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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 1-6196
Piedmont Natural Gas Company, Inc.
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(Exact name of registrant as specified in its charter)
North Carolina 56-0556998
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1915 Rexford Road, Charlotte, North Carolina 28211
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-364-3120
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 3, 2000
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Common Stock, no par value 31,499,642
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
--------------------------------------------------------
January 31, October 31,
2000 1999
Unaudited Audited
---------- ----------
ASSETS
Utility Plant, at original cost $1,450,030 $1,441,322
Less accumulated depreciation 429,454 420,140
---------- ----------
Utility plant, net 1,020,576 1,021,182
---------- ----------
Other Physical Property (net of accumulated
depreciation of $19,452 in 2000 and $18,967 in 1999) 25,543 25,793
---------- ----------
Current Assets:
Cash and cash equivalents 10,520 6,174
Restricted cash 40,556 40,156
Receivables (less allowance for doubtful
accounts of $1,678 in 2000 and $864 in 1999) 120,506 32,106
Receivables from affiliate 22,629 22,354
Gas in storage 38,289 48,685
Deferred cost of gas 32,313 8,267
Refundable income taxes 17,670 17,670
Other 10,708 22,983
---------- ----------
Total current assets 293,191 198,395
---------- ----------
Deferred Charges and Other Assets 60,440 43,287
---------- ----------
Total $1,399,750 $1,288,657
---------- ----------
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 302,514 $ 297,149
Retained earnings 227,869 194,598
---------- ----------
Total common stock equity 530,383 491,747
Long-term debt 423,000 423,000
---------- ----------
Total capitalization 953,383 914,747
---------- ----------
Current Liabilities:
Current maturities of long-term debt and
sinking fund requirements 2,000 2,000
Notes payable 101,500 79,500
Accounts payable 71,964 63,116
Deferred income taxes 19,634 23,002
Income taxes accrued 30,197 0
General taxes accrued 6,508 11,904
Refunds due customers 48,148 26,204
Other 15,067 20,978
---------- ----------
Total current liabilities 295,018 226,704
---------- ----------
Deferred Credits and Other Liabilities 151,349 147,206
---------- ----------
Total $1,399,750 $1,288,657
---------- ----------
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Income (Unaudited)
(in thousands except per share amounts)
------------------------------------------------------
Three Months Twelve Months
Ended Ended
January 31 January 31
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Operating Revenues $268,648 $255,742 $699,376 $707,763
Cost of Gas 151,575 134,186 383,351 386,445
-------- -------- -------- --------
Margin 117,073 121,556 316,025 321,318
-------- -------- -------- --------
Other Operating Expenses:
Operations 26,749 24,678 103,333 104,046
Maintenance 3,950 3,621 15,892 14,957
Depreciation 11,845 10,712 45,264 42,397
General taxes 5,029 9,496 24,997 30,640
Income taxes 23,740 25,543 36,526 37,614
-------- -------- -------- --------
Total other operating expenses 71,313 74,050 226,012 229,654
-------- -------- -------- --------
Operating Income 45,760 47,506 90,013 91,664
Other Income, Net 7,627 1,343 5,194 1,153
-------- -------- -------- --------
Income Before Utility Interest Charges 53,387 48,849 95,207 92,817
Utility Interest Charges 9,293 8,285 33,469 33,189
-------- -------- -------- --------
Net Income $ 44,094 $ 40,564 $ 61,738 $ 59,628
======== ======== ======== ========
Average Shares of Common Stock:
Basic 31,382 30,822 31,154 30,610
Diluted 31,562 31,054 31,371 30,878
Earnings Per Share of Common Stock:
Basic $ 1.41 $ 1.32 $ 1.98 $ 1.95
Diluted $ 1.40 $ 1.31 $ 1.97 $ 1.93
Cash Dividends Per Share
of Common Stock $ 0.345 $ 0.325 $ 1.38 $ 1.30
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Condensed Statements of Consolidated Cash Flows (Unaudited)
(in thousands)
----------------------------------------------------
Three Months Twelve Months
Ended Ended
January 31 January 31
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
Cash Flows from Operating Activities:
Net income $ 44,094 $ 40,564 $ 61,738 $ 59,628
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,762 11,713 48,966 46,318
Other, net 716 1,883 96 2,395
Change in operating assets and liabilities (48,367) (58,963) (65,189) (17,218)
-------- -------- -------- --------
Net cash provided by (used in) operating activities 9,205 (4,803) 45,611 91,123
-------- -------- -------- --------
Cash Flows from Investing Activities:
Utility construction expenditures (19,490) (21,478) (96,588) (95,818)
Other (283) (345) (1,582) (1,147)
-------- -------- -------- --------
Net cash used in investing activities (19,773) (21,823) (98,170) (96,965)
-------- -------- -------- --------
Cash Flows from Financing Activities:
Increase in bank loans, net 22,000 32,000 37,500 34,000
Issuance of long-term debt -- -- 90,000 --
Retirement of long-term debt -- -- (46,000) (10,000)
Issuance of common stock through dividend
reinvestment and employee stock plans 3,736 3,675 15,801 15,123
Dividends paid (10,822) (10,014) (42,977) (39,780)
-------- -------- -------- --------
Net cash provided by (used in)
financing activities 14,914 25,661 54,324 (657)
-------- -------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 4,346 (965) 1,765 (6,499)
Cash and Cash Equivalents at Beginning
of Period 6,174 9,720 8,755 15,254
-------- -------- -------- --------
Cash and Cash Equivalents at End of Period $ 10,520 $ 8,755 $ 10,520 $ 8,755
======== ======== ======== ========
Cash Paid During the Period for:
Interest $ 13,518 $ 11,343 $ 34,822 $ 33,077
Income taxes $ 1,639 $ 1,733 $ 49,744 $ 46,357
See notes to condensed consolidated financial statements.
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PIEDMONT NATURAL GAS COMPANY, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Independent auditors have not audited the condensed consolidated
financial statements. These financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements included
in our 1999 Annual Report.
2. In our opinion, the unaudited condensed consolidated financial
statements include all normal recurring adjustments necessary for a fair
statement of financial position at January 31, 2000, and October 31,
1999, and the results of operations and cash flows for the three months
and twelve months ended January 31, 2000 and 1999.
We make estimates and assumptions when preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from our estimates.
3. Our business is seasonal in nature. The results of operations for the
three-month period ended January 31, 2000, do not necessarily reflect the
results to be expected for the full year.
4. Basic earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding for the
period. Diluted earnings per share reflect the potential dilution that
could occur when common stock equivalents are added to common shares
outstanding. Shares that may be issued under the long-term incentive plan
are our only common stock equivalents. A reconciliation of basic and
diluted earnings per share is shown below:
Three Months Twelve Months
Ended Ended
January 31 January 31
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
(in thousands except per share amounts)
Net Income $44,094 $40,564 $61,738 $59,628
======= ======= ======= =======
Average shares of common stock
outstanding for basic earnings per share 31,382 30,822 31,154 30,610
Contingently issuable shares under the
long-term incentive plan 180 232 217 268
------- ------- ------- -------
Average shares of dilutive stock 31,562 31,054 31,371 30,878
======= ======= ======= =======
Earnings Per Share:
Basic $ 1.41 $ 1.32 $ 1.98 $ 1.95
Diluted $ 1.40 $ 1.31 $ 1.97 $ 1.93
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5. Business Segments
We have one reportable business segment, domestic natural gas
distribution. This business is conducted by the parent company and two
wholly owned subsidiaries, 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 a natural gas
pipeline. Piedmont Interstate is a member of Pine Needle LNG Company,
L.L.C., which owns a liquified natural gas peak-demand storage facility.
All of our other activities are conducted by wholly owned subsidiaries,
Piedmont Propane Company and Piedmont Energy Company. Piedmont Propane
markets propane and propane appliances to residential, commercial and
industrial customers. Piedmont Energy has an equity interest in SouthStar
Energy Services LLC which offers a combination of unregulated energy
products and services to industrial, commercial and residential customers
in the southeastern United States.
Performance is evaluated based on margin, operations and maintenance
expenses, operating income and income before taxes. There have been no
changes in the basis of segmentation or in the basis of measurement of
segment profit or loss from that reported in our audited financial
statements for the year ended October 31, 1999.
Continuing operations by segment for the three months ended January 31,
2000 and 1999, are presented below:
Domestic
Natural Gas
Distribution Other Total
------------ ----- -----
2000 (in thousands)
----
Revenues from external customers $268,648 $ 15,221 $ 283,869
Margin 117,073 6,595 123,668
Operations and maintenance expenses 30,699 2,365 33,064
Operating income 45,734 3,506 49,240
Other income 2,006 6,907 8,913
Income before income taxes 62,194 10,634 72,828
Capital expenditures 20,609 258 20,867
1999
----
Revenues from external customers $255,742 $ 10,908 $ 266,650
Margin 121,556 5,919 127,475
Operations and maintenance expenses 28,299 2,441 30,740
Operating income 47,489 2,683 50,172
Other income 820 (1,161) (341)
Income before income taxes 65,567 1,422 66,989
Capital expenditures 22,299 345 22,644
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A reconciliation of net income in the consolidated financial statements
for the three months ended January 31, 2000 and 1999, is presented below:
2000 1999
------- -------
(in thousands)
Income before income taxes for reportable segments $62,194 $65,567
Income before income taxes for other non-utility activities 10,634 1,422
Income taxes 28,734 26,425
------- -------
Net income $44,094 $40,564
======= =======
A reconciliation of consolidated assets in the consolidated financial
statements as of January 31, 2000 and October 31, 1999, is presented
below:
2000 1999
----------- -----------
(in thousands)
Domestic natural gas operations $ 1,408,638 $ 1,304,453
Other 71,723 59,997
Eliminations/Adjustments (80,611) (75,793)
----------- -----------
Consolidated assets $ 1,399,750 $ 1,288,657
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
Our discussion contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements concerning plans,
objectives, proposed capital expenditures and future events or performance are
some of the items included in forward-looking statements. 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,
we can give no assurances that these expectations will be achieved. Important
factors that could cause actual results to differ include:
- regulatory issues, including those that affect allowed rates of
return, rate structure and financings,
- industrial, commercial and residential growth in the service
territories,
- deregulation, unanticipated impacts of restructuring and increased
competition in the energy industry,
- the potential loss of large-volume industrial customers due to
bypass or the shift by such customers to special competitive
contracts at lower per unit margins,
- economic and capital market conditions,
- the ability to meet internal performance goals,
- the capital intensive nature of our business, including
development project delays or changes in project costs,
- changes in the availability and price of natural gas,
- changes in demographic patterns and weather conditions and
- changes in environmental requirements and cost of compliance.
Financial Condition
We finance current cash requirements primarily from operating cash flows and
short-term borrowings. Various banks provide lines of credit totaling $75
million for these direct short-term borrowings. We sell common stock and
long-term debt to cover cash requirements when market and other conditions favor
such long-term financing. Our dividend reinvestment and stock purchase plan is
also a source of capital.
The natural gas business is seasonal in nature resulting in fluctuations in
balances in accounts receivable from customers, inventories of stored natural
gas and accounts payable to suppliers. From April 1 to October 31, we build up
natural gas inventories by injecting gas into storage for sale in the colder
months. Inventory of stored gas decreased and accounts payable and accounts
receivable increased from October 31, 1999, to January 31, 2000, due to this
seasonality and the
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demand for gas during the winter season. Most of our annual earnings are
realized in the winter period, which is the first five months of our fiscal
year.
We have a substantial capital expansion program for construction of distribution
facilities, purchase of equipment and other general improvements funded through
sources noted above. The capital expansion program supports our approximately 5%
current annual growth in customer base. Utility construction expenditures for
the three months ended January 31, 2000, were $20.6 million, compared with $22.3
million for the same period in 1999. Utility construction expenditures for the
twelve-month period ended January 31, 2000, were $100.3 million, compared with
$98.8 million for the same period in 1999.
At January 31, 2000, our capitalization consisted of 44% in long-term debt and
56% in common equity.
Results of Operations
We will discuss the results of operations for the three months and twelve months
ended January 31, 2000, compared with similar periods in 1999.
Margin
Margin (operating revenues less cost of gas) for the three months ended January
31, 2000, decreased $4.5 million compared with the same period in 1999 primarily
for the reasons listed below.
- Margin was reduced in North Carolina, effective for bills rendered
after August 1, 1999 (which included volumes delivered in July),
due to the elimination of the gross receipts tax that was
previously included in rates billed to customers. Gross receipts
tax expense in the same amount also acted to reduce general taxes.
- Secondary market volumes decreased from the same period in 1999 by
8.2 million dekatherms, a 61% decrease.
- Regulatory adjustments resulted in margin decreases from the same
period in 1999.
Decreases in margin for the three-month period were partially offset by the
following increases.
- Delivered volumes of natural gas, which we refer to as system
throughput, increased 1.1 million dekatherms over the same period
in 1999, primarily due to increased customer growth and 10% colder
weather than the same period in 1999.
- Weather that was warmer than normal generated operating revenues
of $12.6 million from the weather normalization adjustment (WNA).
The WNA is designed to offset the impact of unusually cold or warm
weather on customer billings and operating margin. The same period
in 1999 reflected increased operating revenues of $10.8 million
from the WNA.
- Greater margin was earned on capacity release transactions.
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Margin for the twelve months ended January 31, 2000, decreased $5.3 million
compared with the same period in 1999 primarily for the reasons listed below.
- Margin was reduced due to the elimination of the gross receipts
tax as noted above.
- Secondary market volumes decreased from the same period in 1999 by
10.9 million dekatherms, a 29% decrease.
- Margin was reduced in South Carolina, effective November 1, 1998,
as ordered by the Public Service Commission of South Carolina
(PSCSC), to eliminate the recovery of demand side management (DSM)
costs included in rates. The amortization of such costs in
operation and maintenance expenses was reversed in the same amount
and recorded as a regulatory asset for recovery in future rates.
Decreases in margin for the twelve-month period were partially offset by the
following increases.
- Weather that was warmer than normal generated operating revenues
of $21.5 million from the WNA. The same period in 1999 reflected
operating revenues of $16.5 million from the WNA.
- System throughput increased by 511,000 dekatherms over the same
period in 1999, primarily due to increased customer growth and 10%
colder weather than the same period in 1999.
Our rate schedules include provisions permitting the recovery of prudently
incurred gas costs. Regulatory commissions in North Carolina and South Carolina
require annual prudence reviews covering a historical twelve-month period;
however, such review is not required in Tennessee.
We revise rates in all three states periodically without formal rate proceedings
to reflect changes in the cost of gas. Charges to cost of gas are based on the
amount recoverable under approved rate schedules. The net of any over- or
under-recoveries of gas costs are added to or deducted from cost of gas and
included in refunds due customers in the consolidated financial statements.
Operations and Maintenance Expenses
Operations and maintenance expenses for the three months ended January 31, 2000,
compared with the same period in 1999 increased by $2.4 million primarily for
the reasons listed below.
- Increase in payroll,
- Increase in transportation expense,
- Increase in rents and leases,
- Increase in the provision for uncollectibles,
- Increase in advertising expense and
- Increase in office supplies and expense.
Decreases in materials expense and outside labor expense partially offset these
increases for the three months ended January 31, 2000, compared with the same
period in 1999.
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Operations and maintenance expenses for the twelve months ended January 31,
2000, compared with the same period in 1999 increased by $222,000 primarily for
the reasons listed below.
- Increase in outside labor expense and
- Increase in advertising expense.
Increases in operations and maintenance expenses for the twelve-month period
were partially offset by the following decreases.
- Decrease in risk insurance expense,
- Decrease in employee benefits expense and
- Decrease in materials expense.
General Taxes
General taxes for the three months ended January 31, 2000, compared with the
same period in 1999 decreased by $4.5 million primarily for the reasons listed
below.
- Elimination of the gross receipts tax in North Carolina as noted
above,
- Decrease in payroll taxes and
- Decrease in property taxes.
An increase in franchise tax expense partially offset these decreases for the
three months ended January 31, 2000, compared with the same period in 1999.
General taxes for the twelve months ended January 31, 2000, compared with the
same period in 1999 decreased by $5.6 million primarily due to the elimination
of the gross receipts tax in North Carolina. Increases in franchise taxes and
payroll taxes partially offset this decrease.
Other Income
Other income for the three months ended January 31, 2000, compared with the same
period in 1999 increased by $6.3 million. The primary reasons for these
increases are listed below.
- Increase in earnings from unregulated retail energy marketing
services,
- Increase in earnings from propane operations,
- Increase in earnings from non-utility LNG operations and
- Increase in pipeline operations.
Other income for the twelve months ended January 31, 2000, compared with the
same period in 1999 increased by $4 million. The primary reasons for these
increases are listed below.
- Increase in earnings from unregulated retail energy marketing
services,
- Increase in earnings from non-utility LNG operations,
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- Increase in earnings from pipeline operations and
- Increase in the portion of the allowance for funds used during
construction attributable to equity funds.
Increases in other income for the twelve-month period were partially offset by
decreases in earnings from jobbing operations and interest income.
Utility Interest Charges
Utility interest charges for the three months and twelve months ended January
31, 2000, compared with the same periods in 1999 increased by $1 million and
$280,000, respectively. The primary reasons for these increases are listed
below.
- Increase in interest on long-term debt from higher amounts of debt
outstanding and
- Increase in interest on short-term debt due to higher amounts of
debt outstanding at slightly higher interest rates.
Increases in utility interest charges for the three-month and twelve-month
periods were partially offset by the following decreases.
- Decrease in interest on refunds due customers from lower balances
outstanding during the periods and
- Increase in the portion of the allowance for funds used during
construction attributable to borrowed funds.
Year 2000
During the Year 2000 transition weekend of December 31, 1999 through January 3,
2000, our personnel conducted extensive tests of embedded systems, technical
infrastructure and applications. We did not discover any incidents of Year 2000
malfunctions based upon this testing and we believe that the risks of any future
impacts to our business are minimal. In addition, no significant Year 2000
related issues have been discovered to date.
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
We held our Annual Meeting of Shareholders on February 25, 2000, to elect four
directors and to ratify the selection of independent auditors. The record date
for determining the shareholders entitled to receive notice of and to vote at
the meeting was January 13, 2000. We solicited proxies for the meeting according
to section 14(a) of the Securities and Exchange Act of 1934. There was no
solicitation in opposition to management's solicitations.
Shareholders elected all of management's nominees for director as listed in the
proxy statement for terms expiring in 2003 by the following votes:
Shares Shares Shares
Voted Voted NOT
FOR WITHHELD VOTED
------ -------- ------
C. M. Butler III 26,222,679 343,196 4,806,341
Sam J. DiGiovanni* 26,225,971 339,904 4,806,341
John W. Harris 26,234,288 331,587 4,806,341
Ware F. Schiefer 26,237,063 328,812 4,806,341
*As reported in the proxy statement, Mr. DiGiovanni has agreed to resign from
the Board effective at the 2001 annual meeting of shareholders since he will
have attained the mandatory retirement age of 72.
Directors Jerry W. Amos, John H. Maxheim and Walter S. Montgomery, Jr., continue
to hold office until 2001. Directors Muriel W. Helms, Ned R. McWherter, Donald
S. Russell, Jr., and John E. Simkins, Jr., will continue to hold office until
2002.
Shareholders approved the selection by the Board of Directors of the firm of
Deloitte & Touche LLP as our independent auditors for the fiscal year ending
October 31, 2000, by the following vote:
Shares Shares Shares Shares
Voted Voted Voted NOT
FOR AGAINST ABSTAINING VOTED
------ ------- ---------- ------
26,354,163 104,582 107,130 4,806,341
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Item 5. Other Information
Rate Proceedings
In December 1999, we filed with the Tennessee Regulatory Commission (TRA) for a
general rate increase of $10.7 million annually. A hearing date has not been set
at this time.
On March 1, 2000, we filed with the North Carolina Utilities Commission a letter
of intent to file for a general rate increase. The amount of proposed increase
has not been determined.
Corporate Organization
On February 25, 2000, the Board of Directors elected Ware F. Schiefer, President
and Chief Executive Officer. Prior to his election, he was President and Chief
Operating Officer. John H. Maxheim retired on February 29, 2000, as Chief
Executive Officer but retains the title of Chairman of the Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
3.1 By-Laws of the Company, as amended, dated February 25,
2000.
10.1 Consulting Agreement between the Company and John H.
Maxheim, dated March 1, 2000.
12 Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule (for Securities and Exchange
Commission use only).
(b) Reports on Form 8-K -
On February 22, 2000, we filed a Form 8-K to announce that we entered
into an agreement to form a joint venture which combines our propane
operations with the propane operations of three other companies. For
us, certain aspects of this transaction are subject to approval by the
North Carolina Utilities Commission. The participating companies expect
the transaction to be completed by May 1, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Piedmont Natural Gas Company, Inc.
----------------------------------
(Registrant)
Date March 10, 2000 /s/ David J. Dzuricky
-------------- ----------------------------------
David J. Dzuricky
Senior Vice President-Finance
(Principal Financial Officer)
Date March 10, 2000 /s/ Barry L. Guy
-------------- ----------------------------------
Barry L. Guy
Vice President and Controller
(Principal Accounting Officer)
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