secure current liabilities, | |
• | liens on property to secure obligations to pay all or a part of the purchase price of such property only out of or measured by oil or gas production or the proceeds thereof, or liens upon production from oil and gas property or the proceeds of such production, to secure obligations to pay all or part of the expenses of exploration, drilling or development of such property only out of such production or proceeds, | |
• | mechanics’ or materialman’s liens, certain good faith deposits, deposits to secure public or statutory obligations, deposits to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for payment of taxes, assessments or similar charges and liens or security interests created in connection with bid or completion bonds, | |
• | liens arising by reason of deposits with, or the giving of security to, a governmental agency as a condition to the transaction of business or the exercise of a privilege or license, or to enable us or a subsidiary to maintain self-insurance or participate in any funds established to cover any insurance risks in connection with workmen’s compensation, unemployment insurance, old age pension or other social security, | |
• | pledges or assignments of accounts receivable, including customers’ installment paper, to banks or others (including to or by any subsidiary which is principally engaged in the business of financing our business and the business of our subsidiaries) made in the ordinary course of business, | |
• | liens of taxes or assessments for the current year or not due or being contested in good faith and against which an adequate reserve has been established, | |
• | judgments or liens the finality of which is being contested and execution on which is stayed, | |
• | assessments or similar encumbrances the existence of which does not impair the use of the property subject thereto for the purposes for which it was acquired, | |
• | certain landlords’ liens so long as the rent secured thereby is not in default, |
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• | liens on the assets of any limited liability company organized under a limited liability company act of any state which limited liability company is treated as a partnership for federal income tax purposes, and |
• | with respect to Debt Securities issued after June 15, 2003, liens, in addition to liens set forth above, securing indebtedness not at any time exceeding in the aggregate 5% of the consolidated stockholders’ equity of the Company and its subsidiaries as of such time. |
Subject to the provisions described under “Consolidation, Merger or Sale,” we will do or cause to be done all things necessary to preserve and keep in full force and effect our corporate existence, rights (charter and statutory), our franchises or franchises of our subsidiaries. We will not be required to preserve, or cause any subsidiary to preserve, any such right or franchise or to keep in full force and effect the corporate existence of any subsidiary if, in our judgment, preservation is no longer desirable in the conduct of our business and the loss thereof is not disadvantageous in any material respect to the holders of any series of Debt Securities.
Unless otherwise indicated in the applicable prospectus supplement, the covenants contained in the Indenture and the Debt Securities would not necessarily afford holders protection in the event of a highly leveraged or other transaction involving us that may adversely affect holders.
Consolidation, Merger or Sale
We will not consolidate with or merge into any other corporation or sell or convey all or substantially all of our assets to any person, firm or corporation unless:
• | either we shall be the continuing corporation, or the successor corporation (if other than us) shall be a corporation organized and existing under the laws of the United States of America or a state thereof or the District of Columbia and such corporation shall expressly assume, by supplemental indenture, the due and punctual payment of the principal, premium (if any) and interest on all the Debt Securities and the performance of all of our covenants under the Indenture; | |
• | we or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition; and | |
• | we will have delivered to the Trustee an officers’ certificate and an opinion of counsel as provided in the Indenture. |
Payment and Paying Agent
The principal, premium (if any) and interest (if any) on Debt Securities not represented by a global security will be payable in New York Clearing House Funds at the office or agency of the paying agent or paying agents as we may designate from time to time, provided that, at our option, interest may be paid by check mailed to the holders entitled thereto at their last addresses as they appear in the Debt Security Register. The Trustee is initially designated as our sole paying agent and the principal corporate trust office of Citibank, N.A., in the Borough of Manhattan, the City of New York, is initially designated as the office where the Debt Securities may be presented for payment, for the registration of transfer and for exchange and where notices and demands to or upon us in respect of the Debt Securities or of the Indenture may be served. Unless otherwise indicated in the applicable prospectus supplement, interest payments shall be made to the person in whose name any debt security is registered at the close of business on the record date with respect to an interest payment date. All moneys paid by us to a paying agent for the payment of principal, premium (if any) or interest on any Debt Security of any series which remain unclaimed at the end of two years
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Defaults and Rights of Acceleration
The following are Events of Default under the Indenture with respect to a particular series of Debt Securities:
(a) default in the payment of the principal or premium (if any) on any of the Debt Securities of such series when due and payable; | |
(b) default in the payment of any installment of interest upon any of the Debt Securities of such series when due and payable, and continuance of such default for a period of 30 days; | |
(c) default in the payment of any sinking or purchase fund payment or analogous obligation when due and payable; | |
(d) failure to observe or perform any other of our covenants or agreements for a period of 90 days after written notice of such failure has been given as provided in the Indenture; | |
(e) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by us (including a default with respect to Debt Securities of any series other than that series) or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by us (including the Indenture) whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay in excess of $50,000,000 principal amount of such indebtedness when due and payable after the expiration of any applicable grace period with respect thereto or shall have resulted in an excess of $50,000,000 of principal amount of such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of 10 days after there shall have been given, by registered or certified mail, to us by the Trustee or to us and the Trustee by the holders of at least 25% in principal amount of the outstanding Debt Securities of that series a written notice specifying such default and requiring us to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a “Notice of Default” thereunder; or | |
(f) certain events in bankruptcy, insolvency or other similar occurrences. |
The Indenture provides that if an event of default described in clause (a), (b), (c), (d) or (e) shall have occurred and is continuing, and in each and every such case, unless the principal amount of all the Debt Securities of such series shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debt Securities of all series affected thereby then outstanding, by notice in writing to us (and to the Trustee if given by securityholders) may declare the principal amount of all the Debt Securities (or, with respect to discount Debt Securities, as defined below, such lesser amount as may be specified in the terms of such Debt Securities) affected thereby to be due and payable immediately, or, if an event of default described in clause (f) shall have occurred and is continuing, and unless the principal of all the Debt Securities of such series shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of all the Debt Securities then outstanding, by notice in writing to us (and to the Trustee if given by securityholders), may declare the principal of all the Debt Securities (or, with respect to discount Debt Securities, such lesser amount as may be specified in the terms of such Debt Securities) to be due and payable immediately. Upon certain conditions, such declarations may be annulled and certain past defaults may be waived by the holders
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We will be required to furnish to the Trustee annually a statement as to our performance of certain of our obligations under the Indenture and as to any default in such performance.
Under the Indenture, the Trustee must give to the holders of each series of Debt Securities notice of all uncured defaults with respect to such series within 90 days after the occurrence of such a default; provided that, except in the case of default in the payment of principal, premium (if any) or interest on any of the Debt Securities, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of the holders of the Debt Securities of such series.
Meetings; Modification of the Indenture; Waiver
The Indenture contains provisions permitting us and the Trustee, with the consent of the holders of not less than 66 2/3% in aggregate principal amount of all series of the Debt Securities to be affected at the time outstanding under the Indenture (voting as one class), to enter into indentures supplemental to or modifying the Indenture or the rights of the holders of such Debt Securities, except that no such modification shall (a) extend the fixed maturity, reduce the principal amount or redemption premium (if any) or reduce the rate or extend the time of payment of interest on any Debt Security without the consent of the holder of each Debt Security so affected; or (b) reduce the percentage in principal amount of the outstanding Debt Securities, the consent of whose holders is required for any such modification, without the consent of the holders of all Debt Securities then outstanding.
Without the consent of any holders of Debt Securities, we and the Trustee may enter into one or more supplemental indentures (which shall conform to the effective provisions of the Trust Indenture Act) for any of the following purposes:
• | to evidence the succession of another corporation to us, or successive successions and the assumption by the successor corporation of our covenants, agreements and obligations pursuant to Article Eleven of the Indenture; | |
• | to add to our covenants for the protection of the holders of the Debt Securities and to make the occurrence, or the occurrence or continuance, of a default in any of such additions, an event of default permitting the enforcement of all remedies provided in the Indenture, with such period of grace, if any, and subject to such conditions as such supplemental indenture may provide; | |
• | to provide for the issuance under the Indenture of Debt Securities, whether or not then outstanding, in coupon form (including Debt Securities registrable as to principal only) and to provide for exchangeability of such Debt Securities with Debt Securities issued under the Indenture in fully registered form and to make all appropriate changes for such purpose; | |
• | to modify, eliminate or add to the provisions of the Indenture to such extent as shall be necessary to effect the qualification of the Indenture under the Trust Indenture Act, or under any similar federal statute hereafter enacted, and to add to the Indenture such other provisions as may be expressly permitted by the Trust Indenture Act, excluding, however, the provisions referred to in Section 316(a)(2) of the Trust Indenture Act or any corresponding provision in any similar federal statute hereafter enacted; | |
• | to convey, transfer, assign, mortgage or pledge any property to or with the Trustee; | |
• | to evidence and provide for the acceptance and appointment hereunder of a successor trustee with respect to the Debt Securities of one or more series and to add or change any provisions |
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of the Indenture as shall be necessary to provide for or facilitate the administration of the trusts by more than one trustee; | ||
• | to change or eliminate any provision of the Indenture or to add any new provision to the Indenture; provided that if such change, elimination or addition will adversely affect the interests of the holders of the Debt Securities of any series in any material respect, such change, elimination or addition will become effective with respect to such series only when there is no debt security of such series remaining outstanding under the Indenture; | |
• | to provide collateral security for the Debt Securities; | |
• | to change any place where (1) the principal, premium (if any) and interest on Debt Securities of any series shall be payable; (2) any Debt Securities of any series may be surrendered for registration of transfer; (3) Debt Securities of any series may be surrendered for exchange; and (4) notices and demands to or upon us in respect of the Debt Securities of any series and the Indenture may be served; and | |
• | to establish the form or terms of Debt Securities of any series as permitted by the Indenture. |
The Trustee is authorized by the Indenture to join with us in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be contained in any such supplemental indenture and to accept the conveyance, transfer, assignment, mortgage or pledge of any property under such supplemental indenture. The Trustee shall not be obligated to enter into any such supplemental indenture which adversely affects the Trustee’s own rights, duties or immunities under the Indenture or otherwise. No supplemental indenture shall be effective as against the Trustee unless and until it has been duly executed and delivered by the Trustee.
The Indenture contains provisions for convening meetings of the holders of Debt Securities of a series. A meeting may be called at any time by the Trustee, and also by us or the holders of at least 25% in aggregate principal amount of the outstanding Debt Securities of any series if the Trustee fails to call the meeting upon our request or upon the request of such holders. Notice of every meeting of securityholders shall set forth the time and place in the Borough of Manhattan, the City of New York, of such meeting and in general terms the action proposed, and shall be mailed to all holders of Debt Securities of the applicable series as the names and addresses of such holders appear on the Debt Security Register.
Each holder of Debt Securities of a series with respect to which a meeting is being held (or such holder’s proxy) shall be entitled to one vote for each $1,000 outstanding principal amount of Debt Securities held (or represented) by the holder. The vote upon any resolution submitted to any meeting of securityholders shall be by written ballot. The holders of a majority in principal amount of the outstanding Debt Securities of all series affected thereby (voting as one class) may waive our compliance of covenants or conditions provided for in the Indenture. The holders of a majority in principal amount of the outstanding Debt Securities of each series may, on behalf of the holders of all the Debt Securities of such series, waive any past default under the Indenture, except a default (1) in the payment of principal, premium (if any) or interest on any debt security of such series, or (2) in respect of a covenant or provision of the Indenture which cannot be modified or amended without the consent of the holder of each outstanding debt security affected.
Collection of Indebtedness, Etc.
The Indenture also provides that if we fail to make payment of principal, premium, interest, or any mandatory sinking fund requirements on the Debt Securities (and in the case of payment of interest or any mandatory sinking fund payment, such failure to pay shall have continued for 30 days) we will, upon demand of the Trustee, pay to it, for the benefit of the holders of the Debt Securities,
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Satisfaction and Discharge
We may satisfy and discharge our obligations under the Indenture if, at any time, (1) we shall have delivered to the Trustee for cancellation all Debt Securities of any series theretofore authenticated or (2) all such Debt Securities of such series not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and we shall deposit or cause to be deposited with the Trustee as trust funds (a) an amount of money which will be sufficient, or (b) Government Obligations, the principal and interest on which when due, without any regard to reinvestment thereof, will provide monies which will be sufficient, or (c) a combination of (a) and (b) which will be sufficient, to pay at maturity or upon redemption all Debt Securities of such series not theretofore delivered to the Trustee for cancellation, including principal, premium (if any) and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be.
If the conditions of either (1) or (2) above are satisfied, we must also pay or cause to be paid all other sums payable by us under the Indenture with respect to such series, and then the Indenture shall cease to be of further effect with respect to the Debt Securities of such series, and the Trustee, on demand of and at our cost and expense, shall execute proper instruments acknowledging satisfaction of and discharging the Indenture with respect to the Debt Securities of such series. We agree to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with the Indenture or the Debt Securities of such series.
In addition, under the Indenture we will be discharged from any and all obligations in respect of the Debt Securities of any series (except in each case for certain obligations to register the transfer or exchange of Debt Securities, replace stolen, lost or mutilated Debt Securities, maintain paying agencies and hold moneys for payment in trust) if we deposit with the Trustee, in trust, money, Government Obligations, or a combination thereof, in an amount sufficient to pay all the principal (including any mandatory sinking fund payments) of, and interest on, Debt Securities of such series on the dates such payments are due in accordance with the terms of such Debt Securities. Such defeasance and discharge will become effective after we have, among other things, delivered to the Trustee an opinion of counsel to the effect that the deposit and related defeasance would not cause the holders of the Debt Securities of such series to recognize income, gain or loss for federal income tax purposes, or a copy of a ruling or other formal statement or action to such effect received from or published by the United States Internal Revenue Service.
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Notices
Any notice or demand required or permitted to be given or served by the Trustee or by the holders of Debt Securities to or on us may be given or served by postage prepaid first class mail addressed (until another address is filed by us with the Trustee) as follows: Piedmont Natural Gas Company, Inc., 1915 Rexford Road, Post Office Box 33068, Charlotte, North Carolina 28233, Attention: Robert O. Pritchard, Treasurer.
Any notice, direction, request or demand by any holder of the Debt Securities to or upon the Trustee shall be deemed to have been sufficiently given or made, if given or made in writing at the principal corporate trust office of the Trustee in the Borough of Manhattan, the City of New York.
Any notice to be given to the holders of the Debt Securities will be given by mail to the addresses of such holders as they appear in the Debt Security Register.
Title
We, the Trustee and any of our agents may deem the person in whose name such Debt Security shall be registered upon our books (which, in the case of Debt Securities represented by a global security, shall be the Depositary or its nominee) to be the absolute owner of such Debt Security (whether or not such Debt Security shall be overdue and notwithstanding any notation of ownership or other writing thereon), for the purpose of receiving payment and for all other purposes.
Replacement of Debt Securities
In case any Debt Security shall become mutilated or be destroyed, lost or stolen, we, in the case of a mutilated Debt Security shall, and in the case of a lost, stolen or destroyed Debt Security may, in our discretion, provide a new Debt Security of the same series. The applicant for a substituted Debt Security shall furnish to us and the Trustee such security or indemnity as may be required by them to save each of us harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish evidence of the destruction, loss or theft of such Debt Security and of the ownership thereof. We may require the payment of a sum sufficient to cover any tax, governmental charge or other charges that may be imposed in relation to the issuance of a substituted Debt Security and in addition a further sum not exceeding $2.00 for each Debt Security so issued in substitution.
Governing Law
The Indenture is and the Debt Securities will be governed by, and construed in accordance with, the laws of the State of New York.
Concerning the Trustee
Subject to the provisions of the Indenture relating to its duties, the Trustee will be under no obligation to expend or risk its own funds or to incur any personal financial liability in the performance of its duties under the Indenture, or to exercise any of its rights or powers under the Indenture, if there are reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Subject to such provisions, the holders of a majority in principal amount of the Debt Securities then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the Indenture, or exercising any trust or power conferred on the Trustee. Citibank, N.A., Trustee under the Indenture, has commercial banking relationships with us.
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DESCRIPTION OF COMMON STOCK
Our Articles of Incorporation authorize 100,000,000 shares of common stock without par value and 175,000 shares of preferred stock without par value. Our Board of Directors has the authority to establish one or more series of preferred stock with such terms and rights as it may determine. No shares of preferred stock are presently outstanding.
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Under North Carolina law, the election of directors requires a plurality of the votes cast in the election. Shareholders do not have cumulative voting rights.
Our Articles of Incorporation and By-Laws contain certain provisions that could have the effect of delaying, deferring or preventing a change in control. These provisions include:
• | Classified Board of Directors. Our Board of Directors is divided into three classes with staggered terms, which means that, as a general matter, only one-third of the Board must stand for re-election at any annual meeting of shareholders. The classification of directors could have the effect of making it more difficult for shareholders, including those holding a majority of the outstanding shares, to force an immediate change in the composition of our Board. Two shareholder meetings, instead of one, generally will be required to effect a change in the control of our Board. The provision for the classification of directors may be amended, altered, changed or repealed only upon the affirmative vote of 80% of the outstanding shares entitled to vote in the election of directors. | |
• | Fixing and Changing Number of Directors. Our By-laws and Articles of Incorporation authorize the Board of Directors to fix the number of directors and provide that the number may be changed only by (a) the affirmative vote of 80% of the outstanding shares entitled to vote in the election of Directors or (b) a majority of the entire Board of Directors. | |
• | Nominations to the Board. With certain exceptions, nominations to the Board must be made at least 60 days prior to the date of a meeting of shareholders. | |
• | Removal of Directors. Directors may be removed for cause only by the affirmative vote of 80% of the outstanding shares entitled to vote in the election of directors. | |
• | Fair Price Provisions. Our Articles of Incorporation require the affirmative vote of a super majority of the outstanding shares of voting stock to approve certain transactions such as actions in connection with any “Business Combination.” A Business Combination is defined to include any merger, consolidation, lease, sale or disposition of assets or certain other business transactions by us or our subsidiaries involving an “interested shareholder.” An interested shareholder is defined as any person who is or has announced an intention to become the beneficial owner of 10% or more of our voting stock (and certain defined affiliates) or an affiliate or associate of an interested shareholder and that, together with all such other arrangements, has an aggregate fair market value and/or involves aggregate commitments of $10,000,000 or more or more than 5% of our total assets or shareholders’ equity as reflected on our most recent fiscal year-end consolidated balance sheet. Our Articles of Incorporation require the affirmative vote of not less than 66 2/3% of our voting stock, voting together as a single class, excluding any voting stock held by an interested shareholder, with respect to all Business Combinations involving the interested shareholder unless (1) the transaction is approved by our Board of Directors prior to the date on which directors not affiliated with the interested shareholder and who were directors prior to the time the interested shareholder acquired such status (“Continuing Directors”) comprise less than a majority of our Board of Directors, and (2) if the Business Combination involves payment of consideration to |
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shareholders, certain minimum price and disclosure requirements are satisfied as to all shareholders, and there has been no major change in our business or equity capital structure or any change or reduction in the payment of dividends since the date the interested shareholder acquired such status. To meet the minimum price criteria, the shareholders must receive consideration or retain value per share after the transaction that is not less than the highest price per share paid by the interested shareholder in the transaction or within two years preceding the announcement date of the transaction, or the fair market value per share of our common stock on the date the transaction is announced or the date on which the interested shareholder acquired such status, whichever is higher. The minimum price provisions must be met with respect to every class or series of our outstanding capital stock, whether or not the interested shareholder has previously acquired shares of any particular class or series. Our Articles of Incorporation require the same 66 2/3% shareholder approval to amend or repeal the foregoing provisions or to adopt any provision inconsistent with such provisions unless the change is proposed by the Board of Directors prior to the date on which Continuing Directors comprise less than a majority of the Board. | ||
• | Shareholder Rights Plan. Our shareholder rights plan generally provides the Board of Directors and shareholders the right to act to substantially dilute the share ownership position of any person who acquires 15% or more of our common stock. These provisions could discourage bids for the common stock at a premium and might adversely affect the market price of our common stock. | |
• | Amendment to our By-Laws. Our By-Laws may be amended only by (a) the affirmative vote of 80% of the outstanding shares entitled to vote in the election of directors or by the Board of Directors or (b) a majority of the entire Board of Directors at a meeting at which a quorum is present. | |
• | Opt out of North Carolina Anti-Takeover Statutes. Our Articles of Incorporation contain language to “opt out” of the provisions of two North Carolina anti-takeover statutes which, under the North Carolina Business Corporation Act, would otherwise apply to us. The first of these statutes, called the “North Carolina Shareholder Protection Act,” requires that any business combination (as defined therein) between a corporation and any 20% shareholder be approved by 95% of the corporation’s voting shares. Under the second statute, called the “North Carolina Control Share Acquisition Act,” control shares of a corporation that are acquired in a “control share acquisition” (as defined in the statute) have no voting rights unless such rights are granted by resolution adopted by a majority of the corporation’s shareholders, and in the event such voting rights were to be granted, all other shareholders would have the right to have their shares in the corporation redeemed at their fair value, subject to certain restrictions. Because application of these statutes to us would create material conflicts with existing provisions of our Articles of Incorporation regarding Business Combinations, our Articles of Incorporation include provisions stating that neither of these statutes will apply to us. |
Holders of our common stock are entitled to receive dividends that may be declared from time to time by the Board of Directors subject to any preferences that may be applicable to any shares of our preferred stock then outstanding. Some of the agreements under which our long-term debt was issued contain provisions that restrict the amount of cash dividends that may be paid on our common stock. Under the most restrictive of these provisions, all of our retained earnings were free of such restrictions as of April 30, 2003.
In the event of liquidation, holders of common stock are entitled to all assets that remain after satisfaction of creditors and the liquidation preferences of any outstanding Preferred Stock, if any. Holders of common stock do not have preemptive rights to purchase additional shares of common
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The outstanding shares of common stock are, and the additional shares offered hereby will be, listed on the New York Stock Exchange under the trading symbol “PNY.”
The Transfer Agent and Registrar for the common stock is American Stock Transfer & Trust Company, 59 Maiden Lane, New York, New York 10038.
DESCRIPTION OF STOCK PURCHASE
We may issue stock purchase contracts, including contracts that obligate holders to purchase from us, and us to sell to these holders, a specified number of shares of common stock at a future date or dates. The consideration per share of common stock may be fixed at the time the stock purchase contracts are issued or may be determined by reference to a specific formula set forth in the stock purchase contracts. The stock purchase contracts may be issued separately or as a part of stock purchase units consisting of a stock purchase contract and either debt securities or debt obligations of third parties, including United States Treasury securities, that are pledged to secure the holders’ obligations to purchase the common stock under the stock purchase contracts. The stock purchase contracts may require us to make periodic payments to the holders of the stock purchase units or vice versa, and such payments may be unsecured or prefunded on some basis. The stock purchase contracts may require holders to secure their obligations under these stock purchase contracts in a specified manner.
A prospectus supplement will summarize material terms of any stock purchase contracts or stock purchase units being offered. The description in the prospectus supplement will refer to the forms of stock purchase contracts. Material United States federal income tax considerations applicable to the stock purchase units and stock purchase contracts will also be discussed in the applicable prospectus supplement.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus and the applicable prospectus supplement as follows:
• | to or through underwriting syndicates represented by managing underwriters, or by underwriters without a syndicate, such underwriters to be designated at the time of sale; | |
• | through agents designated from time to time; or | |
• | directly by us to other purchasers. |
The applicable prospectus supplement will set forth the terms of the offering of the securities, including the name or names of any underwriters or agents, the purchase price of such securities and the proceeds to us from such sales, any underwriting discounts, agency commissions and other items constituting underwriters’ or agents’ compensation, any initial public offering price, any discounts or concessions to be allowed or reallowed or paid to dealers and the securities exchanges, if any, on which such securities may be listed.
If underwriters are used in the sale, the securities will be acquired by the underwriters for their own accounts and may be resold from time to time in one or more transactions, including negotiated transactions. These transactions may be at a fixed public offering price or at varying prices
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The securities may be sold directly by us or through agents designated by us from time to time. Any agent involved in the offer or sale of the securities with respect to which this prospectus is delivered will be named, and any commission payable by us to such agent will be set forth, in the corresponding prospectus supplement. Unless otherwise indicated in the corresponding prospectus supplement, any such agent will be acting on a reasonable best-efforts basis for the period of its appointment.
If so indicated in the applicable prospectus supplement, we may authorize underwriters or agents to solicit offers by certain institutions to purchase securities from us at the public offering price set forth in such prospectus supplement pursuant to delayed delivery contracts (“Delayed Delivery Contracts”) providing for payment and delivery on the future date or dates stated in the prospectus supplement. The amount of securities to be sold under each Delayed Delivery Contract and the aggregate amount of securities to be sold under all Delayed Delivery Contracts will be set forth in the prospectus supplement. Institutions with which Delayed Delivery Contracts, when authorized, may be made include commercial and savings banks, insurance companies, pension funds, investment companies and educational and charitable institutions, but shall in all cases be subject to our approval in our sole discretion. The obligations of the purchaser under any Delayed Delivery Contract to pay for and take delivery of securities will not be subject to any conditions except that (i) the purchase of securities by such institution shall not at the time of delivery be prohibited under the laws of any jurisdiction to which such institution is subject; and (ii) any related sale of securities to underwriters shall have occurred. A commission set forth in the applicable prospectus supplement will be paid to underwriters or agents soliciting purchases of securities pursuant to Delayed Delivery Contracts accepted by us. The underwriters or agents will not have any responsibility in respect of the validity or performance of Delayed Delivery Contracts.
All Debt Securities will be new issues of securities with no established trading market. Any underwriters to whom Debt Securities are sold by us for public offering and sale may make a market in such securities, but such underwriters will not be obligated to do so and may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of the trading market for any Debt Securities.
Underwriters and agents may be entitled under agreements entered into with us to indemnification by us against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribution with respect to payments which the underwriters or agents may be required to make in respect thereof and to reimbursement by us for certain expenses. Underwriters and agents also may be customers of, engage in transactions with, or perform other services for us in the ordinary course of business.
LEGAL OPINIONS
The validity of the securities will be passed upon for us by Nelson, Mullins, Riley & Scarborough, LLP, Charlotte, North Carolina. Jerry W. Amos, a partner in that law firm and a director of the Company, beneficially owned 73,553 shares of our common stock as of May 31, 2003.
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EXPERTS
The consolidated financial statements of Piedmont Natural Gas Company, Inc., as of October 31, 2002 and 2001, and for each of the three years in the period ended October 31, 2002, and the related financial statement schedule incorporated in this prospectus by reference from Piedmont Natural Gas Company’s Annual Report on Form 10-K, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm, given upon their authority as experts in accounting and auditing.
The consolidated financial statements of North Carolina Natural Gas Corporation as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which expresses an unqualified opinion and includes an explanatory paragraph referring to the change in 2002 in the method of accounting for goodwill), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
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OF
NORTH CAROLINA NATURAL GAS CORPORATION
North Carolina Natural Gas Corporation
Consolidated Balance Sheets
December 31 | |||||||||||
2002 | 2001 | ||||||||||
(In Thousands) | |||||||||||
ASSETS | |||||||||||
Utility Plant | |||||||||||
Gas utility plant in service | $ | 554,738 | $ | 492,001 | |||||||
Accumulated depreciation | (179,086 | ) | (159,897 | ) | |||||||
Utility plant in service, net | 375,652 | 332,104 | |||||||||
Construction work in progress | 18,127 | 60,895 | |||||||||
Total Utility Plant, Net | 393,779 | 392,999 | |||||||||
Current assets | |||||||||||
Cash and cash equivalents | 762 | 711 | |||||||||
Accounts receivable, net | 34,856 | 28,383 | |||||||||
Unbilled accounts receivable | 16,565 | — | |||||||||
Accounts receivable from affiliated companies | 3,644 | 3,701 | |||||||||
Inventory | 17,198 | 21,248 | |||||||||
Deferred gas costs — unbilled volumes | — | 9,814 | |||||||||
Other current assets | 5,644 | 1,259 | |||||||||
Total Current Assets | 78,669 | 65,116 | |||||||||
Deferred Debits and Other Assets | |||||||||||
Goodwill | 43,022 | 221,593 | |||||||||
Unamortized debt expense | 2,803 | 3,282 | |||||||||
Diversified business property, net | 928 | 923 | |||||||||
Miscellaneous other property and investments | 5,690 | 5,741 | |||||||||
Other assets and deferred debits | 4,551 | 6,130 | |||||||||
Total Deferred Debits and Other Assets | 56,994 | 237,669 | |||||||||
Total Assets | $ | 529,442 | $ | 695,784 | |||||||
CAPITALIZATION AND LIABILITIES | |||||||||||
Capitalization | |||||||||||
Common stock, par value $0.10; 100 shares authorized; 100 shares issued and outstanding | $ | — | $ | — | |||||||
Capital in excess of par value | 417,645 | 417,617 | |||||||||
Accumulated other comprehensive loss | (5,883 | ) | — | ||||||||
Retained earnings (deficit) | (163,733 | ) | 9,014 | ||||||||
Total Capitalization | 248,029 | 426,631 | |||||||||
Current Liabilities | |||||||||||
Accounts payable | 36,109 | 26,437 | |||||||||
Accounts payable to affiliated companies | 14,567 | 34,446 | |||||||||
Notes payable to affiliated companies | 150,000 | 150,000 | |||||||||
Income taxes payable | 2,790 | 941 | |||||||||
Interest accrued | 426 | 388 | |||||||||
Deferred gas costs | 13,860 | 4,506 | |||||||||
Other current liabilities | 15,956 | 13,427 | |||||||||
Total Current Liabilities | 233,708 | 230,145 | |||||||||
Deferred Credits and Other Liabilities | |||||||||||
Accumulated deferred income taxes | 27,172 | 26,887 | |||||||||
Accumulated deferred investment tax credits | 1,685 | 1,817 | |||||||||
Regulatory liability for income taxes, net | 1,382 | 1,640 | |||||||||
Other liabilities and deferred credits | 17,466 | 8,664 | |||||||||
Total Deferred Credits and Other Liabilities | 47,705 | 39,008 | |||||||||
Total Capitalization and Liabilities | $ | 529,442 | $ | 695,784 | |||||||
See Notes to Consolidated Financial Statements.
A-1
North Carolina Natural Gas Corporation
Consolidated Statements of Income and Comprehensive Income
Years Ended December 31 | ||||||||||||||
2002 | 2001 | 2000 | ||||||||||||
(In Thousands) | ||||||||||||||
Operating Revenues | ||||||||||||||
Natural gas revenues | $ | 316,423 | $ | 318,755 | $ | 339,569 | ||||||||
Diversified business revenues | 58 | 53 | 6,029 | |||||||||||
Total operating revenues | 316,481 | 318,808 | 345,598 | |||||||||||
Operating Expenses | ||||||||||||||
Cost of gas | 230,617 | 240,672 | 268,986 | |||||||||||
Other operation and maintenance | 45,247 | 40,990 | 31,081 | |||||||||||
Goodwill impairment | 126,277 | — | — | |||||||||||
Depreciation and amortization | 19,836 | 23,043 | 19,458 | |||||||||||
General taxes | 4,303 | 3,995 | 3,360 | |||||||||||
Diversified business expenses | 1 | 104 | 4,862 | |||||||||||
Total Operating Expenses | 426,281 | 308,804 | 327,747 | |||||||||||
Operating Income (Loss) | (109,800 | ) | 10,004 | 17,851 | ||||||||||
Other Income | 2,266 | 3,029 | 7,665 | |||||||||||
Interest Charges | 10,877 | 6,420 | 7,323 | |||||||||||
Income (Loss) before Income Taxes and Cumulative Effect of Accounting Change | (118,411 | ) | 6,613 | 18,193 | ||||||||||
Income Taxes | 2,042 | 3,745 | 8,278 | |||||||||||
Income (Loss) before Cumulative Effect of Accounting Change | (120,453 | ) | 2,868 | 9,915 | ||||||||||
Cumulative Effect of Accounting Change | (52,294 | ) | — | — | ||||||||||
Net Income (Loss) | (172,747 | ) | 2,868 | 9,915 | ||||||||||
Minimum Pension Liability Adjustment (net of tax of $3,838) | (5,883 | ) | — | — | ||||||||||
Comprehensive Income (Loss) | $ | (178,630 | ) | $ | 2,868 | $ | 9,915 | |||||||
See Notes to Consolidated Financial Statements.
A-2
North Carolina Natural Gas Corporation
Consolidated Statements of Cash Flows
Years Ended December 31 | ||||||||||||||||
2002 | 2001 | 2000 | ||||||||||||||
(In Thousands) | ||||||||||||||||
Operating Activities | ||||||||||||||||
Net Income | $ | (172,747 | ) | $ | 2,868 | $ | 9,915 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Goodwill impairment and cumulative effect of accounting change | 178,571 | — | — | |||||||||||||
Depreciation and amortization | 20,377 | 23,865 | 20,835 | |||||||||||||
Deferred income taxes | 3,865 | (447 | ) | (212 | ) | |||||||||||
Investment tax credit | (132 | ) | (133 | ) | (133 | ) | ||||||||||
Deferred fuel credit | 9,354 | 13,589 | (4,602 | ) | ||||||||||||
Net changes in other assets and liabilities: | ||||||||||||||||
Accounts receivable from affiliated companies | 57 | (301 | ) | (3,596 | ) | |||||||||||
Accounts receivable | (23,038 | ) | 20,074 | (33,038 | ) | |||||||||||
Inventories | 4,050 | (4,519 | ) | (1,147 | ) | |||||||||||
Deferred gas costs — unbilled volumes | 9,814 | 5,408 | (9,128 | ) | ||||||||||||
Other assets | (5,169 | ) | 6,928 | (3,853 | ) | |||||||||||
Accounts payable to affiliated companies | (24,026 | ) | (41,573 | ) | 70,687 | |||||||||||
Accounts payable | 9,669 | (17,856 | ) | 23,803 | ||||||||||||
Current and accrued liabilities | 5,567 | 997 | 3,448 | |||||||||||||
Other | 16 | (283 | ) | (2,454 | ) | |||||||||||
Net Cash Provided by Operating Activities | 16,228 | 8,617 | 70,525 | |||||||||||||
Investing Activities | ||||||||||||||||
Gross property additions | (20,648 | ) | (68,893 | ) | (92,959 | ) | ||||||||||
Proceeds from sale of assets | 245 | 249 | 12,825 | |||||||||||||
Investments in non-utility activities | 51 | 832 | (665 | ) | ||||||||||||
Net Cash Used in Investing Activities | (20,352 | ) | (67,812 | ) | (80,799 | ) | ||||||||||
Financing Activities | ||||||||||||||||
Proceeds from issuance of note payable to parent | — | 150,000 | — | |||||||||||||
Payments of note payable to parent | — | (123,548 | ) | (11,435 | ) | |||||||||||
Net changes in advances from affiliate | 4,147 | 32,215 | 21,732 | |||||||||||||
Issuance of common stock on deferred compensation plans for retired directors | 28 | 29 | 30 | |||||||||||||
Net Cash Provided by Financing Activities | 4,175 | 58,696 | 10,327 | |||||||||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 51 | (499 | ) | 53 | ||||||||||||
Cash and Cash Equivalents at Beginning of the Year | 711 | 1,210 | 1,157 | |||||||||||||
Cash and Cash Equivalents at End of the Period | $ | 762 | $ | 711 | $ | 1,210 | ||||||||||
Supplemental Disclosures of Cash Flow Information | ||||||||||||||||
Cash paid (received) during the period: | ||||||||||||||||
Interest | $ | 10,906 | $ | 5,255 | $ | 7,573 | ||||||||||
Income Taxes | $ | (3,357 | ) | $ | 938 | $ | 9,846 | |||||||||
Noncash financing activities — | ||||||||||||||||
Equity investment from parent company | $ | — | $ | 50,000 | $ | 3,829 |
See Notes to Consolidated Financial Statements.
A-3
North Carolina Natural Gas Corporation
Consolidated Statements of Changes in Capitalization
Common Stock | Accumulated | ||||||||||||||||||||||||
Outstanding | Additional | Other | Retained | ||||||||||||||||||||||
Paid-In | Comprehensive | Earnings | Total | ||||||||||||||||||||||
Shares | Amount | Capital | Loss | (Deficit) | Capitalization | ||||||||||||||||||||
(In Thousands) | |||||||||||||||||||||||||
Balance, January 1, 2000 | 100 | $ | — | $ | 363,729 | $ | — | $ | (3,769 | ) | $ | 359,960 | |||||||||||||
Additional equity investment from parent company | 3,829 | 3,829 | |||||||||||||||||||||||
Equity compensation | 30 | 30 | |||||||||||||||||||||||
Net income | 9,915 | 9,915 | |||||||||||||||||||||||
Balance, December 31, 2000 | 100 | $ | — | $ | 367,588 | $ | — | $ | 6,146 | $ | 373,734 | ||||||||||||||
Additional equity investment from parent company | 50,000 | 50,000 | |||||||||||||||||||||||
Equity compensation | 29 | 29 | |||||||||||||||||||||||
Net income | 2,868 | 2,868 | |||||||||||||||||||||||
Balance, December 31, 2001 | 100 | $ | — | 417,617 | $ | — | $ | 9,014 | $ | 426,631 | |||||||||||||||
Minimum pension liability adjustment (net of tax) | (5,883 | ) | (5,883 | ) | |||||||||||||||||||||
Equity compensation | 28 | 28 | |||||||||||||||||||||||
Net loss | (172,747 | ) | (172,747 | ) | |||||||||||||||||||||
Balance, December 31, 2002 | 100 | $ | — | $ | 417,645 | $ | (5,883 | ) | $ | (163,733 | ) | $ | 248,029 | ||||||||||||
See Notes to Consolidated Financial Statements.
A-4
North Carolina Natural Gas Corporation
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
A. Organization
North Carolina Natural Gas Corporation (NCNG or the Company) is a public service company primarily engaged in transporting and distributing natural gas in portions of North Carolina. NCNG is a wholly owned subsidiary of Progress Energy, Inc. (Progress Energy or PGN), which was formed as a result of the reorganization of Carolina Power & Light (CP&L) into a holding company structure on June 19, 2000. All shares of common stock of CP&L were exchanged for an equal number of shares of PGN. On July 1, 2000, CP&L distributed its ownership interest in the stock of NCNG to PGN. PGN is a registered holding company under the Public Utility Holding Company Act (PUCHA) of 1935. Both PGN and its subsidiaries are subject to the regulatory provisions of the PUCHA.
B. Basis of Presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include the activities of the Company and its majority-owned subsidiaries, NCNG Pineneedle Investment Corporation, NCNG Cardinal Pipeline Investment Corporation, and Cape Fear Energy Corporation. Significant intercompany balances and transactions have been eliminated in consolidation except as permitted by Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation,” which provides that profits on intercompany sales to regulated affiliates are not eliminated if the sales price is reasonable and the future recovery of the sales price through the rate making process is probable. The accounting records are maintained in accordance with uniform systems of accounts prescribed by the North Carolina Utilities Commission (NCUC).
C. Use of Estimates and Assumptions
In preparing financial statements that conform with accounting principals generally accepted in the United States of America, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and amounts of revenues and expenses reflected during the reporting period. Actual results could differ from those estimates.
D. Cash
The Company considers cash and cash equivalents to include unrestricted cash on hand, cash in banks, and temporary investments with a maturity of three months or less.
E. Utility Plant and Depreciation
Utility plant in service is stated at historical cost less accumulated depreciation. The Company capitalizes all construction-related direct labor and material costs of units of property as well as indirect construction costs. The cost of renewals and betterments is also capitalized. Maintenance and repairs of property, and replacements and renewals of items determined to be less than units of property, are charged to maintenance expense as incurred. The cost of units of property replaced, renewed or retired, plus removal or disposal costs, less salvage, is charged to accumulated
A-5
Notes to Consolidated Financial Statements — (Continued)
depreciation. Subsequent to the acquisition of NCNG by PGN, utility plant continues to be presented on a gross basis to reflect the treatment of such plant in cost-based regulation.
The balances of utility plant in service at December 31 are listed below with a range of depreciable lives for each:
2002 | 2001 | ||||||||
(In Thousands) | |||||||||
Transmission plant (24-50 years) | $ | 247,489 | $ | 223,779 | |||||
Distribution plant (22-50 years) | 224,165 | 203,171 | |||||||
General plant (5-37 years) | 53,723 | 37,543 | |||||||
Natural gas storage and processing plant (16–30 years) | 26,257 | 24,638 | |||||||
Capital leases | 1,380 | 1,146 | |||||||
Intangible plant | 991 | 991 | |||||||
Production plant (44 years) | 733 | 733 | |||||||
Total utility plant in service | $ | 554,738 | $ | 492,001 | |||||
The Company is engaged in a capital lease with Exxon for use of a six-inch pipeline in Wilmington, NC. The initial lease agreement was entered into during 1997 for a term of five years. The agreement contains an automatic renewal provision with an annual rent escalation factor of 2.65%. The agreement will continue in perpetuity after the conclusion of the initial term, unless notice of termination is provided no less than twenty-four months prior to the effective date of termination. The outstanding obligation under this lease for the next twenty-four months was $462 thousand and $435 thousand at December 31, 2002 and 2001, respectively.
Allowance for funds used during construction (AFUDC) represents the estimated debt and equity costs of capital funds necessary to finance the construction of new regulated assets. As prescribed in the regulatory uniform systems of accounts, AFUDC is charged to the cost of the plant. The equity funds portion of AFUDC is credited to other income and the borrowed funds portion is credited to interest charges. Regulatory authorities consider AFUDC an appropriate charge for inclusion in the rates charged to customers by the utilities over the service life of the property. The total equity funds portion of AFUDC was $0.8 million, $2.1 million and $2.5 million in 2002, 2001 and 2000, respectively. The total borrowed funds portion of AFUDC was $0.5 million, $1.2 million and $1.5 million in 2002, 2001 and 2000, respectively. The composite AFUDC rate for NCNG’s gas utility plant was 10.09% in 2002, 2001 and 2000.
F. Depreciation and Amortization
For financial reporting purposes, depreciation of utility plant is computed on the straight-line method based on the estimated remaining useful life of the property, adjusted for estimated net salvage. Depreciation provisions as a percent of average depreciable property were approximately 3.7% in 2002, 2001 and 2000. Depreciation provisions totaled $19.8 million, $17.2 million and $13.5 million in 2002, 2001 and 2000, respectively.
Effective January 1, 2002 the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” and no longer amortizes goodwill. Prior to the adoption of SFAS No. 142, the Company amortized goodwill on a straight-line basis over a period not exceeding 40 years.
A-6
Notes to Consolidated Financial Statements — (Continued)
G. Diversified Business Property
Diversified business property consists of land, which had a balance of $928 thousand and $923 thousand at December 31, 2002 and 2001, respectively.
H. Inventory
Inventory is carried at average cost. As of December 31, 2002 and 2001, inventory was comprised of:
2002 | 2001 | ||||||||
(In Thousands) | |||||||||
Fuel | $ | 12,300 | $ | 16,136 | |||||
Materials and supplies | 4,898 | 5,112 | |||||||
Total Inventory | $ | 17,198 | $ | 21,248 | |||||
I. Impairment of Long-Lived Assets and Investments
The Company reviews the recoverability of long-lived and intangible assets whenever indicators exist. Examples of these indicators include current period losses, combined with a history of losses or a projection of continuing losses, or a significant decrease in the market price of a long-lived asset group. If an indicator exists, then the asset group is tested for recoverability by comparing the carrying value to the sum of undiscounted expected future cash flows directly attributable to the asset group. If the asset group is not recoverable through undiscounted cash flows, then an impairment loss is recognized for the difference between the carrying value and the fair value of the asset group. The accounting for impairment of assets is based on SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which was adopted by the Company effective January 1, 2002. Prior to the adoption of this standard, impairments were accounted for using SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” which was superceded by SFAS No. 144.
J. Cost-Based Regulation
The Company’s regulated operations are subject to SFAS No. 71. SFAS No. 71 allows a regulated company to record costs that have been or are expected to be allowed in the ratemaking process in a period different from the period in which the costs would be charged to expense by a nonregulated enterprise. Accordingly, the Company records assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for nonregulated entities. These regulatory assets and liabilities represent expenses deferred for future recovery from customers or obligations to be refunded to customers and are primarily classified in the accompanying Consolidated Balance Sheets as regulatory assets and regulatory liabilities (See Note 5).
K. Income Taxes
PGN and its affiliates file a consolidated federal income tax return. Federal income taxes are provided as if the Company filed a separate return. Amounts shown as income taxes payable are due to PGN. Deferred income taxes have been provided for temporary differences. These occur when there are differences between the book and tax carrying amounts of assets and liabilities. Investment
A-7
Notes to Consolidated Financial Statements — (Continued)
tax credits related to regulated operations have been deferred and are being amortized over the estimated service life of the related properties (See Note 7).
L. Derivatives
Effective January 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities — an amendment of FASB Statement No. 133”. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as assets or liabilities in the balance sheet and measure those instruments at fair value.
M. Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts receivable, which totaled approximately $2.0 million at December 31, 2002 and 2001.
N. Unamortized Debt Premiums, Discounts and Expenses
Any expenses or call premiums associated with the reacquisition of debt obligations are amortized over the remaining life using the straight-line method consistent with ratemaking treatment.
O. Revenue Recognition
In the year ended December 31, 2002, the Company performed an analysis of its revenue recognition practices and changed the way it records revenues and cost of gas related to volumes delivered but not yet billed. Recording unbilled revenues implements the practice in use by most gas utilities. NCNG previously followed the practice of rendering customer bills on a cycle basis throughout each month and recording revenue at the time of billing. The Company deferred the cost of gas delivered but unbilled due to cycle billing and recognized the revenue and related cost of gas in the period in which it was billed. Recording unbilled revenues changes the timing of revenue recognition from the cycle-billing method to the accrual method based on when the service is provided. The effect on earnings for the year ended December 31, 2002 was an after-tax increase in earnings of approximately $1.6 million.
P. Fuel Cost Deferrals
Cost of gas includes gas costs or recoveries that are deferred through purchased gas adjustment provisions established by the NCUC. The provisions allow NCNG to recover the costs of gas purchased for resale through customer rates.
Q. Environmental
The Company accrues environmental remediation liabilities when the criteria for SFAS No. 5, “Accounting for Contingencies,” has been met. The Company defers environmental expenditures consistent with rate making treatment (See Note 5B). Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as additional information develops or
A-8
Notes to Consolidated Financial Statements — (Continued)
circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recognized when their receipt is deemed probable (See Note 10).
R. Other Policies
The carrying amounts of cash and cash equivalents, notes payable and accounts payable approximate their fair values due to the short-term maturities of these financial instruments.
S. Benefit Plans
The Company follows the guidance in SFAS No. 87, “Employers’ Accounting for Pensions,” to account for its defined benefit retirement obligations. In addition to pension benefits, the Company provides other postretirement benefits which are accounted for using SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” See Note 9 for related disclosures for these plans.
T. Impact of New Accounting Standards
The Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” in July 2001. This statement provides accounting and disclosure requirements for retirement obligations associated with long-lived assets and is effective January 1, 2003. This statement requires that the present value of retirement costs for which NCNG has a legal obligation be recorded as liabilities with an equivalent amount added to the asset cost and depreciated over an appropriate period. The liability is then accreted over time by applying an interest method of allocation to the liability. Cumulative accretion and accumulated depreciation will be recognized for the time period from the date the liability would have been recognized had the provisions of this statement been in effect, to the date of adoption of this Statement. The cumulative effect of implementing this Statement is to be recognized as a change in accounting principle. The adoption of this statement will have no impact on NCNG’s net income.
NCNG has previously recognized removal costs as a component of depreciation in accordance with regulatory treatment. To the extent these amounts do not represent SFAS No. 143 legal retirement obligations, they will be disclosed as regulatory liabilities upon adoption of the standard.
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This newly issued statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt — an amendment of Accounting Principles Board (APB) Opinion No. 3,” which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria set forth by APB Opinion 30 will now be used to classify those gains and losses. Any gain or loss on extinguishment will be recorded in the most appropriate line item to which it relates within net income before extraordinary items. For NCNG, any expenses or call premiums associated with the reacquisition of debt obligations are amortized over the remaining life of the original debt using the straight-line method consistent with ratemaking treatment. SFAS No. 145 also amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. In addition, SFAS No. 145 amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their
A-9
Notes to Consolidated Financial Statements — (Continued)
applicability under changed conditions. For the provisions related to the rescission of SFAS No. 4, SFAS No. 145 is effective for NCNG beginning in fiscal year 2003. The remaining provisions of SFAS No. 145 were effective for NCNG in fiscal year 2002. Adoption of this statement will have no impact on NCNG’s results of operations or financial position.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123,” and provided alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement requires that companies having a year-end after December 15, 2002 follow the prescribed format and provide the additional disclosures in their annual reports. NCNG applies the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” as allowed by SFAS Nos. 123 and 148, and related interpretations in accounting for its stock-based compensation plans as described in Note 12.
The following table illustrates the effect on NCNG’s net income if NCNG had applied the fair value recognition provisions of SFAS No. 123 to the stock option plan. The stock option plan was not in effect in 2000.
2002 | 2001 | |||||||
(In Thousands) | ||||||||
Net income, as reported | $ | (172,747 | ) | $ | 2,868 | |||
Deduct: Total stock option expense determined under fair value method for all awards, net of related tax effects | 175 | 38 | ||||||
Proforma net income | $ | (172,922 | ) | $ | 2,830 | |||
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an Interpretation of FASB Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34” (FIN No. 45). This interpretation clarifies the disclosures to be made by a guarantor in its interim and annual financial statements about obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. NCNG is currently evaluating the effects, if any, that this interpretation will have on its results of operations and financial position.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51” (FIN No. 46). This interpretation provides guidance related to identifying variable interest entities (previously known as special purpose entities or SPEs) and determining whether such entities should be consolidated. Certain disclosures are required when FIN No. 46 becomes effective if it is reasonably possible that a company will consolidate or disclose information about a variable interest entity when it initially applies FIN No. 46. NCNG is currently
A-10
Notes to Consolidated Financial Statements — (Continued)
evaluating what effects, if any, this interpretation will have on its results of operations and financial position.
In June 2002, the Emerging Issues Task Force (EITF) reached consensus on a portion of Issue 02-03, “Accounting for Contracts Involved in Energy Trading and Risk Management Activities.” EITF Issue 02-03 is effective for financial statements issued for periods ending after July 15, 2002, and requires all gains and losses (realized or unrealized) on energy trading contracts to be shown on a net basis in the income statement. NCNG’s policy already required the gains and losses to be recorded on a net basis. NCNG does not recognize a dealer profit or unrealized gain or loss at the inception of a derivative unless the fair value of that instrument, in its entirety, is evidenced by quoted market prices or current market transactions.
Note 2. Acquisitions and Dispositions
On July 15, 1999, the Company was acquired by CP&L for an aggregate purchase price of approximately $364 million, including approximately $3.7 million of merger related costs. As a result of the merger, the former common shareholders of NCNG now own common shares of PGN. The merger was accounted for as a purchase of the Company’s net assets with approximately 8.3 million shares of CP&L Common Stock issued through the conversion of each outstanding NCNG share into .8054 of a share of CP&L Common Stock (fractional shares were paid in cash). Goodwill of approximately $240 million was recorded in connection with the purchase, which represented the excess of the purchase price over the Company’s net assets after fair value adjustments. Effective January 1, 2002, goodwill, which was being amortized on a straight-line basis over 40 years, is no longer subject to amortization over its estimated useful life (See Note 3).
On September 29, 2000, NCNG sold its propane business for $14.3 million. The sale resulted in a pretax gain of $2.4 million.
On October 16, 2002, PGN announced its intention to sell NCNG to Piedmont Natural Gas Company, Inc. for approximately $417.5 in gross proceeds. The sale is expected to close by summer 2003 and must be approved by the NCUC and federal regulatory agencies.
Note 3. Goodwill
Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” This statement clarifies the criteria for recording of other intangible assets separately from goodwill. Effective January 1, 2002, goodwill is no longer subject to amortization over its estimated useful life. Instead, goodwill is subject to at least an annual assessment for impairment by applying a two-step fair-value based test.
In accordance with the provisions of SFAS No. 142, the Company completed the transitional impairment test within six months of adoption, which resulted in a non-cash charge of approximately $52.3 million to reduce the carrying value of goodwill. The initial impairment of $52.3 million is reflected net of tax as a cumulative effect of an accounting change in the consolidated statement of income. In addition, the Company performed the annual impairment test in the third quarter 2002, and recognized an additional goodwill impairment of $126.3 million based on the expected proceeds from the sale of NCNG (See Note 2), which is shown as goodwill impairment on the consolidated statement of income.
A-11
Notes to Consolidated Financial Statements — (Continued)
As required by SFAS No. 142, the results for the prior year periods have not been restated. A reconciliation of net income as if SFAS No. 142 had been adopted is presented below for years ending December 31.
2001 | 2000 | |||||||
(In Thousands) | ||||||||
Reported net income (loss) | $ | 2,868 | $ | 9,915 | ||||
Goodwill amortization (net of tax) | 3,572 | 3,543 | ||||||
Adjusted net income | $ | 6,440 | $ | 13,458 | ||||
Note 4. Related Party Transactions
NCNG participates in an internal money pool, operated by the parent company, PGN, to more effectively utilize cash resources and to reduce outside short-term borrowings. Short-term borrowing needs are met first by available funds of the money pool participants. Borrowing companies pay interest at a rate designed to approximate the cost of outside short-term borrowings. Subsidiaries of PGN, which invest in the money pool, earn interest on a basis proportionate to their average monthly investment. The interest rate used to calculate earnings approximates external interest rates. The weighted-average interest rates associated with such money pool balances were 2.18% and 4.47% at December 31, 2002 and 2001, respectively. Funds may be withdrawn from or repaid to the pool at any time without prior notice. At December 31, 2002, there were no amounts payable to the money pool. At December 31, 2001, NCNG had $3.9 million payable to the money pool, which is included in accounts payable to affiliated companies on the Consolidated Balance Sheets. The Company recorded interest income on money pool lending totaling $0.2 million during 2002 and interest expense on money pool borrowings totaling $0.1 million, $1.9 million and $0.4 million during 2002, 2001 and 2000, respectively. In December 2001, PGN converted $50 million in money pool debt to an equity investment in NCNG.
During the years ended December 31, 2002, 2001 and 2000, gas sales from NCNG to CP&L and Florida Power Corporation (an affiliated company) totaled $19.5 million, $18.8 million and $5.9 million, respectively.
During 2000, PGN formed Progress Energy Service Company, LLC (PESC) to provide specialized services, at cost, to PGN and its subsidiaries, as approved by the SEC. NCNG has an agreement with PESC under which services, including purchasing, accounting, treasury, tax, marketing, legal and human resources are rendered to NCNG at cost. Amounts billed to NCNG by PESC for these services during 2002 and 2001 totaled $16.3 million and $15.1 million, respectively. NCNG was not billed for these services in 2000 because an amount was not determinable.
At December 31, 2002 and 2001, NCNG had payables of $14.6 million and $30.5 million, respectively, to PGN and its subsidiaries that are included in accounts payable to affiliated companies on the Consolidated Balance Sheets. Receivables from PGN and its subsidiaries totaled $3.6 million in 2002 and 2001. These receivables are included in accounts receivable from affiliated companies on the Consolidated Balance Sheets.
On December 15, 2001, NCNG restructured its $150.0 million line of credit with PGN. At December 31, 2002 and 2001, there was $150.0 million outstanding under this line of credit at an interest rate of 6.425%.
A-12
Notes to Consolidated Financial Statements — (Continued)
Note 5. Regulatory Matters
A. Regulatory Assets and Liabilities
As a regulated entity, NCNG is subject to the provisions of SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.” Accordingly, NCNG records certain assets and liabilities resulting from the effects of the ratemaking process, which would not be recorded under generally accepted accounting principles for unregulated entities.
At December 31, 2002 and 2001, the balances of the Company’s regulatory assets (liabilities) were as follows:
2002 | 2001 | ||||||||
(In Thousands) | |||||||||
Loss on reacquired debt | $ | 2,803 | $ | 3,282 | |||||
Environmental costs | 4,447 | 4,343 | |||||||
Deferred gas | (13,860 | ) | (4,506 | ) | |||||
Income taxes recoverable through future rates | (1,382 | ) | (1,640 | ) | |||||
Total | $ | (7,992 | ) | $ | 1,479 | ||||
All regulatory assets included in the table above earn a return.
The Company monitors the regulatory and competitive environment in which it operates to determine that regulatory assets continue to be probable of recovery. At some point in the future, if it is determined that all or a portion of these regulatory assets no longer meet the criteria for continued application of SFAS No. 71, then the Company would be required to write-off that portion which it could not recover, net of any regulatory liabilities which would be deemed no longer necessary.
B. Retail Rate Matters
On October 27, 1995, the NCUC issued its Order granting a general rate increase amounting to approximately $4.2 million in annual revenues effective November 1, 1995. The Order provided for a rate of return on net investment of 10.09% but, pursuant to the Stipulation of Settlement, did not state separately the rate of return on common equity or the capital structure used to calculate revenue requirements. The Order provided for significant rate design changes by increasing residential and commercial rates while reducing industrial sales and transportation rates to recognize, among other things, the differences in costs of servicing the various customer classes. The Order also established several new rate schedules, including an economic development rate to assist in attracting new industry to the Company’s service area and a rate to provide standby, on-peak gas supply service to industrial and other customers whose gas service would otherwise be interrupted. In conjunction with the acquisition by CP&L, NCNG signed a stipulation agreement with the Public Staff of the NCUC in which the Company agreed to cap margin rates for gas sales and transportation service, with limited exceptions, through November 1, 2003. Management is of the opinion that this agreement will not impair the Company’s ability to recover prudent costs through rates and will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.
As part of the October 27, 1995, Rate Order, the NCUC approved continued use of the Weather Normalization Adjustment (WNA) for the space-heating market, originally approved in the
A-13
Notes to Consolidated Financial Statements — (Continued)
December 6, 1991 Rate Order. The WNA stabilizes the Company’s winter revenues and customers’ bills by adjusting rates when weather deviates from normal. The non-gas component of rates for space heating customers is adjusted upward when weather is warmer than normal and downward when weather is colder than normal. The WNA increased net billings to customers by $2.4 million, $1.6 million and $0.9 million for 2002, 2001 and 2000, respectively.
Also as a part of the October 27, 1995 Rate Order, the NCUC approved establishment of the Price Sensitive Volume Adjustment (PSVA). The PSVA protects the Company against loss of load from eight large, fuel-switchable customers using heavy fuel oil as an alternative fuel, while providing that all actual margins earned on deliveries of gas to such customers should be flowed through to all other customers. This mechanism was modified as part of the rate rebalancing agreement described below to reflect a sharing of the margin earned between the Company and its customers.
The Company defers reasonable costs in connection with the investigation and remediation of former manufactured gas plant (MGP) sites. As a part of the October 27, 1995 Rate Order, the NCUC approved the accounting for and recovery in rates of costs associated with environmental assessments and remediation of a former MGP in Kinston, North Carolina. The NCUC found that NCNG acted in a reasonable and prudent manner, and, accordingly, approved the Company’s proposal to recover an annualized amount of MGP costs based on amounts expended, net of recoveries from third parties.
In February 2002, NCNG filed a general rate case with the NCUC requesting an annual rate increase of $47.6 million. On May 3, 2002, NCNG withdrew the application, based upon the NCUC Public Staff’s and other parties’ interpretation of the order approving the merger of CP&L and NCNG that such a case was not permitted until 2003. On May 16, 2002, NCNG filed a request to increase its margin rates and rebalance its rates with the NCUC, requesting an annual rate increase of $4.1 million to recover costs associated with specific system improvements. On September 23, 2002, the NCUC issued its order approving the $4.1 million rate increase. The rate increase was effective October 1, 2002.
In February 1993, the NCUC issued its Order establishing an Expansion Fund for the Company to be funded initially by refunds the Company had received from its pipeline suppliers. The Expansion Fund provides financing for the extension of natural gas service into areas that otherwise would not be economically feasible to serve. These refunds, along with interest thereon, are periodically remitted to the NCUC. The balance not yet remitted is included in other current assets.
In April 1998, the Company filed an application with the NCUC to extend its pipeline 38 miles to provide natural gas service to Bertie and Martin Counties using the Fund. In July 1998, the Company filed an amendment to extend this project an additional six miles to Robersonville in Martin County. The amended main extension project would run approximately 44 miles from Ahoskie to Robersonville and cost $12.6 million. The negative net present value of the project requested from the Fund was $7.5 million. Hearings were held in September 1998 and a Commission Order was issued in November 1998 approving $7.5 million from the Expansion Fund. On July 1, 1999, the Company filed a petition for additional funding of $2.8 million due to the closing of an industrial plant. The NCUC issued an order in October 1999 approving an additional $2.8 million from the Expansion Fund. This line was completed in December 2000 at a total cost of $12.2 million.
In August 2000, the Company filed an application with the NCUC to extend its pipelines approximately 12.8 miles to provide natural gas service to Tabor City in Columbus County. The negative net present value of the project requested from the Fund was $3.4 million. Hearings were
A-14
Notes to Consolidated Financial Statements — (Continued)
held in January and February 2001 and a Commission Order was issued in March 2001 approving $3.4 million from the Expansion Fund. This line was completed in the spring of 2002. NCNG filed for and received a reimbursement of $3.1 million in October 2002 and received the balance of $0.3 million in February 2003.
The NCUC’s annual review of the Company’s gas costs for the 12 months ended October 31, 2001 was held in April 2002. The NCUC issued an order on July 2, 2002 approving NCNG’s gas costs and gas purchasing practices for the review period. NCNG requested purchased gas adjustments three times in 2002 for total net increases of $20.1 million, six times in 2001 for net decreases of $56.2 million and five times in 2000 for net increases of $86.5 million.
Both of the Company’s interstate pipeline suppliers, Transcontinental Gas Pipe Line Corporation (Transco) and Columbia Gas Transmission Corporation (Columbia), have ongoing rate and certificate matters under jurisdiction of the Federal Energy Regulatory Commission (FERC). Transco implemented new rates in September 2002 reflecting the settlement of most issues in their general rate case with the remaining issues going to hearing with a resolution expected in 2003. The Company does not expect that any regulatory decisions or court orders will have a material impact on its consolidated financial position, results of operations, or cash flows because all prudently incurred gas costs, including interstate pipeline capacity and storage service costs, are eligible for immediate recovery from the Company’s customers, and refunds from interstate pipelines must be transferred to the Expansion Fund or refunded directly to the Company’s customers.
Note 6. Risk Management & Derivative Activities
The Company may enter into certain forward and option contracts involving physical delivery of gas that reduce exposure to market fluctuations relative to the price and delivery of gas. The gains and/or losses on such contracts were not material during 2002, 2001 and 2000. Also, the Company did not have a material outstanding position in such contracts at December 31, 2002 and 2001.
Note 7. Income Taxes
Deferred income taxes are provided for temporary differences between book and tax basis of assets and liabilities. Investment tax credits related to regulated operations are amortized over the service life of the related property. A regulatory asset or liability has been recognized for the impact of tax expenses or benefits that are recovered or refunded in different periods by the utilities pursuant to rate orders.
A-15
Notes to Consolidated Financial Statements — (Continued)
Net accumulated deferred income tax liabilities at December 31 are:
2002 | 2001 | ||||||||
(In Thousands) | |||||||||
Accelerated depreciation and property cost differences | $ | 37,817 | $ | 33,912 | |||||
Deferred costs | 1,107 | 1,296 | |||||||
Other postretirement benefits | (6,059 | ) | (2,057 | ) | |||||
Other postemployment benefits | (1,409 | ) | (1,209 | ) | |||||
Regulatory liability related to income taxes | (3,834 | ) | (3,834 | ) | |||||
Reserves | (776 | ) | (809 | ) | |||||
Voluntary employee beneficiary association program benefits | (53 | ) | 29 | ||||||
Miscellaneous other temporary differences, net | 379 | (441 | ) | ||||||
Net accumulated deferred income tax liability | $ | 27,172 | $ | 26,887 | |||||
Reconciliations of the Company’s effective income tax rate to the statutory federal income tax rate are:
2002 | 2001 | 2000 | |||||||||||
Effective income tax rate | (1.2 | )% | 56.6 | % | 45.5 | % | |||||||
State income taxes, net of federal benefit | 0.1 | (7.7 | ) | (5.6 | ) | ||||||||
Amortization of investment tax credits | (0.1 | ) | 2.0 | 0.7 | |||||||||
Amortization of excess deferred income taxes | (0.2 | ) | 4.4 | 1.6 | |||||||||
Goodwill amortization | 36.6 | (31.2 | ) | (11.7 | ) | ||||||||
Allowance for funds used during construction | (0.2 | ) | 11.0 | 4.8 | |||||||||
Other differences | — | (0.1 | ) | (0.3 | ) | ||||||||
Statutory federal income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||||||
The provisions for income tax expense before cumulative effect of accounting charge are comprised of:
2002 | 2001 | 2000 | |||||||||||
(In Thousands) | |||||||||||||
Income tax expense (credit): | |||||||||||||
Current — federal | $ | (1,492 | ) | $ | 3,112 | $ | 5,572 | ||||||
state | (434 | ) | 659 | 1,642 | |||||||||
Deferred — federal | 3,113 | (451 | ) | (257 | ) | ||||||||
state | 751 | 4 | 45 | ||||||||||
Investment tax credit | (132 | ) | (132 | ) | (132 | ) | |||||||
Subtotal | 1,806 | 3,192 | 6,870 | ||||||||||
Income taxes charged to non-utility operations — federal | 396 | 451 | 1,541 | ||||||||||
state | (160 | ) | 102 | (133 | ) | ||||||||
Total | $ | 2,042 | $ | 3,745 | $ | 8,278 | |||||||
A-16
Notes to Consolidated Financial Statements — (Continued)
Note 8. Stock Based Compensation
NCNG accounts for stock-based compensation in accordance with the provisions of APB Opinion No. 25, as allowed by SFAS Nos. 123 and 148.
A. Employee Stock Ownership Plan
Progress Energy sponsors the Progress Energy 401(k) Savings and Stock Ownership Plan (401(k)) for which substantially all full-time non-bargaining unit employees and certain part-time non-bargaining employees within participating subsidiaries are eligible. NCNG participates in the 401(k). The 401(k), which has matching and incentive goal features, encourages systematic savings by employees and provides a method of acquiring Progress Energy common stock and other diverse investments. The 401(k), as amended in 1989, is an Employee Stock Ownership Plan (ESOP) that can enter into acquisition loans to acquire Progress Energy common stock to satisfy 401(k) common share needs. Qualification as an ESOP did not change the level of benefits received by employees under the 401(k). Common stock acquired with the proceeds of an ESOP loan is held by the 401(k) Trustee in a suspense account. The common stock is released from the suspense account and made available for allocation to participants as the ESOP loan is repaid. Such allocations are used to partially meet common stock needs related to Progress Energy matching and incentive contributions and/or reinvested dividends.
There were 4,616,400 and 5,199,388 ESOP suspense shares at December 31, 2002 and 2001, respectively, with a fair value of $200.1 million and $234.1 million, respectively. NCNG’s matching and incentive goal compensation cost under the 401(k) is determined based on matching percentages and incentive goal attainment as defined in the plan. Such compensation cost is allocated to participants’ accounts in the form of Progress Energy common stock, with the number of shares determined by dividing compensation cost by the common stock market value at the time of allocation. The 401(k) common stock share needs are met with open market purchases and with shares released from the ESOP suspense account. NCNG’s matching and incentive cost met with shares released from the suspense account totaled approximately $0.4 million for the year ended December 31, 2002 and $0.2 million for the years ended December 31, 2001 and 2000, respectively.
B. Stock Option Agreements
Pursuant to Progress Energy’s 1997 Equity Incentive Plan, Amended and Restated as of September 26, 2001, Progress Energy may grant options to purchase shares of common stock to officers and eligible employees. During 2002 and 2001, respectively, approximately 2.9 million and 2.4 million common stock options were granted to officers and eligible employees of Progress Energy. Of this amount, approximately 43,220 and 33,100 were granted to officers and eligible employees of NCNG, respectively. No compensation expense was recognized under the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees and related Interpretations.”
C. Other Stock-Based Compensation Plans
Progress Energy has additional compensation plans for officers and key employees that are stock-based in whole or in part. NCNG participates in these plans. The two primary active stock-based compensation programs are the Performance Share Sub-Plan (PSSP) and the Restricted Stock
A-17
Notes to Consolidated Financial Statements — (Continued)
Awards program (RSA), both of which were established pursuant to Progress Energy’s 1997 Equity Incentive Plan.
Under the terms of the PSSP, officers and key employees are granted performance shares on an annual basis that vest over a consecutive three-year period. Each performance share has a value that is equal to, and changes with, the value of a share of Progress Energy’s common stock, and dividend equivalents are accrued on, and reinvested in, the performance shares. The PSSP has two equally weighted performance measures, both of which are based on Progress Energy’s results as compared to a peer group of utilities. Compensation expense is recognized over the vesting period based on the expected ultimate cash payout. Compensation expense is reduced by any forfeitures.
The RSA allows Progress Energy to grant shares of restricted common stock to key employees. The restricted shares vest on a graded vesting schedule over a minimum of three years. There were 6,800 shares of restricted stock outstanding for key employees of NCNG at December 31, 2002 and 2001.
Compensation expense, which is based on the fair value of common stock at the grant date, is recognized over the applicable vesting period and is reduced by forfeitures. NCNG is allocated expense from Progress Energy based on the restricted shares outstanding for NCNG employees. The total amount for NCNG’s other stock based compensation plans was $0.1 million during 2002 and 2001, respectively and $0.2 million during 2000.
Note 9. Postretirement Benefit Plans
A. Pension Benefits
The Company has a noncontributory defined benefit retirement (pension) plan for substantially all full-time employees. The Company also has a supplementary defined benefit pension plan that provides benefits to higher level employees. No additional benefits are being earned under the supplementary plan.
The components of net periodic pension (benefit) cost are:
2002 | 2001 | 2000 | |||||||||||
(In Thousands) | |||||||||||||
Service cost | $ | 501 | $ | 433 | $ | 446 | |||||||
Interest cost | 2,252 | 2,275 | 2,201 | ||||||||||
Expected return on plan assets | (2,906 | ) | (2,889 | ) | (2,823 | ) | |||||||
Amortization of prior service cost | 29 | 22 | 33 | ||||||||||
Recognized net actuarial gain | — | (214 | ) | — | |||||||||
Net periodic pension (benefit) cost | $ | (124 | ) | $ | (373 | ) | $ | (143 | ) | ||||
The weighted-average discount rate used to measure the pension obligation was 6.6% in 2002 and 7.5% in 2001, respectively. The weighted-average rate of increase in future compensation used to measure the pension obligation was 4.0% in 2002, 2001 and 2000. The expected long-term rate of return on pension plan assets used in determining the net periodic pension benefit was 9.25% in 2002, 2001 and 2000.
Prior service costs and benefits are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses in excess of 10.0% of the greater of
A-18
Notes to Consolidated Financial Statements — (Continued)
the pension obligation or the market-related value of assets are amortized over the average remaining service period of active participants.
Reconciliations of the changes in the plans’ benefit obligations and the plans’ funded status is:
2002 | 2001 | |||||||||
(In Thousands) | ||||||||||
Change in benefit obligation | ||||||||||
Benefit obligation at beginning of period | $ | 32,253 | $ | 31,108 | ||||||
Service cost | 501 | 433 | ||||||||
Interest cost | 2,235 | 2,275 | ||||||||
Actuarial (gain) loss | 3,226 | (91 | ) | |||||||
Benefits paid | (1,765 | ) | (1,558 | ) | ||||||
Amendments | — | 86 | ||||||||
Benefit obligation at end of period | 36,450 | 32,253 | ||||||||
Change in plan assets | ||||||||||
Fair value of plan assets at beginning of period | 27,650 | 29,796 | ||||||||
Actual return on plan assets | (3,755 | ) | (716 | ) | ||||||
Employer contributions | 128 | 128 | ||||||||
Benefits paid | (1,766 | ) | (1,558 | ) | ||||||
Fair value of plan assets at end of period | 22,257 | 27,650 | ||||||||
Funded status | (14,193 | ) | (4,603 | ) | ||||||
Unrecognized net actuarial loss (gain) | (10 | ) | 5,097 | |||||||
Unrecognized prior service cost | 14,984 | 19 | ||||||||
Minimum pension liability adjustment | (9,721 | ) | — | |||||||
Prepaid (accrued) pension cost, net | $ | (8,940 | ) | $ | 513 | |||||
The accrued pension cost of $8.9 million at December 31, 2002 is included in other liabilities and deferred credits in the accompanying Consolidated Balance Sheets. The net prepaid pension cost of $0.5 million at December 31, 2001 is recognized in the accompanying Consolidated Balance Sheets as prepaid pension cost of $2.0 million, which is included in other assets and deferred debits, and accrued benefit cost of $1.5 million, which is included in other liabilities and deferred credits. The defined benefit plans with accumulated benefit obligations in excess of plan assets had projected benefit obligations totaling $36.5 million and $1.5 million at December 31, 2002 and 2001, respectively. Those plans had accumulated benefit obligations totaling $31.2 million and $1.5 million, respectively, plan assets totaling $22.3 million at December 31, 2002, and no plan assets at December 31, 2001.
Due to a combination of decreases in the fair value of plan assets and a decrease in the discount rate used to measure the pension obligation, a minimum pension liability adjustment of $9.7 million was recorded at December 31, 2002. This adjustment resulted in a after tax charge of $5.9 million to accumulated other comprehensive loss, a component of common stock equity.
A-19
Notes to Consolidated Financial Statements — (Continued)
B. Retiree Health and Life Insurance Benefits
In addition to pension benefits, the Company provides contributory other postretirement benefits (OPEB), including certain health care and life insurance benefits, for retired employees who meet specified criteria.
The components of net periodic OPEB cost are:
2002 | 2001 | 2000 | |||||||||||
(In Thousands) | |||||||||||||
Service cost | $ | 325 | $ | 353 | $ | 472 | |||||||
Interest cost | 695 | 693 | 668 | ||||||||||
Amortization of prior service cost | 21 | 71 | 107 | ||||||||||
Amortization of transition obligation | 183 | 215 | 237 | ||||||||||
Amortization of actuarial gain | (39 | ) | (23 | ) | (34 | ) | |||||||
Net periodic benefit cost | $ | 1,185 | $ | 1,309 | $ | 1,450 | |||||||
Prior service costs and benefits are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses in excess of 10.0% of the greater of the OPEB obligation or the market-related value of assets are amortized over the average remaining service period of active participants.
Reconciliations of the changes in the plan’s benefit obligations and the plan’s funded status are:
2002 | 2001 | |||||||||
(In Thousands) | ||||||||||
Change in benefit obligation | ||||||||||
Benefit obligation at beginning of period | $ | 9,406 | $ | 10,906 | ||||||
Service cost | 325 | 353 | ||||||||
Interest cost | 695 | 693 | ||||||||
Actuarial loss (gain) | 1,512 | (645 | ) | |||||||
Benefits paid | (513 | ) | (406 | ) | ||||||
Amendments | — | (1,495 | ) | |||||||
Benefit obligation at end of period | 11,425 | 9,406 | ||||||||
Change in plan assets | ||||||||||
Fair value of plan assets at beginning of period | — | — | ||||||||
Employer contributions | 513 | 406 | ||||||||
Benefits paid | (513 | ) | (406 | ) | ||||||
Fair value of plan assets at end of period | — | — | ||||||||
Funded status | (11,425 | ) | (9,406 | ) | ||||||
Unrecognized net actuarial (gain) loss | 3,041 | 1,490 | ||||||||
Unrecognized transition obligation | 1,842 | 2,025 | ||||||||
Unrecognized prior service cost | 147 | 168 | ||||||||
Accrued postretirement benefit liability | $ | (6,395 | ) | $ | (5,723 | ) | ||||
A-20
Notes to Consolidated Financial Statements — (Continued)
The assumptions used to measure the OPEB obligation are:
2002 | 2001 | |||||||
Weighted average discount rate | 6.6 | % | 7.5 | % | ||||
Initial medical cost trend rate for pre-Medicare benefits | 7.5 | % | 7.5 | % | ||||
Initial medical cost trend rate for post-Medicare benefits | 7.5 | % | 7.5 | % | ||||
Ultimate medical cost trend rate | 5.25 | % | 5.0 | % | ||||
Year ultimate medical cost trend rate is achieved | 2009 | 2008 |
The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have had the following effects for the year ended 2002:
(In Thousands) | ||||
One Percentage Point Increase | ||||
Effect on total of service and interest cost components | $ | 159 | ||
Effect on postretirement benefit obligation | $ | 1,130 |
One Percentage Point Decrease | ||||
Effect on total of service and interest cost components | $ | (137 | ) | |
Effect on postretirement benefit obligation | $ | (1,028 | ) |
Note 10. Commitments and Contingencies:
NCNG is subject to federal, state and local regulations addressing air and water quality, hazardous and solid waste management and other environmental matters.
Various organic materials associated with the production of manufactured gas, generally referred to as coal tar, are regulated under federal and state laws. There are five former manufactured gas plant (MGP) sites to which the Company, with other potentially responsible parties, is participating in investigating and, if necessary, remediating with several regulatory agencies, including, but not limited to, the U.S. Environmental Protection Agency (EPA), and the North Carolina Department of Environment and Natural Resources, Division of Waste Management.
As of December 31, 2002 and 2001, NCNG has accrued approximately $2.8 million and $2.7 million, respectively for remediation costs at these sites. These accruals have been recorded on an undiscounted basis. NCNG measures its liability for these sites based on available evidence including its experience in investigation and remediation of contaminated sites, which also involves assessing and developing cost-sharing arrangements with other potentially responsible parties. NCNG will accrue costs for the sites to the extent its liability is probable and the costs can be reasonably estimated. NCNG does not believe it can provide an estimate of the reasonably possible total remediation costs beyond the accrual because two of the five sites associated with NCNG have not begun investigation activities. Therefore, NCNG cannot currently determine the total costs that may be incurred in connection with the investigation and/or remediation of all sites. The Company cannot predict the outcome of these matters.
NCNG is periodically notified by regulators such as the EPA and various state agencies of their involvement or potential involvement in sites, other than MGP sites, that may require investigation and/or remediation. The Company cannot predict the outcome of these matters.
A-21
Notes to Consolidated Financial Statements — (Continued)
NCNG has filed claims with the Company’s general liability insurance carriers to recover costs arising out of actual or potential environmental liabilities. Some claims have settled and others are still pending. The Company cannot predict the outcome of these matters.
NCNG is engaged in various long-term agreements involving operating leases for office space. Rental expenses on these leases totaled $0.3 million during 2002, 2001 and 2000. Estimated annual payments for these lease agreements are approximately $0.3 million for 2003 through 2007.
The Company is involved in various litigation matters in the ordinary course of business, some of which involve substantial amounts. Where appropriate, accruals have been made in accordance with SFAS No. 5, “Accounting for Contingencies,” to provide for such matters. In the opinion of management, the final disposition of pending litigation would not have a material adverse effect on the Company’s results of operations or financial position.
Note 11. Subsequent Event
In March 2003, the Company filed a request with the NCUC, seeking a $46.9 million increase in natural gas service rates for its customers to be effective November 1, 2003. NCNG is seeking a return on its utility infrastructure investments and the recovery of increased operating costs. The Company cannot predict the outcome of this matter.
A-22
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholder
We have audited the accompanying consolidated balance sheets of North Carolina Natural Gas Corporation and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income and comprehensive income, changes in capitalization and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of the North Carolina Natural Gas Corporation and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 3 to the financial statements, in 2002 the Company changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
April 7, 2003
A-23
We have not authorized anyone to give any information or make any representation about us that is different from, or in addition to, that contained in this prospectus or in any of the materials that we have incorporated by reference into this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to sell, or solicitations of offers to purchase, the securities offered by this document are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document, unless the information specifically indicates that another date applies.
Table of Contents
Page | ||||
About this Prospectus | 2 | |||
Where You Can Find More Information | 2 | |||
Forward-Looking Statements | 3 | |||
The Company | 5 | |||
Use of Proceeds | 6 | |||
Ratio of Earnings to Fixed Charges | 6 | |||
Selected Historical Consolidated Financial Information | 7 | |||
Selected Unaudited Pro Forma Combined Condensed Consolidated Financial Data | 9 | |||
Unaudited Pro Forma Combined Condensed Consolidated Financial Statements | 10 | |||
Securities We May Issue | 17 | |||
Prospectus Supplements | 17 | |||
Description of Debt Securities | 17 | |||
Description of Common Stock | 29 | |||
Description of Stock Purchase Contracts and Stock Purchase Units | 31 | |||
Plan of Distribution | 31 | |||
Legal Opinions | 32 | |||
Experts | 33 | |||
Audited Financial Statements of North Carolina Natural Gas Corporation | A-1 |
Piedmont Natural Gas
PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses to be paid by the Registrant in connection with the sale and distribution of the Debt Securities being registered hereby, other than underwriting or broker dealer fees, discounts and commissions. All amounts are estimated except for the Securities Act registration fee.
Securities Act registration fee | $ | 40,450 | |||
Printing and engraving | 20,000 | ||||
Legal fees and expenses | 110,000 | ||||
Accounting fees and expenses | 100,000 | ||||
Rating agency fees | 82,000 | ||||
Blue Sky fees and expenses | 5,000 | ||||
Trustee’s Fees and Expenses | 3,500 | ||||
Miscellaneous expenses | 7,500 | ||||
Total | $ | 368,450 | |||
Item 15. Indemnification Of Directors And Officers
Sections 55-8-50 through 55-8-58 of the North Carolina Business Corporation Act and our By-Laws permit indemnification of our directors and officers in a variety of circumstances, which may include liabilities under the Securities Act of 1933, as amended (the “Securities Act”).
In addition, we have purchased insurance, permitted by the law of North Carolina, which is designed to protect us in the event we are required to pay any amounts to our directors and officers as indemnification against loss arising from certain civil claims, including certain claims under the Securities Act, which might be made against our officers and directors by reason of any alleged breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted, while acting in their respective capacities as our directors or officers.
Our Articles of Incorporation provide that a director shall not be personally liable for monetary damages for breach of fiduciary duty as a director except to the extent such exemption from liability or limitation thereof is not permitted under the North Carolina Business Corporation Act.
Reference is made to the forms of Underwriting Agreement and Agency Agreement filed as Exhibits 1.1, 1.2 and 1.3 hereto which contain provisions for indemnification of us, our directors, officers and any controlling persons by underwriters against certain liabilities for information furnished by such underwriters expressly for use in this Registration Statement and Post-Effective Amendment No. 1.
Item 16. List of Exhibits
See “Index to Exhibits” on page II-5.
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Item 17. Undertakings
A. Undertaking Related to Rule 415 Offering:
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; | |
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. | |
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; | |
provided, however,That paragraphs (a)1(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. |
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
B. | Undertaking Related to Filings Incorporating Subsequent Exchange Act Documents by Reference: |
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of our annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
C. Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 15 above or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement and Post-Effective Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Charlotte, State of North Carolina, on the 19th day of June, 2003.
PIEDMONT NATURAL GAS COMPANY, INC. |
By: | /s/ THOMAS E. SKAINS |
Thomas E. Skains, | |
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement and Post-Effective Amendment No. 1 have been signed by the following persons in the capacities and on the dates indicated.
Signatures | Title | Date | ||||
/s/ THOMAS E. SKAINS Thomas E. Skains | Director, President and Chief Executive Officer | June 19, 2003 | ||||
/s/ DAVID J. DZURICKY David J. Dzuricky | Senior Vice President and Chief Financial Officer (Principal Financial Officer) | June 19, 2003 | ||||
/s/ BARRY L. GUY Barry L. Guy | Vice President and Controller (Principal Accounting Officer) | June 19, 2003 | ||||
/s/ JERRY W. AMOS Jerry W. Amos | Director | June 19, 2003 | ||||
/s/ C.M. BUTLER III C.M. Butler III | Director | June 19, 2003 | ||||
/s/ D. HAYES CLEMENT D. Hayes Clement | Director | June 19, 2003 | ||||
/s/ MALCOLM E. EVERETT III Malcolm E. Everett III | Director | June 19, 2003 | ||||
/s/ JOHN W. HARRIS John W. Harris | Director | June 19, 2003 | ||||
/s/ AUBREY B. HARWELL, JR. Aubrey B. Harwell, Jr. | Director | June 19, 2003 | ||||
/s/ MURIEL W. HELMS Muriel W. Helms | Director | June 19, 2003 | ||||
/s/ DONALD W. RUSSELL Donald S. Russell | Director | June 19, 2003 | ||||
/s/ JOHN E. SIMKINS John E. Simkins | Director | June 19, 2003 |
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INDEX TO EXHIBITS
1.1 | — | Form of Underwriting Agreement (Debt).* | ||
1.2 | — | Form of Underwriting Agreement (Equity).* | ||
1.3 | — | Form of Agency Agreement. | ||
4.1 | — | Indenture dated as of April 1, 1993, between Piedmont Natural Gas Company, Inc., and Citibank, N.A., as Trustee (incorporated by reference to Exhibit 4.1 of the Company’s Form S-3 Registration Statement No. 33-59369 filed on August 9, 1995). | ||
4.2 | — | First Supplemental Indenture dated as of February 25, 1994, between PNG Acquisition Company, Piedmont Natural Gas Company, Inc., and Citibank, N.A., as Trustee (incorporated by reference to Exhibit 4.2 of the Company’s Form S-3 Registration Statement No. 33-59369 filed on August 9, 1995). | ||
4.3 | — | Second Supplemental Indenture dated as of June 15, 2003, between Piedmont Natural Gas Company, Inc. and Citibank, N.A., as Trustee. | ||
4.4 | — | Form of Debt Security.* | ||
4.5 | — | Form of Master Global Note (incorporated by reference to Exhibit 4.4 of the Company’s Form S-3 Registration Statement No. 333-62222 filed on June 4, 2001). | ||
4.6 | — | Copy of Articles of Incorporation of the Company, filed with the North Carolina Secretary of State on December 14, 1993 (incorporated by reference to Exhibit 2 of the Company’s Form 8-B filed on March 2, 1994). | ||
4.7 | — | Copy of Certificate of Merger (New York) and Articles of Merger (North Carolina), each dated March 1, 1994, evidencing merger of Piedmont Natural Gas Company, Inc., with and into PNG Acquisition Company, with PNG Acquisition Company being renamed “Piedmont Natural Gas Company, Inc.” (incorporated by reference to Exhibits 3.2 and 3.1 of the Company’s Form 8-B filed on March 2, 1994). | ||
4.8 | — | By-Laws of the Company, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q for the quarterly period ended January 31, 2002). | ||
4.9 | — | Copy of Rights Agreement dated as of February 27, 1998, between the Company and Wachovia Bank, N.A., as Rights Agent, including the Rights Certificate (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated February 27, 1998). | ||
4.10 | — | Specimen Common Stock Certificate (incorporated by reference to Exhibit 3.3 of the Company’s Registration Statement on Form 8-B dated March 2, 1994). | ||
5.1 | — | Opinion of Nelson, Mullins, Riley & Scarborough, L.L.P., regarding legality of securities being registered. | ||
12.1 | — | Computation of Ratio of Earnings to Fixed Charges (incorporated by reference to Exhibit 12 of the Company’s Form 10-Q for the quarterly period ended April 30, 2003). | ||
23.1 | — | Consent of Nelson, Mullins, Riley & Scarborough, L.L.P. (included in Exhibit 5.1). | ||
23.2 | — | Independent Auditors’ Consent. | ||
23.3 | — | Independent Auditors’ Consent. | ||
25.1 | — | Statement of Eligibility of Trustee on Form T-1. |
* | The Company will file any forms of securities and underwriting agreements not previously so filed in a Current Report on Form 8-K. |
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