UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C.
20549
Form 10-K
|
|
|
(Mark One)
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
October 31, 2007
|
Or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission file number 1-6196
Piedmont Natural Gas Company,
Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
North Carolina
|
|
56-0556998
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
4720 Piedmont Row Drive,
Charlotte, North Carolina
|
|
28210
(Zip Code)
|
(Address of principal executive
offices)
|
|
|
Registrants telephone number, including area code
(704) 364-3120
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
|
Common Stock, no par value
|
|
New York Stock Exchange
|
Indicate by check mark if the registrant is a well-known
seasoned issuer as defined in Rule 405 of the securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to section 13 or 15 (d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Act. (Check one):
Large accelerated
filer
þ
Accelerated
filer
o
Non-accelerated
filer
o
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
State the aggregate market value of the voting common equity
held by non-affiliates of the registrant as of April 30,
2007.
Common
Stock, no par value $1,931,426,121
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
|
|
|
Class
|
|
Outstanding at December 20, 2007
|
|
Common Stock, no par value
|
|
73,233,664
|
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of
Shareholders on March 6, 2008, are incorporated by
reference into Part III.
Piedmont
Natural Gas Company, Inc.
2007
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
Piedmont Natural Gas Company, Inc. (Piedmont) was incorporated
in New York in 1950 and began operations in 1951. In 1994, we
merged into a newly formed North Carolina corporation with the
same name for the purpose of changing our state of incorporation
to North Carolina.
Piedmont is an energy services company primarily engaged in the
distribution of natural gas to over one million residential,
commercial and industrial customers in portions of North
Carolina, South Carolina and Tennessee, including 62,000
customers served by municipalities who are our wholesale
customers. We are also invested in joint venture, energy-related
businesses, including unregulated retail natural gas marketing,
interstate natural gas storage and intrastate natural gas
transportation.
In the Carolinas, our service area is comprised of numerous
cities, towns and communities. We serve Anderson, Gaffney,
Greenville and Spartanburg in South Carolina and Charlotte,
Salisbury, Greensboro, Winston-Salem, High Point, Burlington,
Hickory, Indian Trail, Spruce Pine, Reidsville, Fayetteville,
New Bern, Wilmington, Tarboro, Elizabeth City, Rockingham and
Goldsboro in North Carolina. In North Carolina, we also provide
wholesale natural gas service to Greenville, Monroe, Rocky Mount
and Wilson. In Tennessee, our service area is the metropolitan
area of Nashville, including wholesale natural gas service to
Gallatin and Smyrna.
We have two reportable business segments, regulated utility and
non-utility activities. Operations of our non-utility activities
segment are comprised of our equity method investments in joint
ventures. Operations of both segments are conducted within the
United States of America. For further information on equity
method investments and business segments, see Note 11 and
Note 12, respectively, to the consolidated financial
statements.
Operating revenues shown in the consolidated statements of
income represent revenues from the regulated utility segment.
The cost of purchased gas is a component of operating revenues.
Increases or decreases in purchased gas costs from suppliers are
passed on to customers through purchased gas adjustment
procedures. Therefore, our operating revenues are impacted by
changes in gas costs as well as by changes in volumes of gas
sold and transported. For the year ended October 31, 2007,
44% of our operating revenues were from residential customers,
24% from commercial customers, 14% from large volume customers,
including industrial, power generation and resale customers and
18% from secondary market activities. Operations of the
non-utility activities segment are included in the consolidated
statements of income in Income from equity method
investments.
Our utility operations are regulated by the North Carolina
Utilities Commission (NCUC), the Public Service Commission of
South Carolina (PSCSC) and the Tennessee Regulatory Authority
(TRA) as to rates, service area, adequacy of service, safety
standards, extensions and abandonment of facilities, accounting
and depreciation. We are regulated by the NCUC as to the
issuance of securities. We are subject to or affected by various
federal regulations. These federal regulations include
regulations that are particular to the natural gas industry,
such as regulations of the Federal Energy Regulatory Commission
(FERC) that affect the availability of and the prices paid for
the interstate transportation and storage of natural gas,
regulations of the Department of Transportation that affect the
construction, operation, maintenance, integrity and safety of
natural gas distribution and transmission systems, and
regulations of the Environmental Protection Agency relating to
the use and release into the environment of hazardous wastes. In
addition, we are subject to numerous regulations, such as those
relating to employment practices, which are generally applicable
to companies doing business in the United States of America.
We hold non-exclusive franchises for natural gas service in the
communities we serve, with expiration dates from 2007 to 2056.
The franchises are adequate for the operation of our gas
distribution business and do not contain materially burdensome
restrictions or conditions. Eleven franchise agreements have
expired as of October 31, 2007, and ten will expire during
the 2008 fiscal year. We continue to operate in those areas
pursuant to the provisions of the expired franchises with no
significant impact on our business. The likelihood
1
of cessation of service under an expired franchise is remote. We
believe that these franchises will be renewed or service
continued in the ordinary course of business with no material
adverse impact on us, as most government entities do not want to
prevent their citizens from having access to gas service or to
interfere with our required system maintenance.
The natural gas distribution business is seasonal in nature as
variations in weather conditions generally result in greater
revenues and earnings during the winter months when temperatures
are colder. For further information on weather sensitivity and
the impact of seasonality on working capital, see
Financial Condition and Liquidity in Item 7 of
this
Form 10-K.
As is prevalent in the industry, we inject natural gas into
storage during the summer months (principally April through
October) when customer demand is lower for withdrawal from
storage during the winter months (principally November through
March) when customer demand is higher. During the year ended
October 31, 2007, the amount of natural gas in storage
varied from 11.9 million dekatherms (one dekatherm equals
1,000,000 BTUs) to 24.2 million dekatherms, and the
aggregate commodity cost of this gas in storage varied from
$93.8 million to $185.1 million.
During the year ended October 31, 2007, 122.3 million
dekatherms of gas were sold to or transported for large volume
customers, including industrial, power generation and resale
customers, compared with 115.1 million dekatherms in 2006.
Deliveries to temperature-sensitive residential and commercial
customers, whose consumption varies with the weather, totaled
83.7 million dekatherms in 2007, compared with
83.6 million dekatherms in 2006. Weather in 2007, as
measured by degree days, was 12% warmer than normal and in 2006
was 6% warmer than normal.
The following is a five-year comparison of operating statistics
for the years ended October 31, 2003 through 2007. The
information presented is not comparable for all periods due to
the acquisitions of North Carolina Natural Gas Corporation
(NCNG) and an equity interest in Eastern North Carolina Natural
Gas Company (EasternNC) effective September 30, 2003, and
the remaining 50% interest of EasternNC effective
October 25, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Operating Revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Transportation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
743,637
|
|
|
$
|
841,051
|
|
|
$
|
686,304
|
|
|
$
|
624,487
|
|
|
$
|
524,933
|
|
Commercial
|
|
|
418,426
|
|
|
|
498,956
|
|
|
|
421,499
|
|
|
|
360,355
|
|
|
|
299,281
|
|
Industrial
|
|
|
190,204
|
|
|
|
205,384
|
|
|
|
215,505
|
|
|
|
179,302
|
|
|
|
112,986
|
|
For Power Generation
|
|
|
29,135
|
|
|
|
22,963
|
|
|
|
16,248
|
|
|
|
18,782
|
|
|
|
3,071
|
|
For Resale
|
|
|
13,907
|
|
|
|
11,342
|
|
|
|
40,122
|
|
|
|
38,074
|
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,395,309
|
|
|
|
1,579,696
|
|
|
|
1,379,678
|
|
|
|
1,221,000
|
|
|
|
942,219
|
|
Secondary Market Sales
|
|
|
308,904
|
|
|
|
337,278
|
|
|
|
373,353
|
|
|
|
301,886
|
|
|
|
273,369
|
|
Miscellaneous
|
|
|
7,079
|
|
|
|
7,654
|
|
|
|
8,060
|
|
|
|
6,853
|
|
|
|
5,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,711,292
|
|
|
$
|
1,924,628
|
|
|
$
|
1,761,091
|
|
|
$
|
1,529,739
|
|
|
$
|
1,220,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Volumes Dekatherms (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System Throughput:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
50,072
|
|
|
|
49,119
|
|
|
|
52,966
|
|
|
|
54,412
|
|
|
|
52,603
|
|
Commercial
|
|
|
33,647
|
|
|
|
34,476
|
|
|
|
36,000
|
|
|
|
35,483
|
|
|
|
33,648
|
|
Industrial
|
|
|
79,266
|
|
|
|
80,490
|
|
|
|
81,102
|
|
|
|
83,957
|
|
|
|
60,054
|
|
For Power Generation
|
|
|
34,096
|
|
|
|
26,099
|
|
|
|
25,591
|
|
|
|
18,580
|
|
|
|
2,396
|
|
For Resale
|
|
|
8,923
|
|
|
|
8,472
|
|
|
|
8,779
|
|
|
|
8,912
|
|
|
|
623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
206,004
|
|
|
|
198,656
|
|
|
|
204,438
|
|
|
|
201,344
|
|
|
|
149,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secondary Market Sales
|
|
|
42,049
|
|
|
|
40,994
|
|
|
|
47,057
|
|
|
|
51,707
|
|
|
|
45,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Number of Retail Customers Billed
(12-month
average):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
835,636
|
|
|
|
815,579
|
|
|
|
792,061
|
|
|
|
771,037
|
|
|
|
657,965
|
|
Commercial
|
|
|
93,472
|
|
|
|
92,692
|
|
|
|
91,645
|
|
|
|
90,328
|
|
|
|
75,924
|
|
Industrial
|
|
|
2,959
|
|
|
|
3,008
|
|
|
|
3,146
|
|
|
|
3,194
|
|
|
|
2,626
|
|
For Power Generation
|
|
|
15
|
|
|
|
12
|
|
|
|
16
|
|
|
|
13
|
|
|
|
5
|
|
For Resale
|
|
|
15
|
|
|
|
19
|
|
|
|
15
|
|
|
|
15
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
932,097
|
|
|
|
911,310
|
|
|
|
886,883
|
|
|
|
864,587
|
|
|
|
736,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Per Residential Customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas Used Dekatherms
|
|
|
59.92
|
|
|
|
60.23
|
|
|
|
66.87
|
|
|
|
70.57
|
|
|
|
79.95
|
|
Revenue
|
|
$
|
889.90
|
|
|
$
|
1,031.23
|
|
|
$
|
866.48
|
|
|
$
|
809.93
|
|
|
$
|
797.81
|
|
Revenue Per Dekatherm
|
|
$
|
14.85
|
|
|
$
|
17.12
|
|
|
$
|
12.96
|
|
|
$
|
11.48
|
|
|
$
|
9.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Gas (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Commodity Costs
|
|
$
|
1,055,600
|
|
|
$
|
1,229,326
|
|
|
$
|
1,226,999
|
|
|
$
|
943,890
|
|
|
$
|
790,118
|
|
Capacity Demand Charges
|
|
|
116,977
|
|
|
|
99,333
|
|
|
|
117,287
|
|
|
|
125,178
|
|
|
|
89,514
|
|
Natural Gas Withdrawn From (Injected Into) Storage, net
|
|
|
(12,815
|
)
|
|
|
15,709
|
|
|
|
(35,151
|
)
|
|
|
(11,116
|
)
|
|
|
(44,069
|
)
|
Regulatory Charges (Credits), net
|
|
|
27,365
|
|
|
|
56,781
|
|
|
|
(47,183
|
)
|
|
|
(16,582
|
)
|
|
|
2,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,187,127
|
|
|
$
|
1,401,149
|
|
|
$
|
1,261,952
|
|
|
$
|
1,041,370
|
|
|
$
|
837,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supply Available for Distribution (dekatherms in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Purchased
|
|
|
143,598
|
|
|
|
140,999
|
|
|
|
155,614
|
|
|
|
163,257
|
|
|
|
143,716
|
|
Transportation Gas
|
|
|
108,355
|
|
|
|
101,414
|
|
|
|
97,959
|
|
|
|
91,795
|
|
|
|
52,895
|
|
Natural Gas Withdrawn From (Injected Into) Storage, net
|
|
|
(1,640
|
)
|
|
|
(197
|
)
|
|
|
856
|
|
|
|
775
|
|
|
|
(2,490
|
)
|
Company Use
|
|
|
(141
|
)
|
|
|
(127
|
)
|
|
|
(133
|
)
|
|
|
(135
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
250,172
|
|
|
|
242,089
|
|
|
|
254,296
|
|
|
|
255,692
|
|
|
|
193,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We purchase natural gas under firm contracts to meet our
design-day
requirements for firm sales customers. These contracts provide
that we pay a reservation fee to the supplier to reserve or
guarantee the availability of gas supplies for delivery. Under
these provisions, absent force majeure conditions, any
disruption of supply deliverability is subject to penalty and
damage assessment against the supplier. We ensure the delivery
of the gas supplies to our distribution system to meet the peak
day, seasonal and annual needs of our firm customers by using a
variety of firm transportation and storage capacity contracts.
The pipeline capacity contracts require the payment of fixed
demand charges to reserve firm transportation or storage
entitlements. We align the contractual agreements for supply
with the firm capacity agreements in terms of volumes, receipt
and delivery locations and demand fluctuations. We may
supplement these firm contracts with other supply arrangements
to serve our interruptible market.
3
As of October 31, 2007, we had contracts for the following
pipeline firm transportation capacity in dekatherms per day:
|
|
|
|
|
Williams-Transco
|
|
|
632,200
|
|
El Paso-Tennessee Pipeline
|
|
|
74,100
|
|
Spectra-Texas Eastern (through arrangements with East Tennessee
and Transco)
|
|
|
37,000
|
|
NiSource-Columbia Gas (through arrangements with Transco and
Columbia Gulf)
|
|
|
42,800
|
|
NiSource-Columbia Gulf
|
|
|
10,000
|
|
ONEOK-Midwestern (through arrangements with Tennessee, Columbia
Gulf, East Tennessee and Transco)
|
|
|
40,000
|
|
|
|
|
|
|
Total
|
|
|
836,100
|
|
|
|
|
|
|
In January 2008, additional transportation capacity of 80,000
dekatherms is anticipated to be added from Midwestern Gas
Transmission Company (Midwestern).
As of October 31, 2007, we had the following assets or
contracts for local peaking facilities and storage for seasonal
or peaking capacity in dekatherms of daily deliverability to
meet the firm demands of our markets. This deliverability varies
from five days to one year:
|
|
|
|
|
Piedmont Liquefied Natural Gas (LNG)
|
|
|
280,000
|
|
Pine Needle LNG (through arrangements with Transco)
|
|
|
263,400
|
|
Williams-Transco Storage
|
|
|
86,100
|
|
NiSource-Columbia Gas Storage
|
|
|
96,400
|
|
Hardy Storage (through arrangements with Columbia Gas and
Transco)
|
|
|
39,100
|
|
Dominion Storage (through arrangements with Transco)
|
|
|
13,200
|
|
El Paso-Tennessee Pipeline Storage
|
|
|
55,900
|
|
|
|
|
|
|
Total
|
|
|
834,100
|
|
|
|
|
|
|
As of October 31, 2007, we own or have under contract
34.2 million dekatherms of storage capacity, either in the
form of underground storage or LNG. This capability is used to
supplement or replace regular pipeline supplies.
The source of the gas we distribute is primarily from the Gulf
Coast production region, and is purchased primarily from major
producers and marketers. The natural gas production, processing
and pipeline infrastructure in the Gulf of Mexico has recovered
from the hurricane-related supply disruptions of
2005-2006.
Natural gas demand is continuing to grow in our service area. As
part of our long-term plan to diversify our reliance away from
the Gulf Coast region, we are now receiving firm storage service
from the Hardy Storage Company, LLC underground facility in West
Virginia and firm transportation service from Midwestern that
accesses gas supplies from Canada and the Rocky Mountains. For
further information on gas supply and regulation, see Gas
Supply and Regulatory Proceedings in Item 7 of this
Form 10-K
and Note 3 to the consolidated financial statements.
During the year ended October 31, 2007, approximately 5% of
our margin (operating revenues less cost of gas) was generated
from deliveries to industrial or large commercial customers that
have the capability to burn a fuel other than natural gas. The
alternative fuels are primarily fuel oil and propane and, to a
much lesser extent, coal or wood. Our ability to maintain or
increase deliveries of gas to these customers depends on a
number of factors, including weather conditions, governmental
regulations, the price of gas from suppliers and the price of
alternate fuels. Under FERC regulations, certain large-volume
customers located in proximity to the interstate pipelines
delivering gas to us could attempt to bypass us and take
delivery of gas directly from the pipeline or from a third party
connecting with the pipeline. During the fiscal year ended
October 31, 2007, no bypass activity was experienced. The
future level of bypass activity cannot be predicted.
The regulated utility competes in the residential and commercial
customer markets with other energy products. The most
significant competition is between natural gas and electricity
for space heating, water
4
heating and cooking. There are four major electric companies
within our service areas. We continue to attract the majority of
the new residential construction market on or near our
distribution mains, and we believe that the consumers
preference for natural gas is influenced by such factors as
reliability, comfort, convenience and environmental factors.
Natural gas has historically maintained a price advantage over
electricity in our service areas; however, with a tighter
national supply and demand balance, wholesale natural gas prices
and price volatility have increased over recent years. Increases
in the price of natural gas can negatively impact our
competitive position by decreasing or eliminating the price
benefits of natural gas to the consumer.
As indicated above, many of our customers can utilize a fuel
other than natural gas, and our ability to maintain industrial
market share is largely dependent on price. The relationship
between supply and demand has the greatest impact on the price
of natural gas. With a tighter balance between domestic supply
and demand, the cost of natural gas from non-domestic sources
may play a greater role in establishing the future market prices
of natural gas. The price of oil depends upon a number of
factors beyond our control, including the relationship between
supply and demand and the policies of foreign and domestic
governments. Our revenues could be impacted, either positively
or negatively, as a result of alternate fuel decisions made by
industrial customers.
During the year ended October 31, 2007, our largest
customer contributed $13.2 million, or less than 1%, to
total operating revenues.
Our costs for research and development are not material and are
primarily limited to gas industry-sponsored research projects.
Compliance with federal, state and local environmental
protection laws have had no material effect on construction
expenditures, earnings or competitive position. For further
information on environmental issues, see Environmental
Matters in Item 7 of this
Form 10-K.
As of October 31, 2007, our fiscal year end, we had
1,876 employees, compared with 2,051 as of October 31,
2006.
Our reports on
Form 10-K,
Form 10-Q
and
Form 8-K,
and amendments to these reports, are available at no cost on our
website at
www.piedmontng.com
as soon as reasonably
practicable after the report is filed with or furnished to the
Securities and Exchange Commission.
Further increases in the wholesale price of natural gas could
reduce our earnings.
In recent years, natural gas
prices have increased dramatically due to growing demand and
limitations on access to North American gas reserves. The cost
we pay for natural gas is passed directly through to our
customers. Therefore, significant increases in the price of
natural gas may cause our existing customers to conserve or
motivate them to switch to alternate sources of energy.
Significant price increases could also cause new home developers
and new customers to select alternative sources of energy.
Decreases in the volume of gas we sell could reduce our earnings
in the absence of decoupled rate structures, and a decline in
new customers could impede growth in our future earnings. In
addition, during periods when natural gas prices are
significantly higher than historical levels, customers may have
trouble paying the resulting higher bills and bad debt expenses
may increase and reduce our earnings.
A decrease in the availability of adequate upstream,
interstate pipeline transportation capacity and natural gas
supply could reduce our earnings.
We purchase all
of our gas supply from interstate sources that must then be
transported to our service territory. Interstate pipeline
companies transport the gas to our system under firm service
agreements that are designed to meet the requirements of our
core markets. A significant disruption to that supply or
interstate pipeline capacity due to unforeseen events, including
but not limited to, hurricanes, freeze off of natural gas wells,
terrorist attacks or other acts of war could reduce our normal
interstate supply of gas, which could reduce our earnings.
Moreover, if additional natural gas infrastructure, including
but not limited to exploration and drilling platforms,
processing and gathering systems, off-shore pipelines,
interstate pipelines and storage cannot be built at a pace that
meets demand, then our growth opportunities would be limited and
our earnings negatively impacted.
5
Changes in federal laws or regulations could reduce the
availability or increase the cost of our interstate pipeline
capacity
and/or
gas
supply and thereby reduce our earnings.
The FERC
has the power to regulate the interstate transportation of
natural gas and the terms and conditions of service.
Additionally, Congress has enacted laws that deregulate the
price of natural gas sold at the wellhead. Any Congressional
legislation or agency regulation that would alter these or other
similar statutory and regulatory structures in a way to
significantly raise costs that could not be recovered in rates
from our customers, that would reduce the availability of supply
or capacity, or that would reduce our competitiveness would
negatively impact our earnings. Furthermore, Congress has for
some time been considering various forms of climate change
legislation. There is a possibility that, when and if enacted,
the final form of such legislation could impact the
companys growth and put upward pressure on wholesale
natural gas prices.
Weather conditions may cause our earnings to vary from year
to year.
Our earnings can vary from year to year,
depending in part on weather conditions. Currently, we have in
place regulatory mechanisms that account for this and normalize
our margin for weather, providing for an adjustment up or down,
to take into account warmer-than-normal or colder-than-normal
weather. We estimate that approximately 50% to 60% of our annual
gas sales are to temperature-sensitive customers. As a result,
mild winter temperatures can cause a decrease in the amount of
gas we sell and deliver in any year. If our rates and tariffs
were modified to eliminate weather protection, then we would be
exposed to significant risk associated with weather and our
earnings could vary as a result.
Governmental actions at the state level could result in lower
earnings.
Our regulated utility segment is
regulated by the NCUC, the PSCSC and the TRA. These agencies set
the rates that we charge our customers for our services. If a
state regulatory commission were to prohibit us from setting
rates that timely recover our costs and a reasonable return by
significantly lowering our allowed return or negatively altering
our cost allocation, rate design, cost trackers (including
margin decoupling, weather normalization and cost of gas) or
other tariff provisions, then our earnings could be impacted.
Additionally, the state agencies foster a competitive regulatory
model that, for example, allows us to recover any margin losses
associated with negotiated transactions designed to retain large
volume customers that could use alternative fuels or that may
directly access natural gas supply through their own connection
to an interstate pipeline. If there were changes in regulatory
philosophies that altered our ability to compete for these
customers, then we could lose customers, or incur significant
unrecoverable expenses to retain them. Both scenarios would
impact our earnings.
Operational interruptions to our gas distribution activities
caused by accidents, strikes, severe weather such as a major
hurricane, pandemic or acts of terrorism could adversely impact
earnings.
Inherent in our gas distribution
activities are a variety of hazards and operation risks, such as
leaks, ruptures and mechanical problems that, if severe enough
or led to operational interruptions, could cause substantial
financial losses. In addition, these risks could result in loss
of human life, significant damage to property, environmental
damage, impairment of our operations and substantial loss to us.
The location of pipeline and storage facilities near populated
areas, including residential areas, commercial business centers,
industrial sites and other public gathering places, could
increase the level of damages resulting from these risks.
Additionally, we have a workforce that is partially represented
by the union that exposes us to the risk of a strike. The
occurrence of any of these events could adversely affect our
financial position, results of operations and cash flows.
Increases in our debt ratios could adversely affect our
ability to service our debt obligations and our ability to
access capital on favorable terms.
An increase in
our leverage could adversely affect us by:
|
|
|
|
|
increasing the cost of future debt financing;
|
|
|
|
making it more difficult for us to satisfy our existing
financial obligations;
|
|
|
|
limiting our ability to obtain additional financing, if we need
it, for working capital, capital expenditures, debt service
requirements or other purposes;
|
|
|
|
increasing our vulnerability to adverse economic and industry
conditions;
|
6
|
|
|
|
|
requiring us to dedicate a substantial portion of our cash flows
from operations to payments on our debt, which would reduce
funds available for operations, future business opportunities or
other purposes; and
|
|
|
|
limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we compete.
|
We do not generate sufficient cash flows to meet all our cash
needs.
Historically, we have made large capital
expenditures in order to finance the expansion and upgrading of
our distribution system. We have also purchased and will
continue to purchase natural gas to store in inventory.
Moreover, we have made several equity method investments and
will continue to pursue other similar investments, all of which
are and will be important to our revenues and profits. We have
funded a portion of our cash needs for these purposes, as well
as contributions to our employee pensions and benefit plans,
through borrowings under credit arrangements and by offering new
securities in the market. Our dependency on external sources of
financing creates the risks that our profits could decrease as a
result of high capital costs and that we may not be able to
secure external sources of cash necessary to fund our operations
and new investments on terms acceptable to us.
As a result of cross-default provisions in our borrowing
arrangements, we may be unable to satisfy all of our outstanding
obligations in the event of a default on our
part.
The terms of our senior indebtedness,
including our credit facility, contain cross-default provisions
which provide that we will be in default under such agreements
in the event of certain defaults under the indenture or other
loan agreements. Accordingly, should an event of default occur
under any of those agreements, we face the prospect of being in
default under all of our debt agreements, obliged in such
instance to satisfy all of our outstanding indebtedness and
unable to satisfy all of our outstanding obligations
simultaneously. In such an event, we might not be able to obtain
alternative financing or, if we are able to obtain such
financing, we might not be able to obtain it on terms acceptable
to us.
We are exposed to credit risk of counterparties with whom we
do business.
Adverse economic conditions
affecting, or financial difficulties of, counterparties with
whom we do business could impair the ability of these
counterparties to pay for our services or fulfill their
contractual obligations. We depend on these counterparties to
remit payments or fulfill their contractual obligations on a
timely basis. Any delay or default in payment or failure of the
counterparties to meet their contractual obligation could
adversely affect our financial position, results of operations
or cash flows.
Poor investment performance of pension plan holdings and
other factors impacting pension plan costs could unfavorably
impact our liquidity and results of
operations.
Our costs of providing a
non-contributory defined benefit pension plan is dependent on a
number of factors, such as the rates of return on plan assets,
discount rates, the level of interest rates used to measure the
required minimum funding levels of the plan, future government
regulation and our required or voluntary contributions made to
the plan. Without sustained growth in the pension investments
over time to increase the value of our plan assets and depending
upon the other factors impacting our cost as listed above, we
could be required to fund our plan with significant amounts of
cash. Such cash funding obligations could have a material impact
on our liquidity by reducing cash flows and could negatively
affect results of operations.
We are subject to numerous environmental laws and regulations
that may require significant expenditures or increase operating
costs.
We are subject to numerous federal and
state environmental laws and regulations affecting many aspects
of our present and future operations. These laws and regulations
can result in increased capital, operating and other costs.
These laws and regulations generally require us to obtain and
comply with a wide variety of environmental licenses, permits,
inspections and approvals. Compliance with these laws and
regulations can require significant expenditures for
clean-up
costs and damages arising out of contaminated properties.
Failure to comply may result in fines, penalties and injunctive
measures affecting operating assets.
An overall economic downturn could negatively impact our
earnings.
A lower level of economic activity in
our markets could result in a decline in customer additions and
energy consumption which could adversely affect our revenues or
restrict our future growth. Additionally, a significant slow
down in the housing market in our service area could restrict
our future growth and negatively impact our earnings.
7
Our inability to attract and retain professional and
technical employees could impact our
earnings.
Our ability to implement our business
strategy and serve our customers is dependent upon the
continuing ability to employ talented professionals and attract
and retain a technically skilled workforce. Without such a
skilled workforce, our ability to provide quality service to our
customers and meet our regulatory requirements will be
challenged and this could negatively impact our earnings.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
All property included in the consolidated balance sheets in
Utility Plant is owned by us and used in our
regulated utility segment. This property consists of intangible
plant, production plant, storage plant, transmission plant,
distribution plant and general plant as categorized by natural
gas utilities, with 94% of the total invested in utility
distribution and transmission plant to serve our customers. We
have approximately 3,100 miles of lateral pipelines up to
30 inches in diameter that connect our distribution systems
with the transmission systems of our pipeline suppliers. We
distribute natural gas through approximately 23,900 miles
(three-inch equivalent) of distribution mains. The lateral
pipelines and distribution mains are located on or under public
streets and highways, or property owned by others, for which we
have obtained the necessary legal rights to place and operate
our facilities on private property. All of these properties are
located in North Carolina, South Carolina and Tennessee.
Utility Plant includes Construction work in progress
which primarily represents distribution, transmission and
general plant projects that have not been placed into service
pending completion.
None of our property is encumbered and all property is in use.
We own or lease for varying periods our corporate headquarters
building located in Charlotte, North Carolina and district
and regional offices in the locations shown below. Lease
payments for these various offices totaled $3.9 million for
the year ended October 31, 2007.
|
|
|
|
|
North Carolina
|
|
South Carolina
|
|
Tennessee
|
|
Burlington
|
|
Anderson
|
|
Nashville
|
Cary
|
|
Gaffney
|
|
|
Charlotte
|
|
Greenville
|
|
|
Elizabeth City
|
|
Spartanburg
|
|
|
Fayetteville
|
|
|
|
|
Goldsboro
|
|
|
|
|
Greensboro
|
|
|
|
|
Hickory
|
|
|
|
|
High Point
|
|
|
|
|
Indian Trail
|
|
|
|
|
New Bern
|
|
|
|
|
Reidsville
|
|
|
|
|
Rockingham
|
|
|
|
|
Salisbury
|
|
|
|
|
Spruce Pine
|
|
|
|
|
Tarboro
|
|
|
|
|
Wilmington
|
|
|
|
|
Winston-Salem
|
|
|
|
|
Property included in the consolidated balance sheets in
Other Physical Property is owned by the parent
company and one of its subsidiaries. The property owned by the
parent company primarily consists of residential and commercial
water heaters leased to natural gas customers. The property
owned by the subsidiary is real estate. None of our other
subsidiaries directly own property as their operations consist
solely of participating in joint ventures as an equity member.
8
|
|
Item 3.
|
Legal
Proceedings
|
We have only routine litigation in the normal course of business.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
our fourth quarter ended October 31, 2007.
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
(a) Our common stock (symbol PNY) is traded on the New York
Stock Exchange (NYSE). The following table provides information
with respect to the high and low sales prices from the NYSE
Composite for each quarterly period for the years ended
October 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
2007
|
|
High
|
|
|
Low
|
|
|
Quarter ended:
|
|
|
|
|
|
|
|
|
January 31
|
|
$
|
28.44
|
|
|
$
|
25.78
|
|
April 30
|
|
|
27.50
|
|
|
|
24.33
|
|
July 31
|
|
|
27.50
|
|
|
|
22.00
|
|
October 31
|
|
|
27.50
|
|
|
|
23.09
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
High
|
|
|
Low
|
|
|
Quarter ended:
|
|
|
|
|
|
|
|
|
January 31
|
|
$
|
24.94
|
|
|
$
|
21.26
|
|
April 30
|
|
|
25.23
|
|
|
|
23.21
|
|
July 31
|
|
|
26.17
|
|
|
|
23.31
|
|
October 31
|
|
|
27.27
|
|
|
|
24.72
|
|
(b) As of December 20, 2007, our common stock was
owned by 15,660 shareholders of record.
(c) The following table provides information with respect
to quarterly dividends paid on common stock for the years ended
October 31, 2007 and 2006. We expect that comparable cash
dividends will continue to be paid in the future.
|
|
|
|
|
|
|
Dividends Paid
|
|
2007
|
|
Per Share
|
|
|
Quarter ended:
|
|
|
|
|
January 31
|
|
|
24¢
|
|
April 30
|
|
|
25¢
|
|
July 31
|
|
|
25¢
|
|
October 31
|
|
|
25¢
|
|
|
|
|
|
|
|
|
Dividends Paid
|
|
2006
|
|
Per Share
|
|
|
Quarter ended:
|
|
|
|
|
January 31
|
|
|
23¢
|
|
April 30
|
|
|
24¢
|
|
July 31
|
|
|
24¢
|
|
October 31
|
|
|
24¢
|
|
9
The amount of cash dividends that may be paid on common stock is
restricted by provisions contained in certain note agreements
under which long-term debt was issued, with those for the senior
notes being the most restrictive. We cannot pay or declare any
dividends or make any other distribution on any class of stock
or make any investments in subsidiaries or permit any subsidiary
to do any of the above (all of the foregoing being
restricted payments) except out of net earnings
available for restricted payments. As of October 31, 2007,
net earnings available for restricted payments were greater than
retained earnings; therefore, our retained earnings were not
restricted.
The following table provides information with respect to
repurchases of our common stock under the Common Stock Open
Market Purchase Program during the fourth quarter ended
October 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number
|
|
|
|
Total Number
|
|
|
|
|
|
Shares Purchased
|
|
|
of Shares that May
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
as Part of Publicly
|
|
|
Yet be Purchased
|
|
Period
|
|
Purchased
|
|
|
Paid per Share
|
|
|
Announced Program
|
|
|
Under the Program *
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,612,074
|
|
8/1/07 8/31/07
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
4,612,074
|
|
9/1/07 9/30/07
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
4,612,074
|
|
10/1/07 10/31/07
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
4,612,074
|
|
Total
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
The Common Stock Open Market Purchase Program was announced on
June 4, 2004, to purchase up to three million shares of
common stock for reissuance under our dividend reinvestment,
stock purchase and incentive compensation plans. On
December 16, 2005, the Board of Directors approved an
increase in the number of shares in this program from three
million to six million to reflect the two-for-one stock split in
2004. The Board also approved on that date an amendment of the
Common Stock Open Market Purchase Program to provide for the
purchase of up to four million additional shares of common stock
to maintain our debt-to-equity capitalization ratios at target
levels. These combined actions increased the total authorized
share repurchases from three million to ten million shares. The
additional four million shares are referred to as our
accelerated share repurchase (ASR) program and have an
expiration date of December 31, 2010.
|
10
Comparisons
of Cumulative Total Shareholder Returns
The following performance graph compares the Companys
cumulative total shareholder return from October 31, 2002,
through October 31, 2007 (a five-year period), with the
Standard & Poors 500 Stock Index, a broad market
index (the S&P 500), and with our utility peer group. Large
natural gas distribution companies that are representative of
our peers in the natural gas distribution industry are included
in the LDC Peer Group index.
The graph assumes that the value of an investment in Common
Stock and in each index was $100 at October 31, 2002, and
that all dividends were reinvested. Stock price performances
shown on the graph are not indicative of future price
performances.
Comparisons
of Five-Year Cumulative Total Returns
Value of $100 Invested as of October 31, 2002
LDC Peer Group The following companies are included:
AGL Resources, Inc., Atmos Energy Corporation, New Jersey
Resources, NICOR, Inc., NiSource, Inc., Northwest Natural Gas
Company, Piedmont Natural Gas Company, Southwest Gas
Corporation, Vectren Corporation and WGL Holdings, Inc.
11
Item 6.
Selected
Financial Data
The following table provides selected financial data for the
years ended October 31, 2003 through 2007. The information
presented is not comparable for all periods due to the
acquisitions of North Carolina Natural Gas Corporation (NCNG)
and an equity interest in Eastern North Carolina Natural Gas
Company (EasternNC) effective September 30, 2003, and the
remaining 50% interest of EasternNC effective October 25,
2005, as discussed in Note 2 to the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
In thousands except per share amounts
|
|
|
Operating Revenues
|
|
$
|
1,711,292
|
|
|
$
|
1,924,628
|
|
|
$
|
1,761,091
|
|
|
$
|
1,529,739
|
|
|
$
|
1,220,822
|
|
Margin (Operating Revenues less Cost of Gas)
|
|
$
|
524,165
|
|
|
$
|
523,479
|
|
|
$
|
499,139
|
|
|
$
|
488,369
|
|
|
$
|
382,880
|
|
Net Income
|
|
$
|
104,387
|
|
|
$
|
97,189
|
|
|
$
|
101,270
|
|
|
$
|
95,188
|
|
|
$
|
74,362
|
|
Earnings per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
|
$
|
1.28
|
|
|
$
|
1.11
|
|
Diluted
|
|
$
|
1.40
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
|
$
|
1.27
|
|
|
$
|
1.11
|
|
Cash Dividends per Share of Common Stock
|
|
$
|
0.990
|
|
|
$
|
0.950
|
|
|
$
|
0.905
|
|
|
$
|
0.8525
|
|
|
$
|
0.8225
|
|
Total Assets
|
|
$
|
2,820,318
|
|
|
$
|
2,733,939
|
|
|
$
|
2,602,490
|
|
|
$
|
2,392,164
|
|
|
$
|
2,339,283
|
|
Long-Term Debt (less current maturities)
|
|
$
|
824,887
|
|
|
$
|
825,000
|
|
|
$
|
625,000
|
|
|
$
|
660,000
|
|
|
$
|
460,000
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward-Looking
Statements
This report as well as other documents we file with the
Securities and Exchange Commission (SEC) may contain
forward-looking statements. In addition, our senior management
and other authorized spokespersons may make forward-looking
statements in print or orally to analysts, investors, the media
and others. These statements are based on managements
current expectations and information currently available and are
believed to be reasonable and are made in good faith. However,
the forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those projected in the statements. Factors that
may make the actual results differ from anticipated results
include, but are not limited to:
|
|
|
|
|
Regulatory issues affecting us and those from whom we purchase
natural gas transportation and storage service, including those
that affect allowed rates of return, terms and conditions of
service, rate structures and financings. We monitor our
effectiveness in achieving the allowed rates of return and
initiate rate proceedings or operating changes as needed.
|
|
|
|
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, and fluctuations in the
wholesale prices of natural gas and competitive energy sources.
|
|
|
|
Deregulation, regulatory restructuring and competition in the
energy industry. We face competition from electric companies and
energy marketing and trading companies, and we expect this
competitive environment to continue. We must be able to adapt to
the changing environments and the competition.
|
|
|
|
The potential loss of large-volume industrial customers to
alternate fuels or to bypass, or the shift by such customers to
special competitive contracts or to tariff rates that are at
lower
per-unit
margins than that customers existing rate.
|
12
|
|
|
|
|
Regulatory issues, customer growth, deregulation, economic and
capital market conditions, the cost and availability of natural
gas and weather conditions can impact our ability to meet
internal performance goals.
|
|
|
|
The capital-intensive nature of our business. In order to
maintain growth, we must add to our natural gas distribution
system each year. The cost of this construction may be affected
by the cost of obtaining governmental approvals, compliance with
federal and state pipeline safety and integrity regulations,
development project delays and 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.
|
|
|
|
Capital market conditions. Our internally generated cash flows
are not adequate to finance the full cost of capital
expenditures. As a result, we rely on access to both short-term
and long-term capital markets as a significant source of
liquidity for capital requirements not satisfied by cash flows
from operations. Changes in the capital markets could affect
access to and cost of capital.
|
|
|
|
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 allow us to remain competitive. Natural gas
is an unregulated commodity market subject to supply and demand
and price volatility. Producers, marketers and pipelines are
subject to operating and financial risks associated with
exploring, drilling, producing, gathering, marketing and
transporting natural gas and have risks that increase our
exposure to supply and price fluctuations.
|
|
|
|
Changes in weather conditions. Weather conditions and other
natural phenomena can have a material impact on our earnings.
Severe weather conditions, including destructive weather
patterns such as hurricanes, can impact our suppliers and the
pipelines that deliver gas to our distribution system. Weather
conditions directly influence the supply of, demand for and the
cost of natural gas.
|
|
|
|
Changes in environmental, safety and system integrity
regulations and the cost of compliance. We are subject to
extensive federal, state and local regulations. Compliance with
such regulations may result in increased capital or operating
costs.
|
|
|
|
Ability to retain and attract professional and technical
employees. To provide quality service to our customers and meet
regulatory requirements, we are dependent on our ability to
recruit, train, motivate and retain qualified employees.
|
|
|
|
Changes in accounting regulations and practices. We are subject
to accounting regulations and practices issued periodically by
accounting standard-setting bodies. New accounting standards may
be issued that could change the way we record revenues,
expenses, assets and liabilities. Future changes in accounting
standards could affect our reported earnings or increase our
liabilities.
|
|
|
|
Earnings from our equity method investments. We invest in
companies that have risks that are inherent in their businesses
and we assume such risks as an equity investor.
|
Other factors may be described elsewhere in this report. All of
these factors are difficult to predict and many of them are
beyond our control. For these reasons, you should not rely on
these forward-looking statements when making investment
decisions. When used in our documents or oral presentations, the
words expect, believe,
project, anticipate, intend,
should, could, will,
assume, can, estimate,
forecast, future, indicate,
outlook, plan, predict,
seek, target, would and
variations of such words and similar expressions are intended to
identify forward-looking statements.
Forward-looking statements are only as of the date they are made
and we do not undertake any obligation to update publicly any
forward-looking statement either as a result of new information,
future events or otherwise except as required by applicable laws
and regulations. Please reference our website at
www.piedmontng.com
for current information. Our reports
on
Form 10-K,
Form 10-Q
and
Form 8-K
and amendments to these reports are available at no cost on our
website as soon as reasonably practicable after the report is
filed with or furnished to the SEC.
13
Overview
Piedmont Natural Gas Company is an energy services company whose
principal business is the distribution of natural gas to
residential, commercial and industrial customers in portions of
North Carolina, South Carolina and Tennessee. We also have
equity method investments in joint venture, energy-related
businesses. Our operations are comprised of two business
segments the regulated utility segment and the
non-utility activities segment.
The regulated utility segment is the largest segment of our
business with approximately 97% of our consolidated assets. This
segment is regulated by three state regulatory commissions that
approve rates and tariffs that are designed to give us the
opportunity to generate revenues to cover our gas and non-gas
costs and to earn a fair rate of return for our shareholders.
Factors critical to the success of the regulated utility include
a safe, reliable natural gas distribution system and the ability
to recover the costs and expenses of the business in rates
charged to customers. For the twelve months ended
October 31, 2007, 79% of our earnings before taxes came
from our regulated utility segment.
The non-utility activities segment consists of our equity method
investments in joint venture, energy-related businesses that are
involved in unregulated retail natural gas marketing, interstate
natural gas storage and intrastate natural gas transportation.
We invest in joint ventures that are aligned with our business
strategies to complement or supplement income from utility
operations. We continually monitor performance of these ventures
against expectations.
Weather conditions directly influence the volumes of natural gas
delivered by the regulated utility. Significant portions of our
revenues are generated during the winter season. During warm
winters or unevenly cold winters, heating customers may
significantly reduce their consumption of natural gas. In South
Carolina and Tennesee, we have weather normalization adjustment
(WNA) mechanisms that are designed to protect a portion of our
revenues against warmer-than-normal weather as deviations from
normal weather can affect our financial performance and
liquidity. The WNA also serves to offset the impact of
colder-than-normal weather by reducing the amounts we can charge
our customers. In North Carolina, a Customer Utilization Tracker
(CUT) provides for the recovery of our approved margin from
residential and commercial customers independent of both weather
and other consumption patterns. For further information, see
Note 3 to the consolidated financial statements.
The majority of our natural gas supplies come from the Gulf
Coast region. We believe that diversification of our supply
portfolio is in our customers best interest. In January
2008, we anticipate receiving firm, long-term transportation
contract service from Midwestern Gas Transmission Company
(Midwestern) that will provide access to Canadian and Rocky
Mountain gas supplies and the Chicago hub, primarily to serve
our Tennessee markets. In April 2007, we began receiving firm,
long-term market area storage service from Hardy Storage
Company, LLC (Hardy Storage), a new storage facility in West
Virginia.
Our strategic focus is on our core business of providing safe,
reliable and quality natural gas distribution service to our
customers in the growing Southeast market area. Part of our
strategic plan is to manage our gas distribution business
through control of our operating costs, implementation of new
technologies and sound rate and regulatory initiatives. We are
working to enhance the value and growth of our utility assets by
good management of capital spending, including improvements for
current customers and the pursuit of customer growth
opportunities in our service areas. We strive for quality
customer service by investing in technology, processes and
people. We work with our state regulators to maintain fair rates
of return and balance the interests of our customers and
shareholders.
As part of our ongoing effort to improve business processes and
customer service, and capture operational and organizational
efficiencies, we are in the process of standardizing our
customer payment and collection processes and streamlining
business operations.
We seek to maintain a long-term debt-to-capitalization ratio
within a range of 45% to 50%. We also seek to maintain a strong
balance sheet and investment-grade credit ratings to support our
operating and investment needs.
14
Results
of Operations
The following tables present our financial highlights for the
years ended October 31, 2007, 2006 and 2005.
Income
Statement Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs.
|
|
|
2006 vs.
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands, except per share amounts
|
|
|
Operating Revenues
|
|
$
|
1,711,292
|
|
|
$
|
1,924,628
|
|
|
$
|
1,761,091
|
|
|
|
(11.1
|
)%
|
|
|
9.3
|
%
|
Cost of Gas
|
|
|
1,187,127
|
|
|
|
1,401,149
|
|
|
|
1,261,952
|
|
|
|
(15.3
|
)%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin
|
|
|
524,165
|
|
|
|
523,479
|
|
|
|
499,139
|
|
|
|
0.1
|
%
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and Maintenance
|
|
|
214,442
|
|
|
|
219,353
|
|
|
|
206,983
|
|
|
|
(2.2
|
)%
|
|
|
6.0
|
%
|
Depreciation
|
|
|
88,654
|
|
|
|
89,696
|
|
|
|
85,169
|
|
|
|
(1.2
|
)%
|
|
|
5.3
|
%
|
General Taxes
|
|
|
32,407
|
|
|
|
33,138
|
|
|
|
29,807
|
|
|
|
(2.2
|
)%
|
|
|
11.2
|
%
|
Income Taxes
|
|
|
51,315
|
|
|
|
50,543
|
|
|
|
51,880
|
|
|
|
1.5
|
%
|
|
|
(2.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
386,818
|
|
|
|
392,730
|
|
|
|
373,839
|
|
|
|
(1.5
|
)%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
137,347
|
|
|
|
130,749
|
|
|
|
125,300
|
|
|
|
5.0
|
%
|
|
|
4.3
|
%
|
Other Income (Expense), net of tax
|
|
|
24,312
|
|
|
|
18,750
|
|
|
|
20,828
|
|
|
|
29.7
|
%
|
|
|
(10.0
|
)%
|
Utility Interest Charges
|
|
|
57,272
|
|
|
|
52,310
|
|
|
|
44,256
|
|
|
|
9.5
|
%
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Minority Interest in Income of Consolidated
Subsidiary
|
|
|
104,387
|
|
|
|
97,189
|
|
|
|
101,872
|
|
|
|
7.4
|
%
|
|
|
(4.6
|
)%
|
Less Minority Interest in Income of Consolidated Subsidiary
|
|
|
|
|
|
|
|
|
|
|
602
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
104,387
|
|
|
$
|
97,189
|
|
|
$
|
101,270
|
|
|
|
7.4
|
%
|
|
|
(4.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,250
|
|
|
|
75,863
|
|
|
|
76,680
|
|
|
|
(2.1
|
)%
|
|
|
(1.1
|
)%
|
Diluted
|
|
|
74,472
|
|
|
|
76,156
|
|
|
|
76,992
|
|
|
|
(2.2
|
)%
|
|
|
(1.1
|
)%
|
Earnings Per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
|
|
10.2
|
%
|
|
|
(3.0
|
)%
|
Diluted
|
|
$
|
1.40
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
|
|
9.4
|
%
|
|
|
(3.0
|
)%
|
Gas
Deliveries, Customers, Weather Statistics and Number of
Employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 vs.
|
|
|
2006 vs.
|
|
Gas Sales and Deliveries in Dekatherms (in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Sales Volumes
|
|
|
105,606
|
|
|
|
105,728
|
|
|
|
113,021
|
|
|
|
(0.1
|
)%
|
|
|
(6.5
|
)%
|
Transportation Volumes
|
|
|
100,398
|
|
|
|
92,928
|
|
|
|
91,417
|
|
|
|
8.0
|
%
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Throughput
|
|
|
206,004
|
|
|
|
198,656
|
|
|
|
204,438
|
|
|
|
3.7
|
%
|
|
|
(2.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secondary Market Volumes
|
|
|
42,049
|
|
|
|
40,994
|
|
|
|
47,057
|
|
|
|
2.6
|
%
|
|
|
(12.9
|
)%
|
Customers Billed (at period end)
|
|
|
922,961
|
|
|
|
903,368
|
|
|
|
877,418
|
|
|
|
2.2
|
%
|
|
|
3.0
|
%
|
Gross Customer Additions
|
|
|
30,437
|
|
|
|
34,445
|
|
|
|
32,751
|
|
|
|
(11.6
|
)%
|
|
|
5.2
|
%
|
Degree Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
2,977
|
|
|
|
3,192
|
|
|
|
3,266
|
|
|
|
(6.7
|
)%
|
|
|
(2.3
|
)%
|
Normal
|
|
|
3,388
|
|
|
|
3,386
|
|
|
|
3,455
|
|
|
|
0.1
|
%
|
|
|
(2.0
|
)%
|
Percent colder (warmer) than normal
|
|
|
(12.1
|
)%
|
|
|
(5.7
|
)%
|
|
|
(5.5
|
)%
|
|
|
n/a
|
|
|
|
n/a
|
|
Number of Employees (at period end)
|
|
|
1,876
|
|
|
|
2,051
|
|
|
|
2,124
|
|
|
|
(8.5
|
)%
|
|
|
(3.4
|
)%
|
15
Net income increased $7.2 million in 2007 compared with
2006 primarily due to the following changes which increased net
income:
|
|
|
|
|
$7.2 million increase in earnings from equity method
investments.
|
|
|
|
$1.1 million increase in non-operating income.
|
|
|
|
$.7 million increase in margin (operating revenues less
cost of gas).
|
|
|
|
$4.9 million decrease in operations and maintenance
expenses, primarily due to organizational restructuring and
process improvement initiatives.
|
|
|
|
$1 million decrease in depreciation.
|
|
|
|
$.7 million decrease in general taxes.
|
These changes were partially offset by the following changes
which decreased net income:
|
|
|
|
|
$5 million increase in utility interest charges.
|
|
|
|
$3.2 million increase in income taxes.
|
Net income decreased $4.1 million in 2006 compared with
2005 primarily due to the following changes which decreased net
income:
|
|
|
|
|
$12.4 million increase in operations and maintenance
expenses, primarily due to restructuring charges and customer
service initiatives.
|
|
|
|
$8.1 million increase in utility interest charges.
|
|
|
|
$4.5 million increase in depreciation expense.
|
|
|
|
$3.3 million increase in general taxes.
|
|
|
|
$1.7 million decrease from the non-recurring 2005 gain on
the sale of corporate office land.
|
|
|
|
$1.6 million increase related to the non-recurring 2005
income tax expense
true-up
of
the effective federal income tax rate following the sale of our
propane interests.
|
|
|
|
$1.5 million decrease from the non-recurring 2005 gain on
the sale of marketable securities.
|
These changes were partially offset by the following changes
which increased net income:
|
|
|
|
|
$24.3 million increase in margin.
|
|
|
|
$2.3 million increase in earnings from equity method
investments.
|
|
|
|
$1.4 million decrease in charitable contributions.
|
|
|
|
$.6 million decrease from the 2005 inclusion of minority
interest in income of consolidated subsidiary.
|
Operating revenues in 2007 decreased $213.3 million
compared with 2006 primarily due to the following decreases:
|
|
|
|
|
$212.9 million from lower commodity gas costs passed
through to customers.
|
|
|
|
$28.4 million lower revenues from secondary market
transactions. Secondary market transactions consist of
off-system sales and capacity release arrangements.
|
These decreases were partially offset by the following increases:
|
|
|
|
|
$26.4 million related to non-commodity components in rates.
|
|
|
|
$5.2 million from increased volumes delivered to
transportation customers.
|
|
|
|
$2.3 million from revenues under the WNA in South Carolina
and Tennessee.
|
|
|
|
$2.3 million from revenues under the CUT in North Carolina.
|
16
Operating revenues in 2006 increased $163.5 million
compared with 2005 primarily due to the following increases:
|
|
|
|
|
$197.8 million from increased commodity gas costs passed
through to customers.
|
|
|
|
$30.4 million from the CUT mechanism put in place as of
November 1, 2005, as compared with the North Carolina WNA
surcharge in 2005 of $4.7 million. As discussed in
Financial Condition and Liquidity below, the CUT
mechanism was in place throughout 2006, to adjust for variations
in residential and commercial use per customer which may be due
to conservation
and/or
weather. The CUT replaced the WNA in North Carolina in 2006.
|
These increases were partially offset by the following decreases:
|
|
|
|
|
$36.1 million from secondary market activity.
|
|
|
|
$32.6 million from changes in the composition of delivery
services, including the impacts of sales revenues versus
transportation revenues and sales and transportation services to
power generation customers.
|
In general rate proceedings, state regulatory commissions
authorize us to recover a margin, which is the applicable
billing rate less cost of gas, on each unit of gas delivered.
The commissions also authorize us to recover margin losses
resulting from negotiating lower rates to industrial customers
when necessary to remain competitive. The ability to recover
such negotiated margin reductions is subject to continuing
regulatory approvals.
Cost of gas in 2007 decreased $214 million compared with
2006 primarily due to decreases of $212.9 million from
lower commodity gas costs passed through to sales customers.
Cost of gas in 2006 increased $139.2 million compared with
2005 primarily due to $197.8 million from increased
commodity gas costs, partially offset by the following decreases:
|
|
|
|
|
$37.6 million from lower secondary market activity.
|
|
|
|
$28.6 million from lower volumes and changes in the
composition of delivery services.
|
Our utility margin is defined as natural gas revenues less
natural gas commodity purchases and fixed gas costs for upstream
capacity. Margin, rather than revenues, is used by management to
evaluate utility operations due to the impact of volatile
wholesale commodity gas costs, which account for approximately
62% of revenues for the twelve months ended October 31,
2007. The company is authorized to recover from customers all
prudently incurred wholesale commodity gas costs.
Our utility margin is impacted also by certain regulatory
mechanisms as defined elsewhere in this document. These include
WNA in Tennessee and South Carolina, the Natural Gas Rate
Stabilization in South Carolina, secondary market activity
in North Carolina and South Carolina, Tennessee Incentive Plan
in Tennessee, CUT in North Carolina, negotiated loss treatment
in all three jurisdictions and the collection of uncollectible
gas costs in all three jurisdictions. We retain 25% of secondary
market margins generated through off-system sales and capacity
release activity in all jurisdictions, with 75% credited to
customers through the incentive plans.
Margin increased $.7 million in 2007 compared with 2006
primarily due to the following increases:
|
|
|
|
|
$3.9 million from a new power generation customer.
|
|
|
|
$4 million net increase, which includes a net increase of
20,800 residential and commercial customers billed (twelve-month
average) and an increase of $5.6 million in base rates in
South Carolina, partially offset by a decrease in consumption
related to warmer-than-normal weather and conservation.
|
These increases were partially offset by the following decreases:
|
|
|
|
|
$4.6 million from the regulatory ruling that discontinued
the capitalizing and amortizing of storage demand charges.
|
17
|
|
|
|
|
$1.9 million from adjustments related to compensating meter
indices.
|
|
|
|
$1.2 million from adjustments related to the North Carolina
2006 gas cost accounting review.
|
Margin increased $24.3 million in 2006 compared with 2005
primarily due to growth in the residential and commercial
customer base, plus base rate increases of $22.8 million.
This net increase was negatively impacted by decreased
consumption because of conservation in the residential and
commercial classes in South Carolina and Tennessee.
Operations and maintenance expenses decreased $4.9 million
in 2007 compared with 2006 primarily due to the following
decreases:
|
|
|
|
|
$11 million in payroll primarily related to the management
restructuring program in 2006, including impacts on short-term
and long-term incentive plan accruals. For further information,
see Note 13 to the consolidated financial statements.
|
|
|
|
$.6 million in transportation costs primarily due to fewer
vehicles being used as a result of our automated meter reading
initiative and continuous business process improvements.
|
These decreases were partially offset by the following increases:
|
|
|
|
|
$3.2 million in outside services primarily due to increased
telephony services and our gas accounting, financial close and
record retention projects.
|
|
|
|
$2 million in employee benefits primarily due to pension
and postretirement health care costs and health initiative
programs and adjustments in group insurance expense.
|
|
|
|
$1.3 million in regulatory expense primarily due to
consulting related to gas cost accounting reviews.
|
Operations and maintenance expenses increased $12.4 million
in 2006 compared with 2005 primarily due to the following
increases:
|
|
|
|
|
$7.4 million in payroll primarily due to $7.9 million
in one-time costs associated with the management restructuring
program, increases in long-term incentive plan accruals and
costs associated with providing improved customer service,
partially offset by decreases in accruals for short-term
incentive plans. For further information, see Note 13 to
the consolidated financial statements.
|
|
|
|
$6 million in outside services primarily due to our
enhanced customer service initiative.
|
|
|
|
$1.8 million in rents and leases due to leasing of
corporate office space, partially offset by a reduction of 2006
expenses related to copier leases.
|
|
|
|
$2 million in other corporate expense primarily due to
$.5 million of conservation programs approved by the North
Carolina Utilities Commission (NCUC) as a part of a rate case
settlement and $.75 million in conservation programs under
the CUT settlement, and amortization of deferred operations and
maintenance expenses of EasternNC. For further information, see
Note 3 to the consolidated financial statements.
|
These increases were partially offset by the following decreases:
|
|
|
|
|
$2.2 million in postretirement health care and life
insurance costs.
|
|
|
|
$1.3 million in the provision for uncollectibles.
|
|
|
|
$.8 million from reduced telecommunications costs.
|
|
|
|
$.8 million from reduced risk insurance premium costs.
|
Depreciation expense increased from $85.2 million to
$88.7 million over the three-year period 2005 to 2007
primarily due to increases in plant in service, partially offset
by plant retirements of short-lived technology assets in 2007.
18
General taxes decreased $.7 million in 2007 compared with
2006 primarily due to the following changes:
|
|
|
|
|
$1.2 million decrease in property taxes related to lower
assessments in South Carolina and Tennessee as well as refunds
from South Carolina for prior years.
|
|
|
|
$.5 million decrease in payroll taxes.
|
|
|
|
$.9 million increase in gross receipts taxes in Tennessee.
|
General taxes increased $3.3 million in 2006 compared with
2005 primarily due to the following changes:
|
|
|
|
|
$2.2 million increase in property taxes.
|
|
|
|
$.6 million increase in other gross receipts taxes.
|
|
|
|
$.5 million increase in payroll taxes.
|
Income from equity method investments increased
$7.2 million in 2007 compared with 2006 due to the
following changes:
|
|
|
|
|
$5.3 million increase in earnings from SouthStar primarily
due to hedging activities and retail price spreads.
|
|
|
|
$2.8 million increase in earnings from Hardy Storage
primarily due to storage revenues in 2007 as phase one service
to customers began in April 2007.
|
|
|
|
$.6 million decrease in earnings from Pine Needle due to
reduced rates approved by the Federal Energy Regulatory
Commission (FERC) in Pine Needles 2007 rate proceeding.
|
Income from equity method investments increased
$2.3 million in 2006 compared with 2005 primarily due to
increases in earnings from SouthStar of $.9 million, Pine
Needle of $.3 million and Hardy Storage of $1 million.
The gain on sale of marketable securities of $1.5 million
in 2005 resulted from the sale in February 2005 of common units
of Energy Transfer Partners, L.P., which we received in
connection with the sale of our propane interests in 2004.
Non-operating income is comprised of non-regulated merchandising
and service work, subsidiary operations, interest income and
other miscellaneous income. Non-operating income in 2005
included a pre-tax gain on the sale of the corporate office land
of $1.7 million.
Charitable contributions decreased $1.4 million in 2006
compared with 2005 primarily due to the $1 million
contribution made to the Piedmont Natural Gas Foundation in 2005.
Utility interest charges increased $5 million in 2007
compared with 2006 primarily due to the following changes:
|
|
|
|
|
$5.5 million increase in interest on long-term debt due to
the issuance on June 20, 2006 of $200 million of
insured quarterly notes due June 1, 2036, which was
partially offset by the retirement on July 30, 2006 of
$35 million of senior notes.
|
|
|
|
$.9 million increase in interest expense on regulatory
treatment of certain components of deferred income taxes.
|
|
|
|
$.9 million increase in interest expense related to a tax
audit settlement.
|
|
|
|
$.4 million decrease in net interest expense on amounts due
to/from customers due to higher net receivables in 2007.
|
|
|
|
$2.1 million decrease in interest on short-term debt due to
lower balances outstanding in 2007 than in 2006 even though
rates were slightly higher in the current period. See further
discussion in Financial Condition and Liquidity
below.
|
19
Utility interest charges increased $8.1 million in 2006
compared with 2005 primarily due to the following changes:
|
|
|
|
|
$6.5 million increase in interest on short-term debt due to
higher balances outstanding at interest rates that were
approximately two percentage points higher in 2006 than in 2005.
See further discussion in Financial Condition and
Liquidity below.
|
|
|
|
$3.7 million increase in interest on long-term debt due to
the issuance on June 20, 2006 of $200 million of
insured quarterly notes due June 1, 2036.
|
|
|
|
$2.1 million decrease in net interest expense on amounts
due to/from customers due to higher net receivables in 2006.
|
|
|
|
$.8 million decrease due to an increase in allowance for
funds used during construction allocated to debt.
|
|
|
|
$.5 million increase in interest expense on regulatory
treatment of certain components of deferred income taxes.
|
Our
Business
Piedmont Natural Gas Company, Inc., which began operations in
1951, is an energy services company whose principal business is
the distribution of natural gas to over one million residential,
commercial and industrial customers in portions of North
Carolina, South Carolina and Tennessee, including 62,000
customers served by municipalities who are our wholesale
customers. We are invested in joint venture, energy-related
businesses, including unregulated retail natural gas marketing,
interstate natural gas storage and intrastate natural gas
transportation.
In 1994, our predecessor, which was incorporated in 1950 under
the same name, was merged into a newly formed North Carolina
corporation for the purpose of changing our state of
incorporation to North Carolina.
We continually assess the nature of our business and explore
alternatives in our core business of traditional utility
regulation. Non-traditional ratemaking initiatives and
market-based pricing of products and services provide additional
opportunities and challenges for us. We also regularly evaluate
opportunities for obtaining natural gas supplies from different
production regions and supply sources to maximize our natural
gas portfolio flexibility and reliability. For further
information, see Gas Supply and Regulatory
Proceedings below and Note 3 and Note 6 to the
consolidated financial statements.
We have two reportable business segments, regulated utility and
non-utility activities. For further information on business
segments, see Note 12 to the consolidated financial
statements.
Our utility operations are regulated by the NCUC, the Public
Service Commission of South Carolina (PSCSC) and the Tennessee
Regulatory Authority (TRA) as to rates, service area, adequacy
of service, safety standards, extensions and abandonment of
facilities, accounting and depreciation. We are also regulated
by the NCUC as to the issuance of securities. We are also
subject to or affected by various federal regulations. These
federal regulations include regulations that are particular to
the natural gas industry, such as regulations of the FERC that
affect the availability of and the prices paid for the
interstate transportation and storage of natural gas,
regulations of the Department of Transportation that affect the
construction, operation, maintenance, integrity and safety of
natural gas distribution and transmission systems, and
regulations of the Environmental Protection Agency relating to
the use and release into the environment of hazardous wastes. In
addition, we are subject to numerous regulations, such as those
relating to employment practices, which are generally applicable
to companies doing business in the United States of America.
In the Carolinas, our service area is comprised of numerous
cities, towns and communities. We provide service to Anderson,
Gaffney, Greenville and Spartanburg in South Carolina and
Charlotte, Salisbury, Greensboro, Winston-Salem, High Point,
Burlington, Hickory, Indian Trail, Spruce Pine, Reidsville,
Fayetteville, New Bern, Wilmington, Tarboro, Elizabeth City,
Rockingham and Goldsboro in North Carolina. In North Carolina,
we also provide wholesale natural gas service to Greenville,
Monroe, Rocky Mount and
20
Wilson. In Tennessee, our service area is the metropolitan area
of Nashville, including wholesale natural gas service to
Gallatin and Smyrna.
Our regulatory commissions approve rates and tariffs that are
designed to give us the opportunity to generate revenues to
cover our gas and non-gas costs and to earn a fair rate of
return for our shareholders. Through October 31, 2005, we
had WNA mechanisms in all three states that partially offset the
impact of colder-than-normal or warmer-than-normal weather on
bills rendered during the months of November through March for
residential and commercial customers. The WNA formula calculates
the actual weather variance from normal, using 30 years of
history, which results in an increase in revenues when weather
is warmer than normal and a decrease in revenues when weather is
colder than normal. The gas cost portion of our costs is
recoverable through purchased gas adjustment (PGA) procedures
and is not affected by the WNA. Effective November 1, 2005,
the WNA was eliminated in North Carolina and replaced with the
CUT that provides for the recovery of our approved margin from
residential and commercial customers independent of both weather
and other consumption patterns. The CUT tracks our margin earned
monthly and results in semi-annual rate adjustments to refund
any over-collection or recover any under-collection. For further
information on the CUT, see Note 3 to the consolidated
financial statements.
We invest in joint ventures to complement or supplement income
from our regulated utility operations. If an opportunity aligns
with our overall business strategies and allows us to leverage
the strengths of our markets along with our core abilities, we
analyze and evaluate the project with a major factor being a
projected rate of return greater than the returns allowed in our
utility operations, due to the higher risk of such projects. We
participate in the governance of the venture by having a
management representative on the governing board of the venture.
We monitor actual performance against expectations. Decisions
regarding existing joint ventures are based on many factors,
including performance results and continued alignment with our
business strategies.
Financial
Condition and Liquidity
To meet our capital and liquidity requirements, we rely on
certain resources, including cash flows from operating
activities, access to capital markets, cash generated from our
investments in joint ventures and short-term bank borrowings. We
believe that these sources will continue to allow us to meet our
needs for working capital, construction expenditures,
investments in joint ventures, anticipated debt redemptions and
dividend payments.
Cash Flows from Operating
Activities.
The natural gas business is
seasonal in nature. Operating cash flows may fluctuate
significantly during the year and from year to year due to
working capital changes within our utility and non-utility
operations resulting from such factors as weather, natural gas
purchases and prices, natural gas storage activity, collections
from customers and deferred gas cost recoveries. We rely on
operating cash flows and short-term bank borrowings to meet
seasonal working capital needs. During our first and second
quarters, we generally experience overall positive cash flows
from the sale of flowing gas and gas in storage and the
collection of amounts billed to customers during the peak
heating season (November through March). Cash requirements
generally increase during the third and fourth quarters due to
increases in natural gas purchases for storage, paying down
short-term debt and decreases in receipts from customers.
During the peak heating season, our accounts payable increase to
reflect amounts due to our natural gas suppliers for commodity
and pipeline capacity. The cost of the natural gas can vary
significantly from period to period due to volatility in the
price of natural gas, which is a function of market fluctuations
in the price of natural gas, along with our changing
requirements for storage volumes. Differences between natural
gas costs that we have paid to suppliers and amounts that we
have collected from customers are included in amounts due
to/from customers. These natural gas costs can cause cash flows
to vary significantly from period to period along with
variations in the timing of collections from customers under our
gas cost recovery mechanisms.
Cash flows from operations are impacted by weather, which
affects gas purchases and sales. Warmer weather can lead to
lower revenues from fewer volumes of natural gas sold or
transported. Colder weather can increase volumes sold to
weather-sensitive customers, but may lead to conservation by
customers in order to
21
reduce their heating bills. Temperatures above normal can lead
to reduced operating cash flows, thereby increasing the need for
short-term borrowings to meet current cash requirements.
Net cash provided by operating activities was
$233.5 million in 2007, $103.8 million in 2006 and
$183.4 million in 2005. Net cash provided by operating
activities reflects a $7.2 million increase in net income
for 2007, compared with 2006, as well as changes in working
capital as described below:
|
|
|
|
|
Trade accounts receivable and unbilled utility revenues
decreased $15.4 million primarily due to a decrease in
unbilled volumes of 2 million dekatherms at year end
compared with the prior year end due to the current period being
12% warmer than normal and 7% warmer than the similar prior
period.
|
|
|
|
Amounts due to/from customers decreased $13.6 million
related to the deferral of gas costs yet to be billed and
collected from customers, partially offset by the CUT.
|
|
|
|
Gas in storage decreased $6.7 million primarily due to a
regulatory mandated charge of $5.4 million from
discontinuing the accounting practice of the capitalization of
storage demand charges in 2007 and a decrease in the amount of
inventory storage dekatherms in 2007 as compared with 2006.
|
|
|
|
Prepaid gas costs increased $15.3 million primarily due to
the addition of the Hardy storage facility. Under asset
management agreements, prepaid gas costs during the summer
months represent purchases of gas that are not available for
sale, and therefore not recorded in inventory, until
November 1, for the Columbia and GSS storage facilities,
and December 1, for the Hardy Storage storage facility.
|
|
|
|
Trade accounts payable increased $16.9 million this year
primarily due to an increase in the cost of the natural gas
commodity.
|
Our regulatory commissions approve rates that are designed to
give us the opportunity to generate revenues, assuming normal
weather, to cover our gas costs and fixed and variable non-gas
costs and to earn a fair return for our shareholders. We have
had a WNA mechanism in South Carolina and Tennessee that
partially offsets the impact of colder-than-normal or
warmer-than-normal weather on bills rendered in November through
March for residential and commercial customers. The WNA in South
Carolina and Tennessee generated charges to customers of
$6.4 million in 2007, $4.1 million in 2006 and
$3.7 million in 2005. In Tennessee, adjustments are made
directly to the customers bill. In South Carolina, the
adjustments are calculated at the individual customer level and
recorded in a deferred account for subsequent collection from or
refund to all customers in the class. Effective November 1,
2005, we have a CUT mechanism in North Carolina that
provides for any over- or under-collection of approved margin
per customer that operates independently of both weather and
consumption patterns of residential and commercial customers.
The CUT mechanism provided margin of $32.7 million in 2007
and $30.4 million in 2006 as compared to North Carolina WNA
that generated charges to customers of $4.7 million in
2005. Our gas costs are recoverable through PGA procedures and
are not affected by the WNA or the CUT.
The financial condition of the natural gas marketers and
pipelines that supply and deliver natural gas to our
distribution system can increase our exposure to supply and
price fluctuations. We believe our risk exposure to the
financial condition of the marketers and pipelines is not
significant based on our receipt of the products and services
prior to payment and the availability of other marketers of
natural gas to meet our firm supply needs if necessary.
We have commission approval in North Carolina, South Carolina
and Tennessee that places additional credit requirements on the
retail natural gas marketers that schedule gas for
transportation service on our system.
The regulated utility competes with other energy products, such
as electricity and propane, in the residential and commercial
customer markets. The most significant product competition is
with electricity for space heating, water heating and cooking.
Numerous factors can influence customer demand for natural gas,
such as price volatility, the availability of natural gas in
relation to other energy forms, general economic conditions,
weather, energy conservation, conservation and energy efficiency
programs approved by regulatory bodies and the ability to
convert from natural gas to other energy sources. Increases in
the price of natural gas can negatively impact our competitive
position by decreasing the price benefits of natural gas to the
consumer.
22
This can impact our cash needs if customer growth slows,
resulting in reduced capital expenditures, or if customers
conserve, resulting in reduced gas purchases and customer
billings.
In an effort to keep customer rates competitive by holding down
operations and maintenance costs and as part of an ongoing
effort aimed at improving business processes, capturing
operational and organizational efficiencies and improving
customer service, we are continuing the process of standardizing
our customer payment and collection processes, streamlining
business operations and further consolidating our call centers.
We estimate termination benefits to employees of
$3.6 million over the next four years which was recorded in
2007 resulting from this business process improvement initiative.
In the industrial market, many of our customers are capable of
burning a fuel other than natural gas, with fuel oil being the
most significant competing energy alternative. Our ability to
maintain industrial market share is largely dependent on price.
The relationship between supply and demand has the greatest
impact on the price of natural gas. With growth in consumption
exceeding growth of supply resulting in a tighter balance
between domestic supply and demand, the cost of natural gas from
non-domestic sources may play a greater role in establishing the
future market price of natural gas. The price of oil depends
upon a number of factors beyond our control, including the
relationship between supply and demand and the policies of
foreign and domestic governments and organizations. Our
liquidity could be impacted, either positively or negatively, as
a result of alternate fuel decisions made by industrial
customers.
Cash Flows from Investing
Activities.
Net cash used in investing
activities was $148.2 million in 2007, $167.6 million
in 2006 and $159 million in 2005. Net cash used in
investing activities was primarily for utility construction
expenditures. Gross utility construction expenditures were
$135.2 million in 2007, a 34% decrease from the
$204.1 million in 2006, primarily due to the automated
meter reading project in the prior year. Reimbursements from the
bond fund decreased $13.9 million in 2006 from 2005 as
construction of gas infrastructure in eastern North Carolina has
now been completed. For further information about the bond fund,
see Note 3 to the consolidated financial statements.
We have a substantial capital expansion program for construction
of distribution facilities, purchase of equipment and other
general improvements. This program primarily supports the growth
in our customer base. Gross utility construction expenditures
totaling $168.5 million, primarily to serve customer
growth, are budgeted for 2008; however, we are not contractually
obligated to expend capital until the work is completed. Due to
projected growth in our service areas, significant utility
construction expenditures are expected to continue and are a
part of our long-range forecasts that are prepared at least
annually and typically cover a forecast period of five years.
During 2007, we contributed $12.9 million to Hardy Storage
Company LLC, a joint venture investee of one of our non-utility
subsidiaries, as part of our equity contribution for
construction of a FERC regulated interstate storage facility. On
November 1, 2007 and December 3, 2007, we contributed
an additional $8.8 million to Hardy Storage, which brought
our investment in Hardy Storage to $21.7 million. We
anticipate contributing up to an additional $8.3 million to
Hardy Storage during the fiscal 2008 year. To the extent
that more funding is needed, the members will evaluate funding
options at that time.
During 2007, $2.2 million of supplier refunds was recorded
as restricted funds. In September 2007, we petitioned the NCUC
for authority to liquidate all certificates of deposit and
similar investments that held any supplier refunds due to
customers. In October 2007, the NCUC approved the transfer of
these restricted funds to the North Carolina all customers
deferred account. During 2006, the restrictions on cash totaling
$13.2 million were removed in connection with implementing
the NCUC order in a general rate proceeding.
On May 12, 2005, we sold our corporate office building
located in Charlotte, North Carolina for $6.7 million in
cash, net of expenses. In accordance with utility plant
accounting, we recorded the disposition of the land as a pre-tax
gain of $1.7 million in Other Income (Expense)
in the consolidated statement of income and a loss of
$1.8 million on the disposition of the building as a charge
to Accumulated depreciation in the consolidated
balance sheet, based on the sales price allocation from an
independent third party. Under the terms of the purchase and
sale agreement, we leased back the building from the new owner
until our new office space was ready for occupancy. We relocated
to our new office space in November 2005 under a
23
negotiated ten-year lease with renewal options. The lease
payments for the ten-year term range from $3 million to
$3.4 million annually.
We received $2.4 million in cash in 2005 from the sale of
marketable securities which we received in connection with the
sale of our propane interests in 2004.
Cash Flows from Financing
Activities.
Net cash provided by (used in)
financing activities was $(86.6) million in 2007,
$65.6 million in 2006 and $(22.9) million in 2005.
Funds are primarily provided from bank borrowings and the
issuance of common stock through dividend reinvestment and
employee stock plans, net of purchases under the common stock
repurchase program. When required, we sell common stock and
long-term debt to cover cash requirements when market and other
conditions favor such long-term financing. Funds are primarily
used to pay down outstanding short-term borrowings, to
repurchase common stock under the common stock repurchase
program, and the payment of quarterly dividends on our common
stock. As of October 31, 2007, our current assets were
$435.3 million and our current liabilities were
$424.5 million, primarily due to seasonal requirements as
discussed above.
As of October 31, 2007, we had committed lines of credit
under our senior credit facility effective April 24, 2006
of $350 million with the ability to expand up to
$600 million, for which we pay an annual fee of $35,000
plus six basis points for any unused amount up to
$350 million. Outstanding short-term borrowings increased
from $170 million as of October 31, 2006 to
$195.5 million as of October 31, 2007, primarily due
to our commitment to fill storage capacity under various
contracts. During the twelve months ended October 31, 2007,
short-term borrowings ranged from zero to $280.5 million,
and when borrowing, interest rates ranged from 4.96% to 6.08%
(weighted average of 5.57%).
As of October 31, 2007, under our credit facility, we had
available letters of credit of $5 million of which
$1.5 million was issued and outstanding. The letters of
credit are used to guarantee claims from self-insurance under
our general liability policies. Effective November 1, 2007,
the letters of credit were increased to $1.9 million.
As of October 31, 2007, including the issuance of the
letters of credit, unused lines of credit available under our
senior credit facility totaled $153 million.
The level of short-term borrowings can vary significantly due to
changes in the wholesale prices of natural gas and to the level
of purchases of natural gas supplies to serve customer demand
and for storage. Short-term debt may increase when wholesale
prices for natural gas increase because we must pay suppliers
for the gas before we collect our costs from customers through
their monthly bills. Gas prices could continue to increase and
fluctuate. With higher wholesale gas prices, we may incur more
short-term debt to pay for natural gas supplies and other
operating costs since collections from customers could be slower
and some customers may not be able to pay their gas bills on a
timely basis.
During 2007, we issued $15.8 million of common stock
through dividend reinvestment and stock purchase plans. On
November 7, 2006, through an ASR agreement, we repurchased
and retired 1 million shares of common stock for
$26.6 million. On January 19, 2007, we settled the
transaction and paid an additional $.8 million. On
April 2, 2007, through an ASR agreement, we repurchased and
retired 850,000 shares of common stock for
$22.5 million. On May 23, 2007, we settled the
transaction and paid an additional $.4 million. During 2007
under the ASR and the Common Stock Open Market Purchase Program
discussed in Note 5 to the consolidated financial
statements, we paid $54.2 million for 2 million shares
of common stock that are available for reissuance to these
plans. During 2006, 2.1 million shares were repurchased for
$50.2 million. During 2005, 1.1 million shares were
repurchased for $26.1 million.
On November 1, 2007, we entered into another ASR agreement.
On November 2, 2007, we purchased and retired
1 million shares of our common stock from an investment
bank at the closing price of $24.70 per share. Total
consideration paid to purchase the shares was
$24.8 million, including $92,500 in commission and fees.
Through December 14, 2007, the investment bank had
purchased 708,000 shares at a cumulative weighted average
price of $25.8733 per share.
Through the ASR program, we may repurchase and subsequently
retire up to approximately four million shares of common stock
by no later than December 31, 2010. Through the ASR on
November 1, 2007, we
24
have repurchased 3,850,000 shares as follows: one million
shares repurchased in April 2006, one million shares repurchased
in November 2006, 850,000 shares repurchased in March 2007
and one million shares repurchased on November 1, 2007.
These shares are in addition to shares that are repurchased on a
normal basis through the open market program.
We increased our common stock dividend on an annualized basis by
$.04 per share in 2007, $.05 per share in 2006 and $.06 per
share in 2005. Dividends of $73.6 million,
$72.1 million and $69.4 million for 2007, 2006 and
2005, respectively, were paid on common stock. The amount of
cash dividends that may be paid on common stock is restricted by
provisions contained in certain note agreements under which
long-term debt was issued; however, as of October 31, 2007,
our retained earnings were not restricted. For further
information, see Note 4 to the consolidated financial
statements.
We have a shelf registration statement that can be used for
either debt or equity filed with the SEC. The remaining balance
of unused long-term financing available under this shelf
registration statement as of October 31, 2007 is
$109.4 million. Under this shelf registration, we sold
$200 million of long-term debt on June 20, 2006 that
was used to pay off $188 million of short-term debt on June
20 and to pay off a portion of the $35 million sinking fund
on the 9.44% Senior Notes due July 30, 2006.
Our long-term targeted capitalization ratio is 45% to 50% in
long-term debt and 50% to 55% in common equity. Accomplishing
this capital structure objective and maintaining sufficient cash
flow are necessary to maintain attractive credit ratings. As of
October 31, 2007, our capitalization consisted of 48% in
long-term debt and 52% in common equity.
The components of our total debt outstanding to our total
capitalization as of October 31, 2007 and 2006 are
summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
|
October 31
|
|
|
|
2007
|
|
|
Percentage
|
|
|
2006
|
|
|
Percentage
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
Short-term debt
|
|
$
|
195,500
|
|
|
|
10
|
%
|
|
$
|
170,000
|
|
|
|
9
|
%
|
Long-term debt
|
|
|
824,887
|
|
|
|
44
|
%
|
|
|
825,000
|
|
|
|
44
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,020,387
|
|
|
|
54
|
%
|
|
|
995,000
|
|
|
|
53
|
%
|
Common stockholders equity
|
|
|
878,374
|
|
|
|
46
|
%
|
|
|
882,925
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization (including short-term debt)
|
|
$
|
1,898,761
|
|
|
|
100
|
%
|
|
$
|
1,877,925
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2007, all of our long-term debt was
unsecured. Our long-term debt is rated A by
Standard & Poors Ratings Services and
A3 by Moodys Investors. Currently, with
respect to our long-term debt, the credit agencies maintain
their stable outlook. There is no guarantee that a rating will
remain in effect for any given period of time or that a rating
will not be lowered or withdrawn by a rating agency if, in its
judgment, circumstances warrant a change.
Credit ratings impact our ability to obtain short-term and
long-term financing and the cost of such financings. In
determining our credit ratings, the rating agencies consider
various factors. The more significant quantitative factors
include:
|
|
|
|
|
Ratio of total debt to total capitalization, including balance
sheet leverage,
|
|
|
|
Ratio of net cash flows to capital expenditures,
|
|
|
|
Funds from operations interest coverage,
|
|
|
|
Ratio of funds from operations to average total debt,
|
|
|
|
Pension liabilities and funding status, and
|
|
|
|
Pre-tax interest coverage.
|
25
Qualitative factors include, among other things:
|
|
|
|
|
Stability of regulation in the jurisdictions in which we operate,
|
|
|
|
Consistency of our earnings over time,
|
|
|
|
Risks and controls inherent in the distribution of natural gas,
|
|
|
|
Predictability of cash flows,
|
|
|
|
Quality of business strategy and management,
|
|
|
|
Corporate governance guidelines and practices,
|
|
|
|
Industry position, and
|
|
|
|
Contingencies.
|
We are subject to default provisions related to our long-term
debt and short-term borrowings. The default provisions of our
senior notes are:
|
|
|
|
|
Failure to make principal, interest or sinking fund payments,
|
|
|
|
Interest coverage of 1.75 times,
|
|
|
|
Total debt cannot exceed 70% of total capitalization,
|
|
|
|
Funded debt of all subsidiaries in the aggregate cannot exceed
15% of total company capitalization,
|
|
|
|
Failure to make payments on any capitalized lease obligation,
|
|
|
|
Bankruptcy, liquidation or insolvency, and
|
|
|
|
Final judgment against us in excess of $1 million that
after 60 days is not discharged, satisfied or stayed
pending appeal.
|
The default provisions of our medium-term notes are:
|
|
|
|
|
Failure to make principal, interest or sinking fund payments,
|
|
|
|
Failure after the receipt of a
90-day
notice to observe or perform for any covenant or agreement in
the notes or in the indenture under which the notes were
issued, and
|
|
|
|
Bankruptcy, liquidation or insolvency.
|
There are cross-default provisions in all of our debt
agreements, and thus event of default under one agreement may
result in total outstanding issues of debt becoming due. As of
October 31, 2007, we are in compliance with all default
provisions.
26
As of October 31, 2007, our estimated future contractual
obligations were as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Less than
|
|
|
1-3
|
|
|
4-5
|
|
|
After
|
|
|
|
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Total
|
|
|
|
In thousands
|
|
|
Long-term debt(1)
|
|
$
|
|
|
|
$
|
150,000
|
|
|
$
|
|
|
|
$
|
674,887
|
|
|
$
|
824,887
|
|
Interest on long-term debt(1)
|
|
|
55,648
|
|
|
|
159,134
|
|
|
|
89,657
|
|
|
|
664,390
|
|
|
|
968,829
|
|
Pipeline and storage capacity(2)
|
|
|
162,032
|
|
|
|
485,581
|
|
|
|
249,809
|
|
|
|
375,617
|
|
|
|
1,273,039
|
|
Gas supply(3)
|
|
|
25,405
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
26,129
|
|
Telecommunications and information technology(4)
|
|
|
18,641
|
|
|
|
59,114
|
|
|
|
20,818
|
|
|
|
|
|
|
|
98,573
|
|
Qualified and nonqualified pension plan funding(5)
|
|
|
11,553
|
|
|
|
34,511
|
|
|
|
11,473
|
|
|
|
|
|
|
|
57,537
|
|
Postretirement benefits plan funding(5)
|
|
|
2,172
|
|
|
|
5,400
|
|
|
|
1,700
|
|
|
|
|
|
|
|
9,272
|
|
Operating leases(6)
|
|
|
5,076
|
|
|
|
11,781
|
|
|
|
7,125
|
|
|
|
7,565
|
|
|
|
31,547
|
|
Other purchase obligations(7)
|
|
|
32,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,446
|
|
Letter of credit
|
|
|
1,900
|
|
|
|
5,700
|
|
|
|
3,800
|
|
|
|
|
|
|
|
11,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
314,873
|
|
|
$
|
911,945
|
|
|
$
|
384,382
|
|
|
$
|
1,722,459
|
|
|
$
|
3,333,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See Note 4 to the consolidated financial statements.
|
|
(2)
|
|
100% recoverable through PGA procedures.
|
|
(3)
|
|
Reservation fees that are 100% recoverable through PGA
procedures.
|
|
(4)
|
|
Consists primarily of maintenance fees for hardware and software
applications, usage fees, local and
long-distance
data costs, frame relay, and cell phone and pager usage fees.
|
|
(5)
|
|
Estimated funding beyond five years is not available. See
Note 8 to the consolidated financial statements.
|
|
(6)
|
|
See Note 7 to the consolidated financial statements.
|
|
(7)
|
|
Consists primarily of pipeline products, vehicles, contractors
and merchandise.
|
Off-balance
Sheet Arrangements
We have no off-balance sheet arrangements other than operating
leases that are reflected in the table above and discussed in
Note 7 to the consolidated financial statements.
Piedmont Energy Partners, Inc., a wholly owned subsidiary of
Piedmont, has entered into a guaranty in the normal course of
business. The guaranty involves some levels of performance and
credit risk that are not included on our consolidated balance
sheets. We have recorded $1.3 million and $1.8 million
as of October 31, 2007 and 2006, respectively. The
possibility of having to perform on the guaranty is largely
dependent upon the future operations of Hardy Storage, third
parties or the occurrence of certain future events. For further
information on this guaranty, see Note 11 to the
consolidated financial statements.
Critical
Accounting Policies and Estimates
We prepare the consolidated financial statements in conformity
with accounting principles generally accepted in the United
States of America. We make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the periods reported. Actual results may
differ significantly from these estimates and assumptions. We
base our estimates on historical experience, where applicable,
and other relevant factors that we believe are reasonable under
the circumstances. On an ongoing basis, we evaluate estimates
and assumptions and make adjustments in subsequent periods to
reflect more current information if we determine that
modifications in assumptions and estimates are warranted.
27
Management considers an accounting estimate to be critical if it
requires assumptions to be made that were uncertain at the time
the estimate was made and changes in the estimate or a different
estimate that could have been used would have had a material
impact on our financial condition or results of operations. We
consider regulatory accounting, revenue recognition and pension
and postretirement benefits to be our critical accounting
estimates. Management has discussed the selection and
development of the critical accounting policies and estimates
presented below with the Audit Committee of the Board of
Directors.
Regulatory Accounting.
Our regulated
utility segment is subject to regulation by certain state and
federal authorities. Our accounting policies conform to
Statement of Financial Accounting Standards (SFAS) No. 71,
Accounting for the Effects of Certain Types of
Regulation (Statement 71), and are in accordance with
accounting requirements and ratemaking practices prescribed by
the regulatory authorities. The application of these accounting
policies allows us to defer expenses and revenues on the balance
sheet as regulatory assets and liabilities when those expenses
and revenues will be allowed in the ratemaking process in a
period different from the period in which they would have been
reflected in the income statement by an unregulated company. We
then recognize these deferred regulatory assets and liabilities
through the income statement in the period in which the same
amounts are reflected in rates. If we, for any reason, cease to
meet the criteria for application of regulatory accounting
treatment for all or part of our operations, we would eliminate
from the balance sheet the regulatory assets and liabilities
related to those portions ceasing to meet such criteria and
include them in the income statement for the period in which the
discontinuance of regulatory accounting treatment occurs. Such
an event could have a material effect on our results of
operations in the period this action was recorded. Regulatory
assets as of October 31, 2007 and 2006, totaled
$134 million and $143.5 million, respectively.
Regulatory liabilities as of October 31, 2007 and 2006,
totaled $374 million and $337 million, respectively.
The detail of these regulatory assets and liabilities is
presented in Note 1.B to the consolidated financial
statements.
Revenue Recognition.
Utility sales and
transportation revenues are based on rates approved by state
regulatory commissions. Base rates charged to customers may not
be changed without formal approval by the regulatory commission
in that jurisdiction; however, the wholesale cost of gas
component of rates may be adjusted periodically under PGA
procedures. Through October 31, 2005, a WNA factor, based
on the margin or base rate component of the billing rate, was
included in rates charged to residential and commercial
customers during the winter period of November through March in
all jurisdictions except EasternNC. The WNA is designed to
offset the impact of warmer-than-normal or colder-than-normal
weather on customer billings during the winter season. Effective
November 1, 2005, the WNA was eliminated in North Carolina
and replaced with the CUT that provides for the recovery of our
approved margin from residential and commercial customers
independent of both weather and other consumption patterns. The
CUT tracks our margin earned monthly and will result in
semi-annual rate adjustments to refund any over-collection or
recover any under-collection. Without the CUT or WNA, our
operating revenues in 2007, 2006 and 2005 would have been lower
by $39.1 million, $34.6 million and $8.4 million,
respectively.
Revenues are recognized monthly on the accrual basis, which
includes estimated amounts for gas delivered to customers but
not yet billed under the cycle-billing method from the last
meter reading date to month end. Meters are read throughout the
month based on an approximate
30-day
usage
cycle; therefore, at any point in time, volumes are delivered to
customers that have not been metered and billed. The unbilled
revenue estimate reflects factors requiring judgment related to
estimated usage by customer class, changes in weather during the
period and the impact of the WNA or CUT mechanisms, as
applicable. Secondary market, or wholesale, sales revenues are
recognized when the physical sales are delivered based on
contract or market prices.
Pension and Postretirement Benefits.
We
have a defined-benefit pension plan for the benefit of eligible
full-time employees. We also provide certain postretirement
health care and life insurance benefits to eligible full-time
employees. Our reported costs of providing these benefits, as
described in Note 8 to the consolidated financial
statements, are impacted by numerous factors, including the
provisions of the plans, changing employee demographics and
various actuarial calculations, assumptions and accounting
mechanisms. Because of the complexity of these calculations, the
long-term nature of these obligations and the importance of the
assumptions used, our estimate of these costs is a critical
accounting estimate.
28
Several statistical and other factors, which attempt to
anticipate future events, are used in calculating the expenses
and liabilities related to the plans. These factors include
assumptions about the discount rate used in determining future
benefit obligations, projected health care cost trend rates,
expected long-term return on plan assets and rate of future
compensation increases, within certain guidelines. In addition,
we also use subjective factors such as withdrawal and mortality
rates to estimate projected benefit obligations. The actuarial
assumptions used may differ materially from actual results due
to changing market and economic conditions, higher or lower
withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant
impact on the amount of pension expense or other postretirement
benefit costs recorded in future periods.
The discount rate has been separately determined for each plan
by projecting the plans cash flows and developing a
zero-coupon spot rate yield curve using non-arbitrage pricing
and Moodys AA or better-rated non-callable bonds. Based on
this approach, the weighted average discount rate used in the
measurement of the benefit obligation for the qualified pension
plans changed from 5.78% in 2006 to 6.43% in 2007. For the
nonqualified pension plans, the weighted average discount rate
used in the measurement of the benefit obligation changed from
5.67% in 2006 to 6.06% in 2007. Similarly, based on this
approach, the weighted average discount rate for postretirement
benefits changed from 5.74% in 2006 to 6.25% in 2007. Based on
our review of actual cost trend rates and projected future
trends in establishing health care cost trend rates, we changed
our health care cost trend rate from 9% in 2006 to 8.5% in 2007,
declining gradually to 5% in 2012.
In determining our expected long-term rate of return on plan
assets, we review past long-term performance, asset allocations
and long-term inflation assumptions. We target our asset
allocations for qualified pension plan assets and other
postretirement benefit assets to be approximately 60% equity
securities and 40% fixed income securities. The expected
long-term rate of return on plan assets was 8.5% in 2005, 2006
and 2007, and will be changed to 8% in 2008. Based on a fairly
stagnant inflation trend, our age-related assumed rate of
increase in future compensation levels was 4.05% in 2005 and
decreased to 4.01% in 2006 and 3.99% in 2007 due to changes in
the demographics of the participants.
The following reflects the sensitivity of pension cost to
changes in certain actuarial assumptions for our qualified
pension plan, assuming that the other components of the
calculation are constant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on
|
|
|
|
Change in
|
|
|
Impact on 2007
|
|
|
Projected
|
|
Actuarial Assumption
|
|
Assumption
|
|
|
Pension Cost
|
|
|
Benefit Obligation
|
|
|
|
Increase (Decrease)
|
|
|
|
In thousands
|
|
|
Discount rate
|
|
|
(.25
|
)%
|
|
$
|
644
|
|
|
$
|
4,872
|
|
Rate of return on plan assets
|
|
|
(.25
|
)%
|
|
|
500
|
|
|
|
N/A
|
|
Rate of increase in compensation
|
|
|
.25
|
%
|
|
|
861
|
|
|
|
2,495
|
|
The following reflects the sensitivity of postretirement benefit
cost to changes in certain actuarial assumptions, assuming that
the other components of the calculation are constant.
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial Assumption
|
|
Assumption
|
|
|
Benefit Cost
|
|
|
Benefit Obligation
|
|
|
|
Increase (Decrease)
|
|
|
|
In thousands
|
|
|
Discount rate
|
|
|
(.25
|
)%
|
|
$
|
93
|
|
|
$
|
719
|
|
Rate of return on plan assets
|
|
|
(.25
|
)%
|
|
|
49
|
|
|
|
N/A
|
|
Health care cost trend rate
|
|
|
.25
|
%
|
|
|
23
|
|
|
|
318
|
|
We utilize a number of accounting mechanisms that reduce the
volatility of reported pension costs. Differences between
actuarial assumptions and actual plan results are deferred and
amortized into cost when the accumulated differences exceed 10%
of the greater of the projected benefit obligation or the
market-related value of the plan assets. If necessary, the
excess is amortized over the average remaining service period of
active employees.
29
Gas
Supply and Regulatory Proceedings
We continue to pursue the diversification of our supply
portfolio through pipeline capacity arrangements that access new
sources of supply and market-area storage and that diversify
supply concentration away from the Gulf Coast region. In January
2008, we anticipate that we will receive firm, long-term
transportation service from Midwestern of 120,000 dekatherms per
day that will provide access to Canadian and Rocky Mountain gas
supplies via the Chicago hub, primarily to serve our Tennessee
markets. We are currently using 40,000 dekatherms per day of
this capacity under a short-term agreement with the above
mentioned contract anticipated to become available in January
2008. As of April 2007, we began receiving firm, long-term
market-area storage service from Hardy Storage in West Virginia
that will provide 39,100 dekatherms per day of withdrawal
service for the winter of
2007-2008.
Hardy Storage withdrawal capabilities will increase over three
phases. Phase 1
(2007-2008
heating season) began at 57% of capacity, phase 2
(2008-2009
heating season) is planned at 85% of capacity, and phase 3
(2009-2010
heating season) is planned at 100% of capacity. We have a 50%
equity interest in this project which is more fully discussed in
Note 11 to the consolidated financial statements.
Secondary market transactions permit us to market gas supplies
and transportation services by contract with wholesale or
off-system customers. These sales contribute smaller
per-unit
wholesale margins to earnings; however, the program allows us to
act as a wholesale marketer of natural gas and transportation
capacity in order to generate operating margin from sources not
restricted by the capacity of our retail distribution system. A
sharing mechanism is in effect where 75% of any margin is passed
through to customers in all of our jurisdictions. However,
secondary market transactions in Tennessee are included in the
performance incentive plan discussed in Note 3 to the
consolidated financial statements.
Regulatory proceedings in South Carolina under the South
Carolina Rate Stabilization Act were completed during 2007 that
will impact 2008 earnings by decreasing annual margin by
$2.5 million based on an 11.2% return on equity effective
November 1, 2007. For further information about these
regulatory proceedings and other regulatory information, see
Note 3 to the consolidated financial statements.
In the November 2005 North Carolina general rate case order, the
CUT was established as an experimental tariff for a three-year
period ending November 1, 2008, subject to review in a
future general rate case. In accordance with that requirement,
it is our intent to file a general rate case in North Carolina
to be effective November 1, 2008.
Equity
Method Investments
For information about our equity method investments, see
Note 11 to the consolidated financial statements.
Environmental
Matters
We have developed an environmental self-assessment plan to
assess our facilities and program areas for compliance with
federal, state and local environmental regulations and to
correct any deficiencies identified. As a member of the North
Carolina MGP Initiative Group, we, along with other responsible
parties, work directly with the North Carolina Department of
Environment and Natural Resources to set priorities for
manufactured gas plant (MGP) site remediation. For additional
information on environmental matters, see Note 7 to the
consolidated financial statements.
Accounting
Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation 48, Accounting for Uncertainty in
Income Taxes (FIN 48), to clarify the accounting for
uncertain tax positions in accordance with SFAS 109,
Accounting for Income Taxes, and in May 2007 issued
Staff Position
No. FIN 48-1,
Definition of Settlement in FASB Interpretation
No. 48,
(FSP 48-1).
FIN 48 defines a minimum recognition threshold that a tax
position must meet to be recognized in an enterprises
financial statements. Additionally, FIN 48 provides
guidance on derecognition, measurement, classification, interim
period accounting, disclosure
30
and transition requirements in accounting for uncertain tax
positions.
FSP 48-1
clarifies when a tax position is considered effectively settled
under FIN 48. FIN 48 is effective the beginning of the
first annual period beginning after December 15, 2006, and
the guidance under
FSP 48-1
should be applied upon the adoption of FIN 48. Accordingly,
we will adopt FIN 48 and
FSP 48-1
in our fiscal year 2008. We have assessed the impact FIN 48
may have on our consolidated financial statements. The adoption
will not have a material impact on our financial position,
results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (Statement 157). Statement
157 provides enhanced guidance for using fair value to measure
assets and liabilities and applies whenever other standards
require (or permit) the measurement of assets or liabilities at
fair value, but does not expand the use of fair value
measurement to any new circumstances. Statement 157 establishes
a fair value hierarchy that prioritizes the information used to
develop those assumptions. The fair value hierarchy gives the
highest priority to quoted prices in active markets and the
lowest priority to unobservable data, for example, the reporting
entitys own data. Under Statement 157, fair value
measurements would be separately disclosed by level within the
fair value hierarchy. On November 14, 2007, the FASB
delayed the implementation of Statement 157 for one year only
for other nonfinancial assets and liabilities. Statement 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years, with earlier application encouraged
for financial assets and liabilities, as well as for any other
assets and liabilities that are carried at fair value on a
recurring basis. Accordingly, we will adopt Statement 157 no
later than our first fiscal quarter in 2009. We believe the
adoption of Statement 157 will not have a material impact on our
financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (Statement 158). Statement 158
requires an employer to fully recognize the obligations
associated with single-employer defined benefit pension, retiree
healthcare and other postretirement plans in the financial
statements by recognizing in its statement of financial position
an asset for a plans overfunded status or a liability for
a plans underfunded status rather than only disclosing the
funded status in the footnotes to the financial statements.
Statement 158 requires employers to recognize changes in the
funded status of a defined benefit postretirement plan in the
year in which the changes occur. Under Statement 158, gains and
losses, prior service costs and credits, and any remaining
transition amounts that have not yet been recognized through net
periodic benefit cost will be recognized in accumulated other
comprehensive income (OCI), net of tax effects, until they are
amortized as a component of net periodic cost. Statement 158
also requires that the company measure a plans assets and
its obligations that determine its funded status as of the end
of the employers fiscal year. We are already in compliance
with this requirement as our pension plans measurement
dates are already the same as our fiscal year end date.
The requirement to recognize the funded status of a benefit plan
and the related disclosure requirements applied as of the end of
the fiscal year ending after December 15, 2006.
Accordingly, we adopted the funded status portion of Statement
158 as of October 31, 2007. Adoption of Statement 158 on
our financial position is shown below. The adoption of Statement
158 did not have a material effect on our results of operations
or cash flows.
In August 2007, we filed petitions with the NCUC, the PSCSC and
the TRA requesting the ability to place certain defined benefit
postretirement obligations related to the implementation of
Statement 158 in a regulatory deferred account instead of OCI.
The petitions have been approved in all of the jurisdictions.
31
Based on the measurement of the various postretirement
plans assets and benefit obligations as of
October 31, 2007, the effect on our consolidated balance
sheet of adopting Statement 158 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Application of
|
|
|
Pension Liability
|
|
|
Adoption of
|
|
|
Rate Deferral
|
|
|
Application of
|
|
|
|
Statement 158
|
|
|
Adjustment
|
|
|
Statement 158
|
|
|
Adjustments
|
|
|
Statement 158
|
|
|
|
In thousands
|
|
|
Prepayments
|
|
$
|
22,435
|
|
|
$
|
|
|
|
$
|
(22,435
|
)
|
|
$
|
|
|
|
$
|
|
|
Overfunded postretirement asset
|
|
|
|
|
|
|
|
|
|
|
36,256
|
|
|
|
|
|
|
|
36,256
|
|
Regulatory asset for postretirement benefits, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,865
|
|
|
|
1,865
|
|
Accumulated other comprehensive income
|
|
|
(78
|
)
|
|
|
24
|
|
|
|
7,346
|
|
|
|
(7,292
|
)
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
Deferred income taxes (noncurrent)
|
|
|
(51
|
)
|
|
|
16
|
|
|
|
4,754
|
|
|
|
(4,719
|
)
|
|
|
|
|
Regulatory liability for postretirement benefits, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,876
|
|
|
|
13,876
|
|
Accumulated provision for postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
17,469
|
|
|
|
|
|
|
|
17,469
|
|
Other (deferred credits and other liabilities)
|
|
|
16,342
|
|
|
|
(40
|
)
|
|
|
(16,302
|
)
|
|
|
|
|
|
|
|
|
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (Statement 159). Statement 159 provides
companies with an option to report selected financial assets and
liabilities at fair value. Its objective is to reduce the
complexity in accounting for financial instruments and to
mitigate the volatility in earnings caused by measuring related
assets and liabilities differently. Although Statement 159 does
not eliminate disclosure requirements included in other
accounting standards, it does establish additional presentation
and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. Statement 159 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, with early adoption
permitted for an entity that has elected also to apply Statement
157 early. Accordingly, we will adopt Statement 159 no later
than our first fiscal quarter in 2009. We believe the adoption
of Statement 159 will not have a material impact on our
financial position, results of operations or cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
We hold all financial instruments discussed below for purposes
other than trading. We are potentially exposed to market risk
due to changes in interest rates and the cost of gas. Our
exposure to interest rate changes relates primarily to
short-term debt. We are exposed to interest rate changes to
long-term debt when we are in the market to issue long-term
debt. As of October 31, 2007, all of our long-term debt was
issued at fixed rates. Exposure to gas cost variations relates
to the wholesale supply, demand and price of natural gas.
Interest
Rate Risk
We have short-term borrowing arrangements to provide working
capital and general corporate funds. The level of borrowings
under such arrangements varies from period to period depending
upon many factors, including our investments in capital
projects. Future short-term interest expense and payments will
be impacted by both short-term interest rates and borrowing
levels.
As of October 31, 2007, we had $195.5 million of
short-term debt outstanding under our credit facility at an
average interest rate of 4.96%. The carrying amount of our
short-term debt approximates fair value. A
32
change of 100 basis points in the underlying average
interest rate for our short-term debt would have caused a change
in interest expense of approximately $1.2 million during
2007.
As of October 31, 2007, information about our long-term
debt is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as
|
|
|
|
Expected Maturity Date
|
|
|
of October 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Long-term Debt
|
|
$
|
|
|
|
$
|
30
|
|
|
$
|
60
|
|
|
$
|
60
|
|
|
$
|
|
|
|
$
|
675
|
|
|
$
|
825
|
|
|
$
|
893
|
|
Average Interest Rate
|
|
|
|
|
|
|
7.35
|
%
|
|
|
7.80
|
%
|
|
|
6.55
|
%
|
|
|
|
|
|
|
6.64
|
%
|
|
|
6.74
|
%
|
|
|
|
|
Commodity
Price Risk
We manage our gas supply costs through a portfolio of short- and
long-term procurement contracts with various suppliers. In the
normal course of business, we utilize exchange-traded contracts
of various duration for the forward purchase of a portion of our
natural gas requirements. Due to cost-based rate regulation in
our utility operations, our prudently incurred purchased gas
costs and the prudently incurred costs of hedging our gas
supplies are passed on to customers through PGA procedures.
Additional information concerning market risk is set forth in
Financial Condition and Liquidity in Item 7 of
this
Form 10-K.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Consolidated financial statements required by this item are
listed in Item 15 (a) 1 in Part IV of this
Form 10-K.
33
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Piedmont Natural Gas Company, Inc.
We have audited the accompanying consolidated balance sheets of
Piedmont Natural Gas Company, Inc. and subsidiaries
(Piedmont) as of October 31, 2007 and 2006, and
the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended October 31, 2007. These financial
statements are the responsibility of Piedmonts management.
Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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, the accompanying consolidated financial
statements present fairly, in all material respects, the
financial position of Piedmont Natural Gas Company, Inc. and
subsidiaries at October 31, 2007 and 2006, and the results
of their operations and their cash flows for each of the three
years in the period ended October 31, 2007 in conformity
with accounting principles generally accepted in the United
States of America.
As discussed in Note 8 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans, effective October 31, 2007.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
October 31, 2007, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated December 28, 2007
expressed an unqualified opinion on the Companys internal
control over financial reporting.
/s/ Deloitte &
Touche LLP
Charlotte, North Carolina
December 28, 2007
34
Piedmont
Natural Gas Company, Inc.
Consolidated
Balance Sheets
October 31,
2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
ASSETS
|
Utility Plant:
|
|
|
|
|
|
|
|
|
Utility plant in service
|
|
$
|
2,833,286
|
|
|
$
|
2,714,606
|
|
Less accumulated depreciation
|
|
|
752,977
|
|
|
|
733,682
|
|
|
|
|
|
|
|
|
|
|
Utility plant in service, net
|
|
|
2,080,309
|
|
|
|
1,980,924
|
|
Construction work in progress
|
|
|
61,228
|
|
|
|
94,386
|
|
|
|
|
|
|
|
|
|
|
Total utility plant, net
|
|
|
2,141,537
|
|
|
|
2,075,310
|
|
|
|
|
|
|
|
|
|
|
Other Physical Property, at cost (net of accumulated
depreciation of $2,197 in 2007 and $2,040 in 2006)
|
|
|
1,007
|
|
|
|
1,154
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
7,515
|
|
|
|
8,886
|
|
Restricted cash
|
|
|
2,211
|
|
|
|
|
|
Trade accounts receivable (less allowance for doubtful accounts
of $544 in 2007 and $1,239 in 2006)
|
|
|
97,625
|
|
|
|
90,493
|
|
Income taxes receivable
|
|
|
15,699
|
|
|
|
30,849
|
|
Other receivables
|
|
|
649
|
|
|
|
160
|
|
Unbilled utility revenues
|
|
|
24,121
|
|
|
|
45,938
|
|
Inventories:
|
|
|
|
|
|
|
|
|
Gas in storage
|
|
|
131,439
|
|
|
|
138,183
|
|
Materials, supplies and merchandise
|
|
|
5,222
|
|
|
|
6,221
|
|
Gas purchase options, at fair value
|
|
|
13,725
|
|
|
|
3,147
|
|
Amounts due from customers
|
|
|
76,035
|
|
|
|
89,635
|
|
Prepayments
|
|
|
61,007
|
|
|
|
62,356
|
|
Other
|
|
|
96
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
435,344
|
|
|
|
475,964
|
|
|
|
|
|
|
|
|
|
|
Investments, Deferred Charges and Other Assets:
|
|
|
|
|
|
|
|
|
Equity method investments in non-utility activities
|
|
|
95,193
|
|
|
|
75,330
|
|
Goodwill
|
|
|
48,852
|
|
|
|
47,383
|
|
Overfunded postretirement asset
|
|
|
36,256
|
|
|
|
|
|
Unamortized debt expense
|
|
|
10,565
|
|
|
|
11,306
|
|
Regulatory cost of removal asset
|
|
|
11,939
|
|
|
|
12,086
|
|
Other
|
|
|
39,625
|
|
|
|
35,406
|
|
|
|
|
|
|
|
|
|
|
Total investments, deferred charges and other assets
|
|
|
242,430
|
|
|
|
181,511
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,820,318
|
|
|
$
|
2,733,939
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION AND LIABILITIES
|
Capitalization:
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Cumulative preferred stock no par value
175 shares authorized
|
|
$
|
|
|
|
$
|
|
|
Common stock no par value shares
authorized: 200,000; shares outstanding: 74,208 in 2007 and
75,464 in 2006
|
|
|
497,570
|
|
|
|
532,764
|
|
Paid-in capital
|
|
|
402
|
|
|
|
56
|
|
Retained earnings
|
|
|
379,682
|
|
|
|
348,765
|
|
Accumulated other comprehensive income
|
|
|
720
|
|
|
|
1,340
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
878,374
|
|
|
|
882,925
|
|
Long-term debt
|
|
|
824,887
|
|
|
|
825,000
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
1,703,261
|
|
|
|
1,707,925
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
195,500
|
|
|
|
170,000
|
|
Trade accounts payable
|
|
|
97,156
|
|
|
|
80,304
|
|
Other accounts payable
|
|
|
46,411
|
|
|
|
50,935
|
|
Income taxes accrued
|
|
|
1,224
|
|
|
|
1,184
|
|
Accrued interest
|
|
|
21,811
|
|
|
|
21,273
|
|
Customers deposits
|
|
|
22,930
|
|
|
|
22,308
|
|
Deferred income taxes
|
|
|
16,422
|
|
|
|
25,085
|
|
General taxes accrued
|
|
|
18,980
|
|
|
|
18,522
|
|
Amounts due to customers
|
|
|
162
|
|
|
|
123
|
|
Other
|
|
|
3,915
|
|
|
|
10,655
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
424,511
|
|
|
|
400,389
|
|
|
|
|
|
|
|
|
|
|
Deferred Credits and Other Liabilities:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
267,479
|
|
|
|
235,411
|
|
Unamortized federal investment tax credits
|
|
|
2,983
|
|
|
|
3,417
|
|
Regulatory liability for postretirement benefits
|
|
|
13,876
|
|
|
|
|
|
Accumulated provision for postretirement benefits
|
|
|
17,469
|
|
|
|
|
|
Cost of removal obligations
|
|
|
351,738
|
|
|
|
330,104
|
|
Other
|
|
|
39,001
|
|
|
|
56,693
|
|
|
|
|
|
|
|
|
|
|
Total deferred credits and other liabilities
|
|
|
692,546
|
|
|
|
625,625
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,820,318
|
|
|
$
|
2,733,939
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
35
Piedmont
Natural Gas Company, Inc.
Consolidated
Statements of Income
For the
Years Ended October 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands except per share amounts
|
|
|
Operating Revenues
|
|
$
|
1,711,292
|
|
|
$
|
1,924,628
|
|
|
$
|
1,761,091
|
|
Cost of Gas
|
|
|
1,187,127
|
|
|
|
1,401,149
|
|
|
|
1,261,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin
|
|
|
524,165
|
|
|
|
523,479
|
|
|
|
499,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and maintenance
|
|
|
214,442
|
|
|
|
219,353
|
|
|
|
206,983
|
|
Depreciation
|
|
|
88,654
|
|
|
|
89,696
|
|
|
|
85,169
|
|
General taxes
|
|
|
32,407
|
|
|
|
33,138
|
|
|
|
29,807
|
|
Income taxes
|
|
|
51,315
|
|
|
|
50,543
|
|
|
|
51,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
386,818
|
|
|
|
392,730
|
|
|
|
373,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
137,347
|
|
|
|
130,749
|
|
|
|
125,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity method investments
|
|
|
37,156
|
|
|
|
29,917
|
|
|
|
27,664
|
|
Gain on sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
1,525
|
|
Non-operating income
|
|
|
2,218
|
|
|
|
1,147
|
|
|
|
3,830
|
|
Charitable contributions
|
|
|
(587
|
)
|
|
|
(321
|
)
|
|
|
(1,717
|
)
|
Non-operating expense
|
|
|
(164
|
)
|
|
|
(106
|
)
|
|
|
(28
|
)
|
Income taxes
|
|
|
(14,311
|
)
|
|
|
(11,887
|
)
|
|
|
(10,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net of tax
|
|
|
24,312
|
|
|
|
18,750
|
|
|
|
20,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Interest Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
55,440
|
|
|
|
49,915
|
|
|
|
46,173
|
|
Allowance for borrowed funds used during construction
|
|
|
(3,799
|
)
|
|
|
(3,893
|
)
|
|
|
(3,137
|
)
|
Other
|
|
|
5,631
|
|
|
|
6,288
|
|
|
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total utility interest charges
|
|
|
57,272
|
|
|
|
52,310
|
|
|
|
44,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before Minority Interest in Income of Consolidated
Subsidiary
|
|
|
104,387
|
|
|
|
97,189
|
|
|
|
101,872
|
|
Less Minority Interest in Income of Consolidated Subsidiary
|
|
|
|
|
|
|
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
104,387
|
|
|
$
|
97,189
|
|
|
$
|
101,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Shares of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
74,250
|
|
|
|
75,863
|
|
|
|
76,680
|
|
Diluted
|
|
|
74,472
|
|
|
|
76,156
|
|
|
|
76,992
|
|
Earnings Per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
Diluted
|
|
$
|
1.40
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
See notes to consolidated financial statements.
36
Piedmont
Natural Gas Company, Inc.
Consolidated
Statements of Cash Flows
For the
Years Ended October 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
104,387
|
|
|
$
|
97,189
|
|
|
$
|
101,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
93,355
|
|
|
|
94,111
|
|
|
|
91,677
|
|
Amortization of investment tax credits
|
|
|
(434
|
)
|
|
|
(534
|
)
|
|
|
(541
|
)
|
Allowance for doubtful accounts
|
|
|
(695
|
)
|
|
|
51
|
|
|
|
102
|
|
Allowance for funds used during construction
|
|
|
|
|
|
|
(3,893
|
)
|
|
|
(3,137
|
)
|
Gain on sale of corporate office land
|
|
|
|
|
|
|
|
|
|
|
(1,659
|
)
|
Income from equity method investments
|
|
|
(37,156
|
)
|
|
|
(29,917
|
)
|
|
|
(27,664
|
)
|
Distributions of earnings from equity method investments
|
|
|
27,884
|
|
|
|
28,442
|
|
|
|
23,649
|
|
Gain on sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
(1,525
|
)
|
Deferred income taxes
|
|
|
23,854
|
|
|
|
22,021
|
|
|
|
18,278
|
|
Stock-based compensation expense
|
|
|
336
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
14,892
|
|
|
|
19,395
|
|
|
|
(43,214
|
)
|
Inventories
|
|
|
7,743
|
|
|
|
12,791
|
|
|
|
(24,004
|
)
|
Amounts due from customers
|
|
|
13,599
|
|
|
|
(37,474
|
)
|
|
|
(23,329
|
)
|
Settlement of legal asset retirement obligations
|
|
|
(1,660
|
)
|
|
|
|
|
|
|
|
|
Overfunded postretirement asset
|
|
|
(36,256
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(2,137
|
)
|
|
|
7,581
|
|
|
|
(20,164
|
)
|
Accounts payable
|
|
|
13,069
|
|
|
|
(94,095
|
)
|
|
|
94,530
|
|
Amounts due to customers
|
|
|
39
|
|
|
|
(17,001
|
)
|
|
|
(9,255
|
)
|
Regulatory liability for postretirement benefits
|
|
|
13,876
|
|
|
|
|
|
|
|
|
|
Accumulated provision for postretirement benefits
|
|
|
17,469
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(18,664
|
)
|
|
|
5,146
|
|
|
|
8,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
129,114
|
|
|
|
6,624
|
|
|
|
82,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
233,501
|
|
|
|
103,813
|
|
|
|
183,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility construction expenditures
|
|
|
(135,231
|
)
|
|
|
(204,116
|
)
|
|
|
(191,407
|
)
|
Allowance for funds used during construction
|
|
|
(3,799
|
)
|
|
|
|
|
|
|
|
|
Reimbursements from bond fund
|
|
|
|
|
|
|
15,955
|
|
|
|
29,841
|
|
Contributions to equity method investments
|
|
|
(12,914
|
)
|
|
|
(23,696
|
)
|
|
|
(6,162
|
)
|
Distributions of capital from equity method investments
|
|
|
344
|
|
|
|
28,968
|
|
|
|
695
|
|
Proceeds from sale of corporate office building and land
|
|
|
|
|
|
|
|
|
|
|
6,660
|
|
Proceeds from sale of marketable securities
|
|
|
|
|
|
|
|
|
|
|
2,394
|
|
Decrease (increase) in restricted cash
|
|
|
(2,211
|
)
|
|
|
13,108
|
|
|
|
(376
|
)
|
Other
|
|
|
5,576
|
|
|
|
2,227
|
|
|
|
(683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(148,235
|
)
|
|
|
(167,554
|
)
|
|
|
(159,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in notes payable, net of expenses of $405 in 2006
|
|
|
25,500
|
|
|
|
11,095
|
|
|
|
49,000
|
|
Proceeds from issuance of long-term debt, net of expenses
|
|
|
|
|
|
|
193,360
|
|
|
|
|
|
Retirement of long-term debt
|
|
|
(113
|
)
|
|
|
(35,000
|
)
|
|
|
|
|
Expenses related to the issuance of long-term debt
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Issuance of common stock through dividend reinvestment and
employee stock plans
|
|
|
15,782
|
|
|
|
18,377
|
|
|
|
23,536
|
|
Repurchases of common stock
|
|
|
(54,240
|
)
|
|
|
(50,163
|
)
|
|
|
(26,119
|
)
|
Dividends paid
|
|
|
(73,561
|
)
|
|
|
(72,107
|
)
|
|
|
(69,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(86,637
|
)
|
|
|
65,562
|
|
|
|
(22,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(1,371
|
)
|
|
|
1,821
|
|
|
|
1,389
|
|
Cash and Cash Equivalents at Beginning of Year
|
|
|
8,886
|
|
|
|
7,065
|
|
|
|
5,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year
|
|
$
|
7,515
|
|
|
$
|
8,886
|
|
|
$
|
7,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
63,703
|
|
|
$
|
54,669
|
|
|
$
|
48,888
|
|
Income taxes
|
|
|
27,423
|
|
|
|
56,615
|
|
|
|
35,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued construction expenditures
|
|
$
|
741
|
|
|
$
|
2,837
|
|
|
$
|
2,036
|
|
Guaranty
|
|
|
485
|
|
|
|
1,820
|
|
|
|
|
|
See notes to consolidated financial statements.
37
Piedmont
Natural Gas Company, Inc.
Consolidated Statements of Stockholders Equity
For the Years Ended October 31, 2007, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
In thousands except per share amounts
|
|
|
Balance, October 31, 2004
|
|
$
|
563,667
|
|
|
$
|
|
|
|
$
|
291,397
|
|
|
$
|
(166
|
)
|
|
$
|
854,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
101,270
|
|
|
|
|
|
|
|
101,270
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment of realized gain on marketable
securities included in net income, net of tax of ($391)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(597
|
)
|
|
|
|
|
Unrealized gain from hedging activities of equity method
investments, net of tax of $287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
436
|
|
|
|
|
|
Reclassification adjustment of realized gain from hedging
activities of equity method investments included in net income,
net of tax of ($1,280)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,926
|
)
|
|
|
(2,087
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,183
|
|
Common Stock Issued
|
|
|
25,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,332
|
|
Common Stock Repurchased
|
|
|
(26,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,119
|
)
|
Tax Benefit from Dividends Paid on ESOP Shares
|
|
|
|
|
|
|
|
|
|
|
264
|
|
|
|
|
|
|
|
264
|
|
Dividends Declared ($.905 per share)
|
|
|
|
|
|
|
|
|
|
|
(69,366
|
)
|
|
|
|
|
|
|
(69,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2005
|
|
|
562,880
|
|
|
|
|
|
|
|
323,565
|
|
|
|
(2,253
|
)
|
|
|
884,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
97,189
|
|
|
|
|
|
|
|
97,189
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability, net of tax of ($51)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
Unrealized gain from hedging activities of equity method
investments, net of tax of $3,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,644
|
|
|
|
|
|
Reclassification adjustment of realized gain from hedging
activities of equity method investments included in net income,
net of tax of ($665)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(973
|
)
|
|
|
3,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,782
|
|
Common Stock Issued
|
|
|
20,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,047
|
|
Common Stock Repurchased
|
|
|
(50,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,163
|
)
|
Share-Based Compensation Expense
|
|
|
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
Tax Benefit from Dividends Paid on ESOP Shares
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
Dividends Declared ($.95 per share)
|
|
|
|
|
|
|
|
|
|
|
(72,107
|
)
|
|
|
|
|
|
|
(72,107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2006
|
|
|
532,764
|
|
|
|
56
|
|
|
|
348,765
|
|
|
|
1,340
|
|
|
|
882,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
104,387
|
|
|
|
|
|
|
|
104,387
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability, net of tax of $18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
Unrealized gain from hedging activities of equity method
investments, net of tax of $314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
578
|
|
|
|
|
|
Reclassification adjustment of realized gain from hedging
activities of equity method investments included in net income,
net of tax of ($762)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,276
|
)
|
|
|
(674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,713
|
|
Adjustment to initially apply Statement 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
54
|
|
Common Stock Issued
|
|
|
19,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,046
|
|
Common Stock Repurchased
|
|
|
(54,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,240
|
)
|
Share-Based Compensation Expense
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
336
|
|
Dividends Incentive Compensation Plan
|
|
|
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
Tax Benefit from Dividends Paid on ESOP Shares
|
|
|
|
|
|
|
|
|
|
|
101
|
|
|
|
|
|
|
|
101
|
|
Dividends Declared ($.99 per share)
|
|
|
|
|
|
|
|
|
|
|
(73,561
|
)
|
|
|
|
|
|
|
(73,561
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2007
|
|
$
|
497,570
|
|
|
$
|
402
|
|
|
$
|
379,682
|
|
|
$
|
720
|
|
|
$
|
878,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income as of
October 31, 2007 and 2006, are as follows.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Minimum pension liability
|
|
$
|
|
|
|
$
|
(78
|
)
|
Unrealized gain from hedging activities of equity method
investments
|
|
|
720
|
|
|
|
1,418
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
720
|
|
|
$
|
1,340
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
38
Piedmont
Natural Gas Company, Inc.
Notes to Consolidated Financial Statements
|
|
1.
|
Summary
of Significant Accounting Policies
|
|
|
A.
|
Operations
and Principles of Consolidation.
|
Piedmont is an energy services company primarily engaged in the
distribution of natural gas to residential, commercial and
industrial customers in portions of North Carolina, South
Carolina and Tennessee. We are invested in joint venture,
energy-related businesses, including unregulated retail natural
gas marketing, interstate natural gas storage and intrastate
natural gas transportation. Our utility operations are regulated
by three state regulatory commissions. For further information
on regulatory matters, see Note 3 to the consolidated
financial statements.
The consolidated financial statements reflect the accounts of
Piedmont, its wholly owned subsidiaries and, through
October 25, 2005, its 50% equity interest in Eastern North
Carolina Natural Gas Company (EasternNC). On October 25,
2005, we purchased the remaining 50% interest in EasternNC and
merged it into Piedmont. See Note 2 to the consolidated
financial statements for further information on acquisitions.
Investments in non-utility activities are accounted for under
the equity method as we do not have controlling voting interests
or otherwise exercise control over the management of such
companies. Our ownership interest in each entity is recorded in
Equity method investments in non-utility activities
in the consolidated balance sheets. Earnings or losses from
equity method investments are recorded in Income from
equity method investments in the consolidated statements
of income. For further information on equity method investments,
see Note 11 to the consolidated financial statements.
Revenues and expenses of all other non-utility activities are
included in Non-operating income in the consolidated
statements of income. Inter-company transactions have been
eliminated in consolidation where appropriate; however, we have
not eliminated inter-company profit on sales to affiliates and
costs from affiliates in accordance with Statement of Financial
Accounting Standards (SFAS) No. 71, Accounting For
The Effects of Certain Types of Regulation (Statement 71).
|
|
B.
|
Rate-Regulated
Basis of Accounting.
|
Our utility operations are subject to regulation with respect to
rates, service area, accounting and various other matters by the
regulatory commissions in the states in which we operate.
Statement 71 provides that rate-regulated public utilities
account for and report assets and liabilities consistent with
the economic effect of the manner in which independent
third-party regulators establish rates. In applying Statement
71, we capitalize certain costs and benefits as regulatory
assets and liabilities, respectively, in order to provide for
recovery from or refund to utility customers in future periods.
Our regulatory assets are recoverable through either rate riders
or base rates specifically authorized by a state regulatory
commission. Base rates are designed to provide both a recovery
of cost and a return on investment during the period the rates
are in effect. As such, all of our regulatory assets are subject
to review by the respective state regulatory commission during
any future rate proceedings. In the event that the provisions of
Statement 71 were no longer applicable, we would recognize a
write-off of net regulatory assets (regulatory assets less
regulatory liabilities) that would result in a charge to net
income. Although the natural gas distribution industry is
becoming increasingly competitive, our utility operations
continue to recover their costs through cost-based rates
established by the state regulatory commissions. As a result, we
believe that the accounting prescribed under Statement 71
remains appropriate. It is also our opinion that all regulatory
assets are recoverable in future rate proceedings, and therefore
we have not recorded any regulatory assets that are recoverable
but are not yet included in base rates or contemplated in a
future rate recovery proceeding.
39
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Regulatory assets and liabilities in the consolidated balance
sheets as of October 31, 2007 and 2006, are as follows.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Regulatory Assets:
|
|
|
|
|
|
|
|
|
Unamortized debt expense
|
|
$
|
10,565
|
|
|
$
|
11,306
|
|
Amounts due from customers
|
|
|
76,035
|
|
|
|
89,635
|
|
Environmental costs*
|
|
|
4,223
|
|
|
|
3,812
|
|
Demand-side management costs*
|
|
|
2,631
|
|
|
|
3,554
|
|
Deferred operations and maintenance expenses*
|
|
|
9,286
|
|
|
|
9,234
|
|
Deferred pipeline integrity expenses*
|
|
|
4,417
|
|
|
|
2,121
|
|
Deferred pension and other retirement benefits costs*
|
|
|
11,146
|
|
|
|
8,748
|
|
FAS 158 pension and other retirement benefits costs*
|
|
|
1,865
|
|
|
|
|
|
Regulatory cost of removal asset
|
|
|
11,939
|
|
|
|
12,086
|
|
Other*
|
|
|
1,866
|
|
|
|
2,972
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,973
|
|
|
$
|
143,468
|
|
|
|
|
|
|
|
|
|
|
Regulatory Liabilities:
|
|
|
|
|
|
|
|
|
Regulatory cost of removal obligations
|
|
$
|
334,079
|
|
|
$
|
310,989
|
|
Amounts due to customers
|
|
|
162
|
|
|
|
123
|
|
Deferred income taxes
|
|
|
25,463
|
|
|
|
25,134
|
|
FAS 158 pension and other retirement benefits costs
|
|
|
13,876
|
|
|
|
|
|
Environmental liability due customers*
|
|
|
386
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
373,966
|
|
|
$
|
337,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Regulatory assets are included in Other in
Investments, Deferred Charges and Other Assets and
regulatory liabilities are included in Other in
Deferred Credits and Other Liabilities in the
consolidated balance sheets.
|
As of October 31, 2007, we had regulatory assets totaling
$1.7 million on which we do not earn a return during the
recovery period. The original amortization periods for these
assets range from 3 to 15 years and, accordingly,
$.8 million will be fully amortized by 2008,
$.1 million will be fully amortized by 2010 and the
remaining $.8 million will be fully amortized by 2018.
|
|
C.
|
Utility
Plant and Depreciation.
|
Utility plant is stated at original cost, including direct labor
and materials, allocable overhead charges and allowance for
funds used during construction (AFUDC). For the years ended
October 31, 2007, 2006 and 2005, AFUDC totaled
$3.8 million, $3.9 million and $3.1 million,
respectively. The portion of AFUDC attributable to equity funds
is included in Other Income (Expense) and the
portion attributable to borrowed funds is shown as a reduction
of Utility Interest Charges in the consolidated
statements of income. The costs of property retired are removed
from utility plant and charged to accumulated depreciation.
We compute depreciation expense using the straight-line method
over periods ranging from four to 88 years. The composite
weighted-average depreciation rates were 3.23% for 2007, 3.46%
for 2006 and 3.46% for 2005.
40
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Depreciation rates for utility plant are approved by our
regulatory commissions. In North Carolina, we are required to
conduct a depreciation study every five years and propose new
depreciation rates for approval. No such five-year requirement
exists in South Carolina or Tennessee; however, we periodically
propose revised rates in those states based on depreciation
studies. The approved depreciation rates are comprised of two
components, one based on average service life and one based on
cost of removal. Through depreciation expense, we accrue
estimated non-legal costs of removal on any depreciable asset
that includes cost of removal in its depreciation rates.
|
|
D.
|
Asset
Retirement Obligations.
|
SFAS No. 143, Accounting for Asset Retirement
Obligations (AROs) (Statement 143), addresses the
financial accounting and reporting for AROs associated with the
retirement of long-lived assets that result from the
acquisition, construction, development and operation of the
asset. Statement 143 requires the recognition of the fair value
of a liability for an ARO in the period in which the liability
is incurred if a reasonable estimate of fair value can be made.
We have determined that AROs exist for our underground mains and
services.
In accordance with long-standing regulatory treatment, our
depreciation rates are comprised of two components, one based on
average service life and one based on cost of removal, as stated
above. We collect through rates the estimated costs of removal
on certain regulated properties through depreciation expense,
with a corresponding credit to accumulated depreciation. These
removal costs are non-legal obligations as defined by Statement
143. Because these estimated removal costs meet the requirements
of Statement 71, we have accounted for these non-legal asset
removal obligations as a regulatory liability. We have
reclassified the estimated non-legal asset removal obligations
from Accumulated depreciation to Cost of
removal obligations in Deferred Credits and Other
Liabilities in our consolidated balance sheets. In the
rate setting process, the liability for non-legal costs of
removal is treated as a reduction to the net rate base upon
which the regulated utility has the opportunity to earn its
allowed rate of return.
In 2006, we applied the Financial Accounting Standards Board
Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations (FIN 47), that requires
recognition of a liability for the fair value of a conditional
ARO when incurred if the liability can be reasonably estimated.
An ARO will be capitalized concurrently by increasing the
carrying amount of the related asset by the same amount of the
liability. In periods subsequent to the initial measurement, any
changes in the liability resulting from the passage of time
(accretion) or due to the revisions of either timing or the
amount of the originally estimated cash flows to settle the
conditional ARO must be recognized. Any accretion will not be
reflected in the income statement as we have received regulatory
treatment for deferral as a regulatory asset with netting
against a regulatory liability. We have recorded a liability on
our distribution and transmission mains and services.
The cost of removal obligations recorded in our consolidated
balance sheets as of October 31, 2007 and 2006, are shown
below.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Regulatory non-legal asset removal obligations
|
|
$
|
334,079
|
|
|
$
|
310,989
|
|
Conditional asset retirement obligations
|
|
|
17,659
|
|
|
|
19,115
|
|
|
|
|
|
|
|
|
|
|
Total cost of removal obligations
|
|
$
|
351,738
|
|
|
$
|
330,104
|
|
|
|
|
|
|
|
|
|
|
41
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
A reconciliation of our FIN 47 conditional ARO for the year
ended October 31, 2007, is presented below.
|
|
|
|
|
|
|
In thousands
|
|
|
Beginning of period
|
|
$
|
19,115
|
|
Liabilities incurred during the period
|
|
|
2,564
|
|
Liabilities settled during the period
|
|
|
(1,660
|
)
|
Accretion
|
|
|
1,102
|
|
Adjustment to estimated cash flows*
|
|
|
(3,462
|
)
|
|
|
|
|
|
End of period
|
|
$
|
17,659
|
|
|
|
|
|
|
|
|
|
*
|
|
Adjustment is primarily due to the change in the credit adjusted
risk-free rate from 5.78% as of October 31, 2006 to 6.24%
as of October 31, 2007.
|
|
|
E.
|
Trade
Accounts Receivable and Allowance for Doubtful
Accounts.
|
Trade accounts receivable consist of natural gas sales and
transportation services, merchandise sales and service work. We
maintain an allowance for doubtful accounts, which we adjust
periodically, based on the aging of receivables and our
historical and projected charge-off activity. Our estimate of
recoverability could differ from actual experience based on
customer credit issues, the level of natural gas prices and
general economic conditions. Effective November 1, 2005 as
approved in an order by the North Carolina Utilities Commission
(NCUC), we are allowed the recovery of all uncollected gas costs
in North Carolina through the gas cost deferral account. As a
result, only the portion of accounts written off relating to the
non-gas costs, or margin, is included in base rates and,
accordingly, only this portion is included in the provision for
uncollectibles expense. Merchandise receivables due beyond one
year are included in Other in Investments,
Deferred Charges and Other Assets in the consolidated
balance sheets.
A reconciliation of changes in the allowance for doubtful
accounts for the years ended October 31, 2007, 2006 and
2005, is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Balance at beginning of year
|
|
$
|
1,239
|
|
|
$
|
1,188
|
|
|
$
|
1,086
|
|
Additions charged to uncollectibles expense
|
|
|
4,981
|
|
|
|
4,706
|
|
|
|
6,224
|
|
Accounts written off, net of recoveries
|
|
|
(5,676
|
)
|
|
|
(4,655
|
)
|
|
|
(6,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
544
|
|
|
$
|
1,239
|
|
|
$
|
1,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F.
|
Goodwill,
Equity Method Investments and Long-Lived Assets.
|
All of our goodwill is attributable to the regulated utility
segment. We evaluate goodwill for impairment annually on
October 31, or more frequently if impairment indicators
arise during the year. An impairment charge would be recognized
if the carrying value of the reporting unit, including goodwill,
exceeded its fair value.
Our annual goodwill impairment assessment was performed at
October 31, 2007, and we determined that there was no
impairment to the carrying value of our goodwill. No impairment
has been recognized during the years ended October 31,
2007, 2006 and 2005.
We review our equity method investments and long-lived assets
for impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. There
were no events or circumstances during the years ended
October 31, 2007, 2006 and 2005, that resulted in any
impairment charges. For further information on equity method
investments, see Note 11 to the consolidated financial
statements.
42
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
|
|
G.
|
Unamortized
Debt Expense.
|
Unamortized debt expense consists of costs, such as underwriting
and broker dealer fees, discounts and commissions, legal fees,
registration fees and rating agency fees, related to issuing
long-term debt. We amortize debt expense on a straight-line
basis, which approximates the effective interest method, over
the life of the related debt which has lives ranging from 10 to
30 years.
We maintain gas inventories on the basis of average cost.
Injections into storage are priced at the purchase cost at the
time of injection and withdrawals from storage are priced at the
weighted average purchase price in storage. The cost of gas in
storage is recoverable under rate schedules approved by state
regulatory commissions. Inventory activity is subject to
regulatory review on an annual basis in gas cost recovery
proceedings.
Materials, supplies and merchandise inventories are valued at
the lower of average cost or market and removed from such
inventory at average cost.
|
|
I.
|
Deferred
Purchased Gas Adjustments.
|
Rate schedules for utility sales and transportation customers
include purchased gas adjustment (PGA) provisions that provide
for the recovery of prudently incurred gas costs. With
regulatory commission approval, we revise rates periodically
without formal rate proceedings to reflect changes in the cost
of gas. Under PGA provisions, charges to cost of gas are based
on the gas cost amounts recoverable under approved rate
schedules. By jurisdiction, differences between gas costs
incurred and gas costs billed to customers are deferred and
included in Amounts due from customers or
Amounts due to customers in the consolidated balance
sheets. We review gas costs and deferral activity periodically
and, with regulatory commission approval, increase rates to
collect under-recoveries or decrease rates to refund
over-recoveries over a subsequent period.
Deferred income taxes are determined based on the estimated
future tax effects of differences between the book and tax basis
of assets and liabilities. Deferred taxes are primarily
attributable to utility plant, equity method investments and
revenues and cost of gas. We have provided valuation allowances
to reduce the carrying amount of deferred tax assets to amounts
that are more likely than not to be realized. To the extent that
the establishment of deferred income taxes is different from the
recovery of taxes through the ratemaking process, the
differences are deferred pursuant to Statement 71, and a
regulatory asset or liability is recognized for the impact of
tax expenses or benefits that will be collected from or refunded
to customers in different periods pursuant to rate orders. We
amortize deferred investment tax credits to income over the
estimated useful lives of the property to which the credits
relate.
General taxes consist primarily of property taxes and payroll
taxes. These taxes are not included in revenues.
Utility sales and transportation revenues are based on rates
approved by state regulatory commissions. Base rates charged to
jurisdictional customers may not be changed without formal
approval by the regulatory commission in that jurisdiction;
however, the wholesale cost of gas component of rates may be
adjusted periodically under PGA provisions. A weather
normalization adjustment (WNA) factor is included in rates
charged to residential and commercial customers during the
winter period November through March in all jurisdictions except
EasternNC. The WNA is designed to offset the impact that
warmer-than-normal or colder-
43
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
than-normal weather has on customer billings during the winter
season. Effective November 1, 2005, in North Carolina,
through a general rate case proceeding, the Customer Utilization
Tracker (CUT) eliminated the WNA that had previously been used.
The CUT provides for the recovery of our approved margin from
residential and commercial customers independent of both weather
and consumption patterns.
Revenues are recognized monthly on the accrual basis, which
includes estimated amounts for gas delivered to customers but
not yet billed under the cycle-billing method from the last
meter reading date to month end. The unbilled revenue estimate
reflects factors requiring judgment related to estimated usage
by customer class, changes in weather during the period and the
impact of the WNA or CUT mechanisms, as applicable.
Secondary market, or wholesale, sales revenues are recognized
when the physical sales are delivered based on contract or
market prices. See Note 3 regarding revenue sharing of
secondary market transactions.
We compute basic earnings per share using the weighted average
number of shares of common stock outstanding during each period.
A reconciliation of basic and diluted earnings per share for the
years ended October 31, 2007, 2006 and 2005, is presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands except per share amounts
|
|
|
Net Income
|
|
$
|
104,387
|
|
|
$
|
97,189
|
|
|
$
|
101,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares of common stock outstanding for basic earnings
per share
|
|
|
74,250
|
|
|
|
75,863
|
|
|
|
76,680
|
|
Contingently issuable shares under the Executive Long-Term
Incentive Plan and Incentive Compensation Plan
|
|
|
222
|
|
|
|
293
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares of dilutive stock
|
|
|
74,472
|
|
|
|
76,156
|
|
|
|
76,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.41
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
Diluted
|
|
$
|
1.40
|
|
|
$
|
1.28
|
|
|
$
|
1.32
|
|
|
|
M.
|
Statements
of Cash Flows.
|
For purposes of reporting cash flows, we consider instruments
purchased with an original maturity at date of purchase of three
months or less to be cash equivalents.
We make estimates and assumptions when preparing the
consolidated financial statements. These estimates and
assumptions affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and
liabilities as of the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
estimates.
|
|
O.
|
Recently
Issued Accounting Standards.
|
In June 2006, the Financial Accounting Standards Board (FASB)
issued Interpretation 48, Accounting for Uncertainty in
Income Taxes (FIN 48), to clarify the accounting for
uncertain tax positions in accordance with SFAS 109,
Accounting for Income Taxes, and in May 2007 issued
Staff Position
No. FIN 48-1,
Definition of Settlement in FASB Interpretation
No. 48,
(FSP 48-1).
FIN 48 defines a minimum recognition threshold that a tax
position must meet to be recognized in an enterprises
financial statements. Additionally,
44
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
FIN 48 provides guidance on derecognition, measurement,
classification, interim period accounting, disclosure and
transition requirements in accounting for uncertain tax
positions.
FSP 48-1
clarifies when a tax position is considered effectively settled
under FIN 48. FIN 48 is effective the beginning of the
first annual period beginning after December 15, 2006, and
the guidance under
FSP 48-1
should be applied upon the adoption of FIN 48. Accordingly,
we will adopt FIN 48 and
FSP 48-1
in our fiscal year 2008. We have assessed the impact FIN 48
may have on our consolidated financial statements. The adoption
will not have a material impact on our financial position,
results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements (Statement 157). Statement
157 provides enhanced guidance for using fair value to measure
assets and liabilities and applies whenever other standards
require (or permit) the measurement of assets or liabilities at
fair value, but does not expand the use of fair value
measurement to any new circumstances. Statement 157 establishes
a fair value hierarchy that prioritizes the information used to
develop those assumptions. The fair value hierarchy gives the
highest priority to quoted prices in active markets and the
lowest priority to unobservable data, for example, the reporting
entitys own data. Under Statement 157, fair value
measurements would be separately disclosed by level within the
fair value hierarchy. On November 14, 2007, the FASB
delayed the implementation of Statement 157 for one year only
for other nonfinancial assets and liabilities. Statement 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods
within those fiscal years, with earlier application encouraged
for financial assets and liabilities, as well as for any other
assets and liabilities that are carried at fair value on a
recurring basis. Accordingly, we will adopt Statement 157 no
later than our first fiscal quarter in 2009. We believe the
adoption of Statement 157 will not have a material impact on our
financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans (Statement 158). Statement 158
requires an employer to fully recognize the obligations
associated with single-employer defined benefit pension, retiree
healthcare and other postretirement plans in the financial
statements by recognizing in its statement of financial position
an asset for a plans overfunded status or a liability for
a plans underfunded status rather than only disclosing the
funded status in the footnotes to the financial statements.
Statement 158 requires employers to recognize changes in the
funded status of a defined benefit postretirement plan in the
year in which the changes occur. Under Statement 158, gains and
losses, prior service costs and credits, and any remaining
transition amounts that have not yet been recognized through net
periodic benefit cost will be recognized in accumulated other
comprehensive income (OCI), net of tax effects, until they are
amortized as a component of net periodic cost. Statement 158
also requires that the company measure a plans assets and
its obligations that determine its funded status as of the end
of the employers fiscal year. We are already in compliance
with this requirement as our pension plans measurement
dates are already the same as our fiscal year end date.
The requirement to recognize the funded status of a benefit plan
and the related disclosure requirements applied as of the end of
the fiscal year ending after December 15, 2006.
Accordingly, we adopted the funded status portion of Statement
158 as of October 31, 2007. Adoption of Statement 158 on
our financial position is shown below. The adoption of Statement
158 did not have a material effect on our results of operations
or cash flows.
In August 2007, we filed petitions with the NCUC, the Public
Service Commission of South Carolina (PSCSC) and the Tennessee
Regulatory Authority (TRA) requesting the ability to place
certain defined benefit postretirement obligations related to
the implementation of Statement 158 in a regulatory deferred
account instead of OCI. The petitions have been approved in all
of the jurisdictions.
45
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Based on the measurement of the various postretirement
plans assets and benefit obligations as of
October 31, 2007, the effect on our consolidated balance
sheet of adopting Statement 158 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Application of
|
|
|
Pension Liability
|
|
|
Adoption of
|
|
|
Rate Deferral
|
|
|
Application of
|
|
|
|
Statement 158
|
|
|
Adjustment
|
|
|
Statement 158
|
|
|
Adjustments
|
|
|
Statement 158
|
|
|
|
In thousands
|
|
|
Prepayments
|
|
$
|
22,435
|
|
|
$
|
|
|
|
$
|
(22,435
|
)
|
|
$
|
|
|
|
$
|
|
|
Overfunded postretirement asset
|
|
|
|
|
|
|
|
|
|
|
36,256
|
|
|
|
|
|
|
|
36,256
|
|
Regulatory asset for postretirement benefits, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,865
|
|
|
|
1,865
|
|
Accumulated other comprehensive income
|
|
|
(78
|
)
|
|
|
24
|
|
|
|
7,346
|
|
|
|
(7,292
|
)
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
Deferred income taxes (noncurrent)
|
|
|
(51
|
)
|
|
|
16
|
|
|
|
4,754
|
|
|
|
(4,719
|
)
|
|
|
|
|
Regulatory liability for postretirement benefits, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,876
|
|
|
|
13,876
|
|
Accumulated provision for postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
17,469
|
|
|
|
|
|
|
|
17,469
|
|
Other (deferred credits and other liabilities)
|
|
|
16,342
|
|
|
|
(40
|
)
|
|
|
(16,302
|
)
|
|
|
|
|
|
|
|
|
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (Statement 159). Statement 159 provides
companies with an option to report selected financial assets and
liabilities at fair value. Its objective is to reduce the
complexity in accounting for financial instruments and to
mitigate the volatility in earnings caused by measuring related
assets and liabilities differently. Although Statement 159 does
not eliminate disclosure requirements included in other
accounting standards, it does establish additional presentation
and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes
for similar types of assets and liabilities. Statement 159 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, with early adoption
permitted for an entity that has elected also to apply Statement
157 early. Accordingly, we will adopt Statement 159 no later
than our first fiscal quarter in 2009. We believe the adoption
of Statement 159 will not have a material impact on our
financial position, results of operations or cash flows.
Effective at the close of business on September 30, 2003,
we purchased for $7.5 million in cash Progress Energy,
Inc.s (Progress) equity interest in EasternNC. At that
time, EasternNC was a regulated utility with a certificate of
public convenience and necessity to provide natural gas service
to 14 counties in eastern North Carolina that previously were
not served with natural gas. Progress equity interest in
EasternNC consisted of 50% of EasternNCs outstanding
common stock and 100% of EasternNCs outstanding preferred
stock.
We recorded the assets purchased on September 30, 2003, at
fair value, except for utility plant, franchises and consents
and miscellaneous intangible property that were recorded at book
value in accordance with Statement 71. We recorded estimated
goodwill at closing of $1.1 million for EasternNC.
46
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
On October 25, 2005, we purchased the remaining 50%
interest in EasternNC for $1. EasternNC was merged into Piedmont
immediately following the closing. The primary reason for the
purchase of the remaining 50% interest was to integrate the rate
structure of EasternNC into Piedmonts rate structure.
Our utility operations are regulated by the NCUC, PSCSC and TRA
as to rates, service area, adequacy of service, safety
standards, extensions and abandonment of facilities, accounting
and depreciation. We are also regulated by the NCUC as to the
issuance of securities.
In April 2005, we filed a general rate case with the NCUC
requesting a consolidation of the respective rate bases,
revenues and expenses of Piedmont, North Carolina Natural Gas
Corporation (NCNG) and EasternNC. In addition to a unified and
uniform rate structure for all customers served by us in North
Carolina, the application requested a general restructuring and
increase in rates and charges for customers to produce an
overall annual increase in margin of $36.7 million, a
consolidation
and/or
amortization of certain deferred accounts, changes to cost
allocations and rate design including a tariff mechanism that
decouples margin recovery from residential and commercial
customer consumption, changes and unification of existing
service regulations and tariffs, common depreciation rates for
plant and recovery of uncollectible gas costs through the gas
cost deferred account.
In November 2005, the NCUC issued an order approving, among
other things, an annual increase in margin of $20.2 million
under the 2005 general rate case and authorizing new rates,
effective November 1, 2005. The order provided for the
elimination of the WNA mechanism in North Carolina and the
establishment of a CUT that decouples margin recovery from
residential and commercial customer consumption. The CUT is
experimental and can be effective for no more than three years,
subject to review and approval for extension in a future general
rate case proceeding. The CUT provides for the recovery of our
approved margin from residential and commercial customers
independent of weather or other usage and consumption patterns.
The CUT tracks our margin earned monthly and will result in
semi-annual rate adjustments to refund any over-collection or
recover any under-collection. We have been operating under the
CUT for two years. During this time, we have made four rate
adjustment filings to recover under-collections from residential
and commercial customers. The latest of these four filings was
made in October 2007, where we requested a rate adjustment,
beginning November 1, 2007, to collect $32.1 million
attributable to the period ended August 31, 2007. Each of
these rate adjustment filings, including the October 2007
filing, has been approved by the NCUC.
Under the NCUCs orders approving the CUT, in each of the
three years the CUT is effective, we allocate $500,000 to energy
conservation program funding and share, in each of the three
years the CUT is effective, the first $3 million of CUT
dollars that are non-weather related. Annually, the first
$3 million of non-weather related CUT amounts will be
allocated 25% to customer rate reduction, 25% to energy
conservation program funding and 50% to us. Since the inception
of the CUT on November 1, 2005, we have incurred charges of
$4.2 million for the benefit of residential and commercial
customers. The charges consist of $2.5 million for the
funding of conservation programs in North Carolina,
$1.5 million for the reduction of residential and
commercial customer rates in North Carolina and $.2 million
for interest accruals on the conservation funding and reduction
of customer rates. The conservation programs are subject to
review and approval by the NCUC. At October 31, 2007, we
have a liability of $1.5 million out of the
$4.2 million incurred charges related to these conservation
programs.
The North Carolina General Assembly enacted the Clean Water and
Natural Gas Critical Needs Act of 1998 which provided for the
issuance of $200 million of general obligation bonds of the
state for the purpose of providing grants, loans or other
financing for the cost of constructing natural gas facilities in
unserved areas of North Carolina. In 2000, the NCUC issued an
order awarding EasternNC an exclusive franchise to provide
natural gas service to 14 counties in the eastern-most part of
North Carolina that had not been able to obtain gas service
because of the relatively small population of those counties and
the resulting uneconomic
47
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
feasibility of providing service. The order also granted
$38.7 million in state bond funding. In 2001, the NCUC
issued an order granting EasternNC an additional
$149.6 million, for a total of $188.3 million. During
the fiscal year ended October 31, 2006, we were reimbursed
$16 million in construction costs by the state, the
remaining balance of the bond fund as of October 31, 2005.
The NCUC had allowed EasternNC to defer its operations and
maintenance expenses during the first eight years of operation
or until the first rate case order, whichever occurred first,
with a maximum deferral of $15 million. The deferred
amounts accrued interest at a rate of 8.69% per annum. In
December 2003, the NCUC confirmed that these deferred expenses
should be treated as a regulatory asset for future recovery from
customers to the extent they are deemed prudent and proper. As a
part of the general rate case proceeding discussed above,
deferral ceased on October 31, 2005, and the balance in the
deferred account as of June 30, 2005, $7.9 million,
including accrued interest, is being amortized over
15 years beginning November 1, 2005. Amortization of
amounts totaling $1.3 million that were deferred between
July 1 and October 31, 2005, will be addressed in our next
North Carolina general rate case.
In October 2004, we filed a petition with the NCUC seeking
deferred accounting treatment for certain pipeline integrity
management costs to be incurred by us in compliance with the
Pipeline Safety Improvement Act of 1992 and regulations of the
United States Department of Transportation. The NCUC approved
deferral treatment of these costs applicable to all incremental
expenditures beginning November 1, 2004. As a part of the
2005 general rate case discussed above, the balance of
$.4 million in the deferred account as of June 30,
2005, is being amortized over three years beginning
November 1, 2005, and subsequent expenditures that total
$4.3 million as of October 31, 2007 will continue to
be deferred. Any unamortized balance at the end of the three
years will be addressed in a future rate case.
On February 16, 2005, the Natural Gas Rate Stabilization
Act (RSA) of 2005 became effective in South Carolina. The
law provides electing natural gas utilities, including Piedmont,
with a mechanism for the regular, periodic and more frequent
(annual) adjustment of rates which is intended to:
(1) encourage investment by natural gas utilities,
(2) enhance economic development efforts, (3) reduce
the cost of rate adjustment proceedings and (4) result in
smaller but more frequent rate changes for customers. If the
utility elects to operate under the Act, the annual filing will
provide that the utilitys rate of return on equity will
remain within a 50-basis points band above or below the current
allowed rate of return on equity. In April 2005, we filed an
election with the PSCSC to adopt this new mechanism.
In June 2005, we filed with the PSCSC a quarterly monitoring
report for the twelve months ended March 31, 2005, along
with revenue deficiency calculations and proposed changes in our
tariff rates. In the filing, we requested an increase in annual
margin of $3.2 million. In October 2005, the PSCSC issued
an order approving an increase in annual margin of
$2.6 million, effective November 1, 2005.
In June 2006, we filed with the PSCSC a quarterly monitoring
report for the twelve months ended March 31, 2006, along
with revenue deficiency calculations and proposed changes in our
tariff rates. In the filing, we requested an increase in annual
margin of $10.3 million. In September 2006, we, the Office
of Regulatory Staff (ORS) and the South Carolina Energy Users
Committee (SCEUC) filed a settlement agreement with the PSCSC
addressing our proposed rate changes under the RSA. In September
2006, the PSCSC issued an order approving a $5.6 million
increase in margin based on 11.2% return on equity effective
November 1, 2006.
In June 2007, we filed with the PSCSC a quarterly monitoring
report for the twelve months ended March 31, 2007 and a
cost and revenue study as permitted by the RSA requesting no
change in margin. In August 2007, we, the ORS and the SCEUC
filed a settlement agreement with the PSCSC which will result in
a $2.5 million annual decrease in margin based on a return
of equity of 11.2%. In October 2007, the PSCSC issued an order
approving the settlement, effective November 1, 2007.
48
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
All three jurisdictions regulate our gas purchasing practices
under a standard of prudence and audit our gas cost accounting
practices. As part of this jurisdictional oversight, all three
states address our gas supply hedging activities. Additionally,
as detailed below, all three states allow for recovery of
uncollectible gas costs through the PGA.
In August 2007, the NCUC approved our accounting for gas costs
during the twelve months ended May 31, 2006, with
adjustments agreed to by us as a result of the North Carolina
Public Staffs audit of the 2006 gas cost review period. We
were deemed prudent on our gas purchasing policies and practices
during this review period and allowed 100% recovery. In this
order the NCUC also required us to discontinue the accounting
practice of capitalizing and amortizing storage demand charges,
effective no later than November 1, 2007. This action
resulted in a margin decrease of $5.4 million in 2007.
During 2007, under the provisions of the August 2007 NCUC order,
we recorded as restricted funds $2.2 million, including
interest, of supplier refunds. In September 2007, we petitioned
the NCUC for authority to liquidate all certificates of deposit
and similar investments that held any supplier refunds due to
customers. In October 2007, the NCUC approved the transfer of
these restricted funds to the North Carolina all customers
deferred account. The various certificates of deposit all mature
by January 31, 2008.
In November 2007, the NCUC approved our accounting of gas costs
for the twelve months ended May 31, 2007, with adjustments
agreed to by us as a result of the North Carolina Public
Staffs audit of the 2007 gas cost review period. We were
deemed prudent on our gas purchasing policies and practices
during this review period and allowed 100% recovery.
Our hedging plan for North Carolina targets 30% to 60% of annual
normalized sales volumes for North Carolina and operates
using historical pricing indices that are tied to future
projected gas prices as traded on a national exchange. Unlike
South Carolina as discussed below, recovery of costs associated
with the North Carolina hedging plan is not pre-approved by the
NCUC, and the costs are treated as gas costs subject to the
annual gas cost prudence review. Any gain or loss recognition
are deemed to be reductions in or additions to gas costs,
respectively, which, along with any hedging expenses, are flowed
through to North Carolina customers in rates. The August
2007 gas cost review order and our November 2007 gas cost review
order found our hedging activities during the two review periods
to be reasonable and prudent.
Since November 1, 2005, the NCUC has allowed the recovery
of all uncollectible gas costs through the gas cost PGA deferral
account. As a result, the portion of uncollectibles related to
gas costs is recovered through the deferred account and only the
non-gas costs, or margin, portion of uncollectibles is included
in base rates and uncollectibles expense.
In South Carolina, the PSCSC approved a settlement in August
2006 between us, the ORS and the SCEUC accepting our purchased
gas adjustments and finding our gas purchasing policies prudent
for the twelve months ended March 31, 2006. As part of this
settlement, we began recovering uncollectible gas costs through
the PGA effective November 1, 2006 in South Carolina. A
settlement between us, the ORS and the SCEUC accepting our
purchased gas adjustments and finding our gas purchasing
policies prudent for the twelve months ended March 31, 2007
is pending before the PSCSC. We cannot determine the outcome of
the proceeding at this time.
The PSCSC has approved a gas cost hedging plan for the purpose
of cost stabilization for South Carolina customers. The plan
targets 30% to 60% of annual normalized sales volumes for South
Carolina and operates using historical pricing indices that are
tied to future projected gas prices as traded on a national
exchange. All properly accounted for costs incurred in
accordance with the plan are deemed to be prudently incurred and
are recovered in rates as gas costs. Any gain or loss
recognition are deemed to be reductions in or additions to gas
costs, respectively, and are flowed through to South Carolina
customers in rates.
49
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
In Tennessee, the Tennessee Incentive Plan (TIP) replaced annual
prudence reviews under the Actual Cost Adjustment (ACA)
mechanism in 1996 by benchmarking gas costs against amounts
determined by published market indices and by sharing secondary
market (capacity release and off-system sales) activity
performance. The costs and benefits of hedging instruments and
all other gas costs incurred are components of the TIP. In July
2005, in the order approving our 2004 TIP filing, the TRA
established a separate docket to address issues raised by the
Tennessee Consumer Advocate Staff and the TRA Staff related to
the breadth of secondary market activities covered by the TIP,
the method for selecting the independent consultant to review
performance under the TIP, and the procedures utilized with
respect to requests for proposal. In October 2007, the TRA
approved our settlement with the staff of the TRA and the
Tennessee Consumer Advocate Staff modifying our TIP with an
effective date of July 1, 2006. The modifications clarify
and simplify the calculation of allocated gains and losses to
ratepayers and shareholders by adopting a uniform 75/25 sharing
ratio, maintain the current $1.6 million annual incentive
cap on gains and losses, improve the transparency of plan
operations by an agreed to request for proposal procedures for
asset management transactions and provide for a triennial review
of TIP operations by an independent consultant.
In March 2003, we, along with two other natural gas companies in
Tennessee, filed a petition with the TRA requesting a
declaratory order that the gas cost portion of uncollectible
accounts be recovered through PGA procedures. We requested that
to the extent that the gas cost portion of net write-offs for a
fiscal year is less than the gas cost portion included in base
rates, the difference would be refunded to customers through the
ACA filings. With TRA approval, this methodology was used on an
experimental basis for two years. In August 2006, the TRA
approved the methodology permanently.
Due to the seasonal nature of our business, we contract with
customers in the secondary market to sell supply and capacity
assets when available. In North Carolina and South Carolina, we
operate under sharing mechanisms approved by the NCUC and the
PSCSC for secondary market transactions where 75% of the net
margins are flowed through to jurisdictional customers in rates
and 25% is retained by us. In Tennessee, we operate under the
amended TIP where gas purchase benchmarking gains and losses are
combined with secondary market transaction gains and losses and
shared 75% by customers and 25% by us. Our share of net gains or
losses in Tennessee is subject to an overall annual cap of
$1.6 million.
We filed a petition with the NCUC and the PSCSC in September
2006, and with the TRA in September 2006, for authorization to
place certain ARO costs in deferred accounts so that the
regulatory treatment for these costs will not be altered due to
our adoption of FIN 47. The petitions were approved in all
of the jurisdictions in November 2007, effective
October 31, 2006.
In August 2007, we filed petitions with the NCUC, the PSCSC and
the TRA requesting the ability to place certain defined benefit
postretirement obligations related to the implementation of
Statement 158 in a deferred account instead of OCI. The
petitions have been approved in all of the jurisdictions.
We currently have commission approval in all three states that
place additional credit requirements on the retail natural gas
marketers that schedule gas into our system in order to mitigate
the risk exposure to the financial condition of the marketers.
In August 2007, we requested authorization from the NCUC and the
PSCSC to defer certain settlement charges that we believed we
may have been required to recognize under SFAS No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits as a result of lump sum distributions
from our pension plans in our current fiscal year. Because these
charges did not accrue, we withdrew the filing from North
Carolina and it will not be necessary to exercise the authority
we received from South Carolina.
50
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
All of our long-term debt is unsecured. Long-term debt as of
October 31, 2007 and 2006, is as follows.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Senior Notes:
|
|
|
|
|
|
|
|
|
8.51%, due 2017
|
|
$
|
35,000
|
|
|
$
|
35,000
|
|
Insured Quarterly Notes:
|
|
|
|
|
|
|
|
|
6.25%, due 2036
|
|
|
199,887
|
|
|
|
200,000
|
|
Medium-Term Notes:
|
|
|
|
|
|
|
|
|
7.35%, due 2009
|
|
|
30,000
|
|
|
|
30,000
|
|
7.80%, due 2010
|
|
|
60,000
|
|
|
|
60,000
|
|
6.55%, due 2011
|
|
|
60,000
|
|
|
|
60,000
|
|
5.00%, due 2013
|
|
|
100,000
|
|
|
|
100,000
|
|
6.87%, due 2023
|
|
|
45,000
|
|
|
|
45,000
|
|
8.45%, due 2024
|
|
|
40,000
|
|
|
|
40,000
|
|
7.40%, due 2025
|
|
|
55,000
|
|
|
|
55,000
|
|
7.50%, due 2026
|
|
|
40,000
|
|
|
|
40,000
|
|
7.95%, due 2029
|
|
|
60,000
|
|
|
|
60,000
|
|
6.00%, due 2033
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
824,887
|
|
|
|
825,000
|
|
Less current maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
824,887
|
|
|
$
|
825,000
|
|
|
|
|
|
|
|
|
|
|
Current maturities for the next five years ending October 31 and
thereafter are as follows.
|
|
|
|
|
|
|
In thousands
|
|
|
2008
|
|
$
|
|
|
2009
|
|
|
30,000
|
|
2010
|
|
|
60,000
|
|
2011
|
|
|
60,000
|
|
2012
|
|
|
|
|
Thereafter
|
|
|
674,887
|
|
|
|
|
|
|
Total
|
|
$
|
824,887
|
|
|
|
|
|
|
We have a shelf registration statement that can be used for
either debt or equity securities filed with the Securities and
Exchange Commission (SEC). The remaining balance of unused
long-term financing available under this shelf registration
statement is $109.4 million.
On September 1, 2007, $.1 million was paid to
noteholders of the 6.25% insured quarterly notes based on a
redemption right upon the death of the owner of the notes,
within specified limitations.
The amount of cash dividends that may be paid on common stock is
restricted by provisions contained in certain note agreements
under which long-term debt was issued, with those for the senior
notes being the most restrictive. We cannot pay or declare any
dividends, make any other distribution on any class of stock or
make any investments in subsidiaries, or permit any subsidiary
to do any of the above (all of the foregoing being
restricted payments), except out of net earnings
available for restricted payments. As of October 31, 2007,
we could make restricted payments totaling $540.7 million.
Retained earnings as of this date were $379.7 million;
therefore, our retained earnings were not restricted.
51
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
We are subject to cross-default provisions related to our
long-term debt. An event of default under any of our debt
agreements may result in total outstanding issues of debt
becoming due. As of October 31, 2007, we are in compliance
with all default provisions.
|
|
5.
|
Capital
Stock and Accelerated Share Repurchase
|
Changes in common stock for the years ended October 31,
2005, 2006 and 2007, are as follows.
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
In thousands
|
|
|
Balance, October 31, 2004
|
|
|
76,670
|
|
|
$
|
563,667
|
|
Issued to participants in the Employee Stock Purchase Plan (ESPP)
|
|
|
43
|
|
|
|
904
|
|
Issued to the Dividend Reinvestment and Stock Purchase Plan
(DRIP)
|
|
|
1,013
|
|
|
|
22,632
|
|
Issued to participants in the Executive Long-Term Incentive Plan
(LTIP)
|
|
|
77
|
|
|
|
1,796
|
|
Shares repurchased under Common Stock Open Market Repurchase Plan
|
|
|
(1,105
|
)
|
|
|
(26,119
|
)
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2005
|
|
|
76,698
|
|
|
|
562,880
|
|
Issued to ESPP
|
|
|
36
|
|
|
|
882
|
|
Issued to DRIP
|
|
|
735
|
|
|
|
17,496
|
|
Issued to LTIP
|
|
|
75
|
|
|
|
1,669
|
|
Shares repurchased under Common Stock Open Market Repurchase Plan
|
|
|
(1,080
|
)
|
|
|
(25,871
|
)
|
Shares repurchased under Accelerated Share Repurchase (ASR) Plan
|
|
|
(1,000
|
)
|
|
|
(24,292
|
)
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2006
|
|
|
75,464
|
|
|
|
532,764
|
|
Issued to ESPP
|
|
|
34
|
|
|
|
809
|
|
Issued to DRIP
|
|
|
593
|
|
|
|
14,973
|
|
Issued to LTIP
|
|
|
117
|
|
|
|
3,264
|
|
Shares repurchased under Common Stock Open Market Repurchase Plan
|
|
|
(150
|
)
|
|
|
(3,953
|
)
|
Shares repurchased under ASR
|
|
|
(1,850
|
)
|
|
|
(50,287
|
)
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2007
|
|
|
74,208
|
|
|
$
|
497,570
|
|
|
|
|
|
|
|
|
|
|
In June 2004, the Board of Directors approved a Common Stock
Open Market Purchase Program that authorizes the repurchase of
up to three million shares of currently outstanding shares of
common stock. We implemented the program in September 2004. We
utilize a broker to repurchase the shares on the open market and
such shares are cancelled and become authorized but unissued
shares available for issuance under the ESPP, DRIP and LTIP.
On December 16, 2005, the Board of Directors approved an
increase in the number of shares in this program from three
million to six million to reflect the stock split in 2004. The
Board also approved the repurchase of up to four million
additional shares of currently outstanding shares of common
stock and amended the program to provide for repurchases to
maintain our debt-to-equity capitalization ratios at target
levels. These combined actions increased the total authorized
share repurchases from three million to ten million shares.
On November 3, 2006, we entered into an ASR agreement. On
November 7, 2006, we purchased and retired 1 million
shares of our common stock from an investment bank at the
closing price that day of $26.48 per share. Total consideration
paid to purchase the shares of $26.6 million, including
$118,800 in commissions and other fees, was recorded in
Stockholders equity as a reduction in
Common stock.
As part of the ASR, we simultaneously entered into a forward
sale contract with the investment bank that was expected to
mature in approximately 50 trading days. Under the terms of the
forward sale contract, the investment bank was required to
purchase, in the open market, 1 million shares of our
common stock during the term of the contract to fulfill its
obligation related to the shares it borrowed from third parties
and sold to
52
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
us. At settlement, we, at our option, were required to either
pay cash or issue registered or unregistered shares of our
common stock to the investment bank if the investment
banks weighted average purchase price was higher than the
November 7, 2006 closing price. The investment bank was
required to pay us either cash or shares of our common stock, at
our option, if the investment banks weighted average price
for the shares purchased was lower than the November 7,
2006 closing price. At settlement on January 19, 2007, we
paid cash of $.8 million to the investment bank and
recorded this amount in Stockholders equity as
a reduction in Common stock. The $.8 million
was the difference between the investment banks weighted
average purchase price of $27.3234 and the November 7, 2006
closing price of $26.48 per share multiplied by 1 million
shares.
On March 30, 2007, we entered into an ASR agreement under
the same terms. On April 2, 2007, we purchased and retired
an additional 850,000 shares of our common stock from an
investment bank at the closing price that day of $26.38 per
share. Total consideration paid to purchase the shares of
$22.5 million, including $25,500 in commissions and other
fees, was recorded in Stockholders equity as a
reduction in Common stock. At settlement on
May 23, 2007, we paid cash of $.4 million to the
investment bank and recorded this amount in
Stockholders equity as a reduction in
Common stock. The $.4 million was the
difference between the investment banks weighted average
purchase price of $26.8459 and the March 30, 2007 closing
price of $26.38 per share multiplied by 1 million shares.
As of October 31, 2007, 2 million shares of common
stock were reserved for issuance as follows.
|
|
|
|
|
|
|
In thousands
|
|
|
ESPP
|
|
|
107
|
|
DRIP
|
|
|
896
|
|
LTIP
|
|
|
1,030
|
|
|
|
|
|
|
Total
|
|
|
2,033
|
|
|
|
|
|
|
|
|
6.
|
Financial
Instruments and Related Fair Value
|
We have a syndicated five-year revolving credit facility with
aggregate commitments totaling $350 million, that may be
increased up to $600 million, and that includes annual
renewal options. We pay an annual fee of $35,000 plus six basis
points for any unused amount up to $350 million. The
facility provides a line of credit for letters of credit up to
$5 million of which $1.5 million and $1.2 million
were issued and outstanding at October 31, 2007 and 2006,
respectively. These letters of credit are used to guarantee
claims from self-insurance under our general liability policies.
The credit facility bears interest based on the
30-day
LIBOR
rate plus from .15% to .35%, based on our credit ratings.
As of October 31, 2007 and 2006, outstanding borrowings
under the lines are included in Notes payable in the
consolidated balance sheets, and consisted of
$195.5 million and $170 million, respectively, in
LIBOR cost-plus loans at a weighted average interest rate of
4.96% in 2007 and 5.57% in 2006. Our credit facilitys
financial covenants require us to maintain a ratio of total debt
to total capitalization of no greater than 70%, and the actual
ratio was 54% at October 31, 2007. As of October 31,
2007, the unused committed lines of credit totaled
$153 million.
Our principal business activity is the distribution of natural
gas. As of October 31, 2007, our trade accounts receivable
consisted of gas receivables of $95.5 million and
merchandise and jobbing receivables of $2.1 million, net of
an allowance for doubtful accounts of $.5 million. We
believe that we have provided an adequate allowance for any
receivables which may not be ultimately collected.
In February 2005, we sold 37,244 common units of Energy Transfer
Partners, LP, which we received in connection with the sale in
January 2004 of our propane interests, for proceeds of
$2.4 million, resulting in a pre-tax gain of
$1.5 million. For further information on this transaction,
see Note 11 to the consolidated financial statements.
53
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
The carrying amounts in the consolidated balance sheets of cash
and cash equivalents, restricted cash, receivables, notes
payable and accounts payable approximate their fair values due
to the short-term nature of these financial instruments. Based
on quoted market prices of similar issues having the same
remaining maturities, redemption terms and credit ratings, the
estimated fair value amounts of long-term debt as of
October 31, 2007 and 2006, including current portion, were
as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
In thousands
|
|
|
Long-term debt
|
|
$
|
824,887
|
|
|
$
|
892,506
|
|
|
$
|
825,000
|
|
|
$
|
913,739
|
|
The use of different market assumptions or estimation
methodologies could have a material effect on the estimated fair
value amounts. The fair value amounts reflect principal amounts
that we will ultimately be required to pay.
We purchase natural gas for our regulated operations for resale
under tariffs approved by the state regulatory commissions
having jurisdiction over the service area where the customer is
located. We recover the cost of gas purchased for regulated
operations through purchased gas cost recovery mechanisms. We
structure the pricing, quantity and term provisions of our gas
supply contracts to maximize flexibility and minimize cost and
risk for our customers. Our risk management policies allow us to
use financial instruments to hedge risks. We have a
management-level Energy Risk Management Committee that
monitors risks in accordance with our risk management policies.
We have purchased and sold financial options for natural gas in
all three states for our gas purchase portfolios. The gains or
losses on financial derivatives utilized in the regulated
utility segment are included in our gas cost adjustments to
customers subject to appropriate regulatory review. Current
period changes in the assets and liabilities from these risk
management activities are recorded as a component of gas costs
in amounts due to/from customers in accordance with Statement
71. Accordingly, there is no earnings impact on the regulated
utility segment as a result of the use of these financial
derivatives. As of October 31, 2007 and 2006, the total
fair value of gas purchase options included in the consolidated
balance sheets was $13.7 million and $3.1 million,
respectively.
|
|
7.
|
Commitments
and Contingent Liabilities
|
Leases
We lease certain buildings, land and equipment for use in our
operations under noncancelable operating leases. For the years
ended October 31, 2007, 2006 and 2005, operating lease
payments were $6.6 million, $7.2 million and
$6.9 million, respectively.
Future minimum lease obligations for the next five years ending
October 31 and thereafter are as follows.
|
|
|
|
|
|
|
In thousands
|
|
|
2008
|
|
$
|
5,076
|
|
2009
|
|
|
4,461
|
|
2010
|
|
|
3,728
|
|
2011
|
|
|
3,592
|
|
2012
|
|
|
3,553
|
|
Thereafter
|
|
|
11,137
|
|
|
|
|
|
|
Total
|
|
$
|
31,547
|
|
|
|
|
|
|
54
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Long-term
contracts
We routinely enter into long-term gas supply commodity and
capacity commitments and other agreements that commit future
cash flows to acquire services we need in our business. These
commitments include pipeline and storage capacity contracts and
gas supply contracts to provide service to our customers and
telecommunication and information technology contracts and other
purchase obligations. The time periods for pipeline and storage
capacity contracts range from one to sixteen years. The time
periods for gas supply contracts range from one to four years.
The time periods for the telecommunications and technology
contracts providing maintenance fees for hardware and software
applications, usage fees, local and long-distance data costs,
frame relay, cell phone and pager usage fees range from one to
five years. Other purchase obligations consist primarily of
commitments for pipeline products, vehicles and contractors.
Certain storage and pipeline capacity contracts require the
payment of demand charges that are based on rates approved by
the Federal Energy Regulatory Commission (FERC) in order to
maintain the ability to access the natural gas storage or the
pipeline capacity on a firm basis during the contract term. The
demand charges that are incurred in each period are recognized
in the consolidated statement of operations as part of gas
purchases and included in cost of gas.
As of October 31, 2007, future unconditional purchase
obligations for the next five years ending October 31 and
thereafter are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecommunications
|
|
|
|
|
|
|
|
|
|
Pipeline and
|
|
|
|
|
|
and Information
|
|
|
|
|
|
|
|
|
|
Storage Capacity
|
|
|
Gas Supply
|
|
|
Technology
|
|
|
Other
|
|
|
Total
|
|
|
|
In thousands
|
|
|
2008
|
|
$
|
162,032
|
|
|
$
|
25,405
|
|
|
$
|
18,641
|
|
|
$
|
32,446
|
|
|
$
|
238,524
|
|
2009
|
|
|
161,730
|
|
|
|
545
|
|
|
|
19,163
|
|
|
|
|
|
|
|
181,438
|
|
2010
|
|
|
161,309
|
|
|
|
125
|
|
|
|
19,700
|
|
|
|
|
|
|
|
181,134
|
|
2011
|
|
|
162,542
|
|
|
|
54
|
|
|
|
20,251
|
|
|
|
|
|
|
|
182,847
|
|
2012
|
|
|
156,744
|
|
|
|
|
|
|
|
20,818
|
|
|
|
|
|
|
|
177,562
|
|
Thereafter
|
|
|
468,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
468,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,273,039
|
|
|
$
|
26,129
|
|
|
$
|
98,573
|
|
|
$
|
32,446
|
|
|
$
|
1,430,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
We have only routine litigation in the normal course of business.
Letters
of Credit
We use letters of credit to guarantee claims from self-insurance
under our general liability policies. We had $1.5 million
in letters of credit that were issued and outstanding at
October 31, 2007. Additional information concerning letters
of credit is included in Note 6.
Environmental
Matters
Our three state regulatory commissions have authorized us to
utilize deferral accounting in connection with environmental
costs. Accordingly, we have established regulatory assets for
actual environmental costs incurred and for estimated
environmental liabilities recorded.
Several years ago, we entered into a settlement with a third
party with respect to nine manufactured gas plant (MGP) sites
that we have owned, leased or operated and paid an amount,
charged to the estimated environmental liability, that released
us from any investigation and remediation liability. On one of
these nine properties, we performed additional
clean-up
activities, including the removal of an underground storage
tank,
55
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
in anticipation of an impending sale. Although no such claims
are pending or, to our knowledge, threatened, the settlement did
not cover any third-party claims for personal injury, death,
property damage and diminution of property value or natural
resources. Three other MGP sites that we also have owned, leased
or operated were not included in the settlement. In addition to
these sites, we acquired the liability for an MGP site located
in Reidsville, North Carolina, in connection with the
acquisition in 2002 of certain assets and liabilities of North
Carolina Gas Services, a division of NUI Utilities, Inc.
As part of a voluntary agreement with the North Carolina
Department of Environment and Natural Resources (NCDENR), we
started the initial steps for remediating the Hickory, North
Carolina MGP site in 2007. In order to formalize the remediation
process, the NCDENR sent us a letter requesting the initiation
of a remedial investigation of this site. Because we no longer
own the property, access to the property had to be obtained from
the current owner, and the initial file search and survey had to
be completed. We submitted our site investigation plan in
September 2007, and the proposed investigation activities were
approved by the NCDENR in October 2007. Based on the limited
site assessment report we have concluded that gas plant
residuals remaining on the Hickory site are thought to be mostly
contained within two former tar separators associated with the
sites operations. Based on the initial investigations
activities that began in October 2007, the costs to remediate
the property is expected to be approximately $200,000.
During 2007, we performed a more extensive investigation of our
MGP site located in Nashville to determine if the accrued
amounts were sufficient to cover the clean up of that site.
Based on the results of this study, we believed that an
adjustment was necessary to cover additional clean up of the
site expected to cost approximately $500,000. In accordance with
the deferral accounting authorized by our regulatory
commissions, we adjusted the regulatory asset and the estimated
liability for this additional amount.
As of October 31, 2007, our undiscounted environmental
liability totaled $3.9 million, and consisted of
$3.4 million for the remaining four sites and
$.5 million for underground storage tanks not yet
remediated. We increased the liability in 2007 by
$.1 million and in 2006 by $.1 million to reflect the
impact of inflation based on the consumer price index.
As of October 31, 2007, our regulatory assets for
unamortized environmental costs totaled $4.2 million. The
portion of the regulatory assets representing actual costs
incurred, including the settlement payment to the third party,
is being amortized as recovered in rates from customers.
In connection with the 2003 NCNG acquisition, several MGP sites
owned by NCNG were transferred to a wholly owned subsidiary of
Progress prior to closing. Progress has complete responsibility
for performing all of NCNGs remediation obligations to
conduct testing and
clean-up
at
these sites, including both the cost of such testing and
clean-up
and
the implementation of any affirmative remediation obligations
that NCNG has related to the sites. Progress
responsibility does not include any third-party claims for
personal injury, death, property damage and diminution of
property value or natural resources. We know of no such pending
or threatened claims.
In October 2003, in connection with a 2003 NCNG general rate
case proceeding, the NCUC ordered an environmental regulatory
liability of $3.5 million be established for refund to
customers over the three-year period beginning November 1,
2003. This liability resulted from a payment made to NCNG by its
insurers prior to our acquisition of NCNG. As a part of the 2005
general rate case proceeding discussed in Note 3 to the
consolidated financial statements, the NCUC ordered a new
three-year amortization period for the unamortized balance as of
June 30, 2005, beginning November 1, 2005.
In July 2005, we were notified by the NCDENR that we were named
as a potentially responsible party for alleged environmental
problems associated with an underground storage tank site in
Clemmons, North Carolina. We had operations at this site
from March 1986 until June 1988 in connection with a non-utility
venture. There have been at least four owners of the site. We
contractually transferred any
clean-up
costs to the new owner of the site when we sold this venture in
June 1988. Our current estimate of the cost to
56
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
remediate the site is approximately $128,500. It is unclear how
many of the former owners may ultimately be held liable for this
site; however, based on the uncertainty of the ultimate
liability, we established a non-regulated environmental
liability for $32,100, one-fourth of the estimated cost.
Further evaluations of the MGP sites and the underground storage
tank sites could significantly affect recorded amounts; however,
we believe that the ultimate resolution of these matters will
not have a material adverse effect on our financial position,
cash flows or results of operations.
|
|
8.
|
Employee
Benefit Plans
|
We have a noncontributory defined benefit pension plan for the
benefit of eligible full-time employees. An employee becomes
eligible on the January 1 or July 1 following either the date on
which he or she attains age 30 or attains age 21 and
completes 1,000 hours of service during the
12-month
period commencing on the employment date. Plan benefits are
generally based on credited years of service and the level of
compensation during the five consecutive years of the last ten
years prior to retirement during which the participant received
the highest compensation. Our policy is to fund the plan in an
amount not in excess of the amount that is deductible for income
tax purposes. The pension plan has been amended, effective
January 1, 2008, to close the plan to new employees hired
after December 31, 2007 and to modify how benefits are
accrued in the future for existing employees. This amendment
does not apply to employees covered by the Nashville, Tennessee
bargaining unit contract.
We provide certain postretirement health care and life insurance
benefits (OPEB) to eligible full-time employees. The liability
associated with such benefits is funded in irrevocable trust
funds that can only be used to pay the benefits. Employees are
first eligible to retire and receive these benefits at
age 55 with ten or more years of service after the age of
45. Employees who met this requirement in 1993 or who retired
prior to 1993 are in a grandfathered group for whom
we pay the full cost of the retirees coverage and the
retiree pays the full cost of dependent coverage. Retirees not
in the grandfathered group have 80% of the cost of retiree
coverage paid by us, subject to certain annual contribution
limits. Retirees are responsible for the full cost of dependent
coverage. Employees hired on or after January 1, 2008 will
have to complete ten years of service after age 50 to be
eligible for benefits, and no benefits will be provided to those
employees after age 65. This amendment does not apply to
employees covered by the Nashville, Tennessee bargaining unit
contract.
In connection with the September 2003 acquisition of NCNG, we
acquired certain pension and OPEB obligations of former
employees of NCNG. The accrued pension benefits for this group
were placed in a separate frozen plan at this date.
The transferred active pension plan participants began accruing
benefits under the Piedmont pension plan as of October 1,
2003. There were no assets attributable to the OPEB liability
transferred from Progress. We merged the frozen
qualified NCNG pension plan with the Piedmont pension plan as of
December 31, 2006.
As a result of the Medicare Prescription Drug Improvement and
Modernization Act of 2003, we amended our postretirement benefit
plan in August 2005, to eliminate prescription drug coverage
beginning January 1, 2006, for retirees who are Medicare
eligible. This prescription drug benefit was replaced by a
defined dollar benefit to pay the premiums for Medicare
Part D.
We have pension liabilities related to supplemental executive
retirement plans (SERPs) for certain former employees,
non-employee directors or the surviving spouse. There are no
assets related to the SERPs and no additional benefits accrue to
the participants. Payments to the participants are made from
operating funds during the year. These nonqualified plans are
presented below.
We also have a SERP covering all officers at the vice president
level and above. It provides supplemental retirement income for
officers whose benefits under the Companys qualified
retirement plan are limited by tax code provisions. The level of
insurance benefit and target retirement income benefits intended
to be
57
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
provided under the SERP depend upon the position of the officer.
The SERP is funded by life insurance policies covering each
officer, and the policy is owned exclusively by each officer.
Premiums on these policies paid and expensed by us, as grossed
up for taxes to the individual officer, totaled $.5 million
in 2007, $.7 million in 2006 and $1 million in 2005.
At the end of our fourth quarter of 2007, we adopted the
provisions of Statement 158 requiring employers to recognize the
overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in the balance
sheet, measured as the difference between the fair value of the
plan assets and the actuarial value of the benefit obligation.
Changes in the funded status would be recognized through other
comprehensive income. We are already in compliance with the
measurement date requirement of Statement 158 as our plans
measurement date is the same as our fiscal year end date. As a
regulated utility, we expect continued future rate recovery of
the eligible costs of our pension and postretirement plans. We
requested and have been allowed by our state regulators to
record a regulatory asset or liability that would otherwise have
been recorded to OCI.
Based on the measurement of the various postretirement
plans assets and benefit obligations as of
October 31, 2007, the effect on our consolidated balance
sheets of adopting Statement 158 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
Minimum
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Application of
|
|
|
Pension Liability
|
|
|
Adoption of
|
|
|
Rate Deferral
|
|
|
Application of
|
|
|
|
Statement 158
|
|
|
Adjustment
|
|
|
Statement 158
|
|
|
Adjustments
|
|
|
Statement 158
|
|
|
|
In thousands
|
|
|
Prepayments
|
|
$
|
22,435
|
|
|
$
|
|
|
|
$
|
(22,435
|
)
|
|
$
|
|
|
|
$
|
|
|
Overfunded postretirement asset
|
|
|
|
|
|
|
|
|
|
|
36,256
|
|
|
|
|
|
|
|
36,256
|
|
Regulatory asset for postretirement benefits, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,865
|
|
|
|
1,865
|
|
Accumulated other comprehensive income
|
|
|
(78
|
)
|
|
|
24
|
|
|
|
7,346
|
|
|
|
(7,292
|
)
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
553
|
|
|
|
|
|
|
|
553
|
|
Deferred income taxes (noncurrent)
|
|
|
(51
|
)
|
|
|
16
|
|
|
|
4,754
|
|
|
|
(4,719
|
)
|
|
|
|
|
Regulatory liability for postretirement benefits, noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,876
|
|
|
|
13,876
|
|
Accumulated provision for postretirement benefits
|
|
|
|
|
|
|
|
|
|
|
17,469
|
|
|
|
|
|
|
|
17,469
|
|
Other (deferred credits and other liabilities)
|
|
|
16,342
|
|
|
|
(40
|
)
|
|
|
(16,302
|
)
|
|
|
|
|
|
|
|
|
58
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
A reconciliation of changes in the plans benefit
obligations and fair value of assets for the years ended
October 31, 2007 and 2006, and a statement of the funded
status and the amounts reflected in the consolidated balance
sheets for the years ended October 31, 2007 and 2006, are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension
|
|
|
Nonqualified Pension
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Accumulated benefit obligation at year end
|
|
$
|
169,367
|
|
|
$
|
177,377
|
|
|
$
|
4,845
|
|
|
$
|
4,342
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at beginning of year
|
|
$
|
236,329
|
|
|
$
|
236,608
|
|
|
$
|
4,342
|
|
|
$
|
4,484
|
|
|
$
|
34,252
|
|
|
$
|
30,732
|
|
Adjustment to reflect prior obligation
|
|
|
|
|
|
|
|
|
|
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
11,142
|
|
|
|
10,972
|
|
|
|
60
|
|
|
|
66
|
|
|
|
1,324
|
|
|
|
1,134
|
|
Interest cost
|
|
|
12,926
|
|
|
|
13,436
|
|
|
|
276
|
|
|
|
239
|
|
|
|
1,886
|
|
|
|
1,747
|
|
Plan amendments
|
|
|
(29,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
|
(14,844
|
)
|
|
|
(190
|
)
|
|
|
(95
|
)
|
|
|
84
|
|
|
|
(778
|
)
|
|
|
3,816
|
|
Benefit payments
|
|
|
(27,060
|
)
|
|
|
(24,497
|
)
|
|
|
(595
|
)
|
|
|
(531
|
)
|
|
|
(3,072
|
)
|
|
|
(3,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation at end of year
|
|
$
|
188,698
|
|
|
$
|
236,329
|
|
|
$
|
4,845
|
|
|
$
|
4,342
|
|
|
$
|
33,612
|
|
|
$
|
34,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at beginning of year
|
|
$
|
211,926
|
|
|
$
|
199,159
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,800
|
|
|
$
|
15,275
|
|
Actual return on plan assets
|
|
|
24,045
|
|
|
|
22,681
|
|
|
|
|
|
|
|
|
|
|
|
1,169
|
|
|
|
1,740
|
|
Employer contributions
|
|
|
16,500
|
|
|
|
15,100
|
|
|
|
595
|
|
|
|
531
|
|
|
|
5,538
|
|
|
|
2,962
|
|
Administrative expenses
|
|
|
(457
|
)
|
|
|
(517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit payments
|
|
|
(27,060
|
)
|
|
|
(24,497
|
)
|
|
|
(595
|
)
|
|
|
(531
|
)
|
|
|
(3,072
|
)
|
|
|
(3,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at end of year
|
|
$
|
224,954
|
|
|
$
|
211,926
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20,435
|
|
|
$
|
16,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$
|
36,256
|
|
|
$
|
(24,403
|
)
|
|
$
|
(4,845
|
)
|
|
$
|
(4,342
|
)
|
|
$
|
(13,177
|
)
|
|
$
|
(17,452
|
)
|
Unrecognized transition obligation
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
4,669
|
|
Unrecognized prior-service cost
|
|
|
N/A
|
|
|
|
4,395
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
Unrecognized actuarial (gain) loss
|
|
|
N/A
|
|
|
|
34,615
|
|
|
|
N/A
|
|
|
|
220
|
|
|
|
N/A
|
|
|
|
(1,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit asset (liability)
|
|
$
|
36,256
|
|
|
$
|
14,607
|
|
|
$
|
(4,845
|
)
|
|
$
|
(4,122
|
)
|
|
$
|
(13,177
|
)
|
|
$
|
(14,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
After adoption of Statement 158 on October 31, 2007, these
amounts are recorded, and this reconciliation is no longer
required.
|
59
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension
|
|
|
Nonqualified Pension
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For years prior to adoption of FAS 158:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments
|
|
|
|
|
|
$
|
14,607
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Regulatory asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilites
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,342
|
)
|
|
|
|
|
|
|
(14,336
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220
|
|
|
|
|
|
|
|
|
|
Other deferred credits and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized at year end
|
|
|
|
|
|
$
|
14,607
|
|
|
|
|
|
|
$
|
(4,122
|
)
|
|
|
|
|
|
$
|
(14,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For years after the adoption of FAS 158:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
36,256
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
|
(4,292
|
)
|
|
|
|
|
|
|
(13,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
36,256
|
|
|
|
|
|
|
$
|
(4,845
|
)
|
|
|
|
|
|
$
|
(13,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Not Yet Recognized as a Component of Cost and Recognized
as Regulatory Asset or Liability(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized transition obligation
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
(4,002
|
)
|
|
|
|
|
Unrecognized prior service credit
|
|
|
25,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized actuarial gain (loss)
|
|
|
(12,170
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
2,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory (asset) liability
|
|
|
13,821
|
|
|
|
|
|
|
|
(34
|
)(3)
|
|
|
|
|
|
|
(1,775
|
)
|
|
|
|
|
Cumulative employer contribution in excess of cost
|
|
|
22,435
|
|
|
|
|
|
|
|
(4,811
|
)
|
|
|
|
|
|
|
(11,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
36,256
|
|
|
|
|
|
|
$
|
(4,845
|
)
|
|
|
|
|
|
$
|
(13,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income attributable to change in additional
minimum pension liability recognition, net of tax
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24
|
|
|
$
|
84
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(2)
|
|
As the future recovery of pension and OPEB costs is probable, we
were granted permission to record the amount that would have
been recorded in accumulated other comprehensive income as a
regulatory asset.
|
|
(3)
|
|
Amount is composed of a regulatory asset of $89 and a regulatory
liability of $55.
|
60
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
The 2008 estimated amortization of the following items that are
recorded in a regulatory asset or liability instead of OCI
discussed above and expected refunds for our plans are as
follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension
|
|
|
Nonqualified Pension
|
|
|
Other Benefits
|
|
|
|
In thousands
|
|
|
Amortization of transition obligation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
667
|
|
Amortization of unrecognized prior service credit
|
|
|
(1,893
|
)
|
|
|
|
|
|
|
|
|
Refunds expected
|
|
|
(1,893
|
)
|
|
|
|
|
|
|
667
|
|
Net periodic benefit cost for the years ended October 31,
2007, 2006 and 2005, includes the following components.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension
|
|
|
Nonqualified Pension
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Service cost
|
|
$
|
11,142
|
|
|
$
|
10,972
|
|
|
$
|
11,278
|
|
|
$
|
60
|
|
|
$
|
66
|
|
|
$
|
61
|
|
|
$
|
1,324
|
|
|
$
|
1,134
|
|
|
$
|
1,391
|
|
Interest cost
|
|
|
12,926
|
|
|
|
13,436
|
|
|
|
12,816
|
|
|
|
276
|
|
|
|
239
|
|
|
|
255
|
|
|
|
1,886
|
|
|
|
1,747
|
|
|
|
2,151
|
|
Expected return on plan assets
|
|
|
(17,013
|
)
|
|
|
(17,112
|
)
|
|
|
(16,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,273
|
)
|
|
|
(1,151
|
)
|
|
|
(1,030
|
)
|
Amortization of transition obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667
|
|
|
|
667
|
|
|
|
879
|
|
Amortization of prior service cost
|
|
|
590
|
|
|
|
933
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,285
|
|
Amortization of actuarial (gain) loss
|
|
|
1,027
|
|
|
|
604
|
|
|
|
378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,672
|
|
|
$
|
8,833
|
|
|
$
|
8,812
|
|
|
$
|
336
|
|
|
$
|
305
|
|
|
$
|
316
|
|
|
$
|
2,604
|
|
|
$
|
2,179
|
|
|
$
|
4,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity market performance and corporate bond rates have a
significant effect on our funded status, as the primary factors
that drive its value are the assumed discount rate and the
actual return on plan assets. In addition, equity market
performance has a significant effect on our market-related value
of plan assets. In determining the market-related value of plan
assets, we use the following methodology: The asset gain or loss
is determined each year by comparing the funds actual
return to the expected return, based on the disclosed expected
return on investment assumption. Such asset gain or loss is then
recognized ratably over a five-year period. Thus, the
market-related value of assets as of year end is determined by
adjusting the market value of assets by the portion of the prior
five years gains or losses that has not yet been
recognized. This method has been applied consistently in all
years presented in the consolidated financial statements. The
discount rate can vary from plan year to plan year. October 31
is the measurement date for the plans.
The discount rate has been separately determined for each plan
by projecting the plans cash flows and developing a
zero-coupon spot rate yield curve using non-arbitrage pricing
and Moodys AA or better-rated non-callable bonds that
produces similar results to a hypothetical bond portfolio. As of
October 31, 2007, the benchmark was 6.43% for the pension
plan, 6.05% for the NCNG SERP, 6.16% for the directors
SERP, 5.82% for the Piedmont SERP, 5.8% for the Tennessee SERP
and 6.25% for OPEB.
We amortize unrecognized prior-service cost over the average
remaining service period for active employees. We amortize the
unrecognized transition obligation over the average remaining
service period for active employees expected to receive benefits
under the plan as of the date of transition. We amortize gains
and losses in excess of 10% of the greater of the benefit
obligation and the market-related value of assets over the
average remaining service period for active employees. The
method of amortization in all cases is straight-line.
61
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
The weighted average assumptions used in the measurement of the
benefit obligation as of October 31, 2007 and 2006, are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
Nonqualified
|
|
|
|
|
Pension
|
|
Pension
|
|
Other Benefits
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Discount rate
|
|
|
6.43
|
%
|
|
|
5.78
|
%
|
|
|
6.06
|
%
|
|
|
5.67
|
%
|
|
|
6.25
|
%
|
|
|
5.74
|
%
|
Rate of compensation increase
|
|
|
3.99
|
%
|
|
|
4.01
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The weighted average assumptions used to determine the net
periodic benefit cost as of October 31, 2007, 2006 and
2005, are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Pension
|
|
|
Nonqualified Pension
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Discount rate
|
|
|
5.78
|
%
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
5.67
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
|
|
5.74
|
%
|
|
|
5.89
|
%
|
|
|
5.75
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
|
|
8.50
|
%
|
Rate of compensation increase
|
|
|
4.01
|
%
|
|
|
4.05
|
%
|
|
|
3.97
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The weighted-average asset allocations by asset category for the
pension plan and the OPEB plan as of October 31, 2007 and
2006, are presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2007
|
|
|
2006
|
|
|
Target
|
|
|
2007
|
|
|
2006
|
|
|
Target
|
|
|
Domestic equity securities
|
|
|
48
|
%
|
|
|
55
|
%
|
|
|
50
|
%
|
|
|
42
|
%
|
|
|
41
|
%
|
|
|
50
|
%
|
International equity securities
|
|
|
10
|
%
|
|
|
13
|
%
|
|
|
10
|
%
|
|
|
8
|
%
|
|
|
7
|
%
|
|
|
10
|
%
|
Fixed income securities
|
|
|
41
|
%
|
|
|
32
|
%
|
|
|
40
|
%
|
|
|
26
|
%
|
|
|
26
|
%
|
|
|
40
|
%
|
Cash
|
|
|
1
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our primary investment objective is to generate sufficient
assets to meet plan liabilities. The plans assets will
therefore be invested to maximize long-term returns consistent
with the plans liabilities, cash flow requirements and
risk tolerance. The plans liabilities are primarily
defined in terms of participant salaries. Given the nature of
these liabilities, and recognizing the long-term benefits of
investing in both domestic and international equity securities,
we invest in a diversified portfolio which includes a
significant exposure to these investments. Investment risk is
measured and monitored on an ongoing basis through quarterly
investment portfolio reviews, annual liability measurements and
periodic asset/liability studies.
Specific financial targets include:
|
|
|
|
|
Achieve full funding over the longer term,
|
|
|
|
Control fluctuation in pension expense from year to year,
|
|
|
|
Achieve satisfactory performance relative to other similar
pension plans, and
|
|
|
|
Achieve positive returns in excess of inflation over short to
intermediate time frames.
|
To develop the expected long-term rate of return on assets
assumption, we considered historical returns and future
expectations for returns for each asset class, as well as target
asset allocation of the pension and OPEB portfolios. We intend
to use 8% as the expected long-term rate of return on the
pension and OPEB plans for 2008.
We anticipate that we will contribute $11 million to the
qualified pension plans, $.6 million to the nonqualified
pension plans and $2.2 million to the OPEB plan in 2008.
62
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
The Pension Protection Act of 2006 (PPA) was signed into law by
the President of the United States on August 17, 2006. The
PPA primarily impacts how lump sum distributions are calculated
and how minimum funding requirements for plan years beginning in
2008 are determined for the defined benefit pension plan. The
expected impact of the change in the lump sum calculation is
reflected in the obligations disclosed.
The expected impact of the changes in the minimum funding
requirement is to reduce our contributions to the pension plan
that would otherwise have been required to be made beginning in
2008, deferring them to a later year. However, the amount of
future
year-by-year
contributions is not expected to be materially different from
our current projections.
Benefit payments, which reflect expected future service, as
appropriate, are expected to be paid for the next ten years
ending October 31 as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
Nonqualified
|
|
|
Other
|
|
|
|
Pension
|
|
|
Pension
|
|
|
Benefits
|
|
|
|
In thousands
|
|
|
2008
|
|
$
|
11,677
|
|
|
$
|
553
|
|
|
$
|
2,865
|
|
2009
|
|
|
9,995
|
|
|
|
506
|
|
|
|
2,768
|
|
2010
|
|
|
11,486
|
|
|
|
504
|
|
|
|
2,746
|
|
2011
|
|
|
12,117
|
|
|
|
502
|
|
|
|
2,708
|
|
2012
|
|
|
11,922
|
|
|
|
473
|
|
|
|
2,678
|
|
2013-2017
|
|
|
76,303
|
|
|
|
2,005
|
|
|
|
15,043
|
|
The assumed health care cost trend rates used in measuring the
accumulated OPEB obligation for the medical plans for all
participants as of October 31, 2007 and 2006, are presented
below.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Health care cost trend rate assumed for next year
|
|
|
8.25
|
%
|
|
|
9.00
|
%
|
Rate to which the cost trend is assumed to decline (the ultimate
trend rate)
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2012
|
|
|
|
2012
|
|
The health care cost trend rate assumptions could have a
significant effect on the amounts reported. A change of 1% would
have the following effects.
|
|
|
|
|
|
|
|
|
|
|
1% Increase
|
|
1% Decrease
|
|
|
In thousands
|
|
Effect on total of service and interest cost components of net
periodic postretirement health care benefit cost for the year
ended October 31, 2007
|
|
$
|
88
|
|
|
$
|
(99
|
)
|
Effect on the health care cost component of the accumulated
postretirement benefit obligation as of October 31, 2007
|
|
|
1,145
|
|
|
|
(1,114
|
)
|
We maintain salary investment plans which are profit-sharing
plans under Section 401(a) of the Internal Revenue Code of
1986, as amended (the Tax Code), which include qualified cash or
deferred arrangements under Tax Code Section 401(k). The
salary investment plans are subject to the provisions of the
Employee Retirement Income Security Act. Full-time employees who
have completed 30 days of continuous service and have
attained age 18 are eligible to participate. Participants
may defer a portion of their base salary to the plans and we
match a portion of their contributions. Employee contributions
vest immediately and company contributions vest after six months
of service. For the years ended October 31, 2007, 2006 and
2005, our matching contributions totaled $3.2 million,
$3.3 million and $3.2 million, respectively. There are
several investment options available to enable participants to
diversify their accounts. Participants may invest in Piedmont
stock up to a maximum of 20% of their account.
As a result of a plan merger effective in 2001,
participants accounts in our employee stock ownership plan
(ESOP) were transferred into our salary investment plans. Former
ESOP participants may remain invested
63
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
in Piedmont common stock in their salary investment plan or may
sell the common stock at any time and reinvest the proceeds in
other available investment options. The tax benefit of any
dividends paid on ESOP shares still in participants
accounts is reflected in the consolidated statement of
stockholders equity as an increase in retained earnings.
|
|
9.
|
Employee
Share-Based Plans
|
Under the LTIP and Incentive Compensation Plan (ICP) approved by
the Companys shareholders on March 3, 2006, the Board
of Directors has awarded units to eligible officers and other
participants. Depending upon the levels of performance targets
achieved by Piedmont during multi-year performance periods,
distribution of those awards may be made in the form of shares
of common stock and cash withheld for payment of applicable
taxes on the compensation. The LTIP and ICP require that a
minimum threshold performance be achieved in order for any award
to be distributed. For the years ended October 31, 2007,
2006 and 2005, we recorded compensation expense for the LTIP and
ICP of $1.7 million, $5.4 million and $4 million,
respectively. Shares of common stock to be issued under the LTIP
and ICP are contingently issuable shares and are included in our
calculation of fully diluted earnings per share.
We have four awards under the LTIP and ICP with three-year
performance periods ending October 31, 2007,
October 31, 2008, October 31, 2009 and
October 31, 2010. Fifty percent of the units awarded will
be based on achievement of a target annual compounded increase
in basic earnings per share (EPS). For this 50% portion, an EPS
performance of 80% of target will result in an 80% payout, an
EPS performance of 100% of target will result in a 100% payout
and an EPS performance of 120% of target will result in a
maximum 120% payout, and EPS performance levels between these
levels will be subject to mathematical interpolation. EPS
performance below 80% of target will result in no payout of this
portion. The other 50% of the units awarded will be based on the
achievement of a target total annual shareholder return
(increase in our common stock price plus dividends paid over the
specified period of time) in comparison to a peer group
consisting of the natural gas distribution companies formerly
comprising the A. G. Edwards Large Natural Gas Distribution
Index (peer group). The total shareholder return performance
measure will be the registrants percentile ranking in
relationship to the peer group. For this 50% portion, a ranking
below the 25th percentile will result in no payout, a
ranking between the 25th and 39th percentile will
result in an 80% payout, a ranking between the 40th and
49th percentile will result in a 90% payout, a ranking
between the 50th and 74th percentile will result in a
100% payout, a ranking between the 75th and
89th percentile will result in a 110% payout, and a ranking
at or above the 90th percentile will result in a maximum
120% payout.
We have one additional award with a five-year performance period
that ended October 31, 2006, for a group of retired
employees with 75% of the units awarded being based on
achievement of a target cumulative increase in net income and
25% of the units awarded based on achievement of a target total
annual shareholder return in comparison to the A. G. Edwards
Large Natural Gas Distribution Index industry peer group and in
the same percentile rankings. The payout under this award will
occur over a three-year period with the first payout occurring
in fiscal 2007.
As of October 31, 2007 and 2006, we have accrued
$6.2 million and $11.4 million for these awards. The
accrual is based on the fair market value of our stock at the
end of each quarter. The liability is re-measured to market
value at the settlement date.
On September 1, 2006, the Board of Directors approved a
grant under our ICP to our President and Chief Executive Officer
of 65,000 restricted shares of our common stock with a value at
the date of grant of $1.7 million, based on the closing
stock price on the date of the grant. The restricted shares
shall vest and be payable on the following schedule only if he
is an employee on the vesting date for each tranche:
|
|
|
|
|
20% on September 1, 2009,
|
|
|
|
30% on September 1, 2010, and
|
|
|
|
50% on September 1, 2011.
|
64
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
During the vesting period, any dividends paid on these shares
will be accrued and converted into additional shares at the
closing price on the date of the dividend payment. The
additional shares will vest according to the vesting schedule
above. As of October 31, 2007 and 2006, we have recorded
$.3 million and $.06 million, respectively, as
compensation expense. We are recording compensation under the
ICP for the restricted stock agreement on the straight-line
method.
On a quarterly basis, we issue shares of common stock under the
ESPP and have accounted for the issuance as an equity
transaction. The purchase price is calculated as 95% of the fair
market value on the purchase date of each quarter where fair
market value is determined by calculating the mean average of
the high and low trading prices on the purchase date.
As discussed in Note 5, we repurchase shares on the open
market and such shares are then cancelled and become authorized
but unissued shares available for issuance under our employee
plans, including the ESPP, LTIP and ICP.
The components of income tax expense for the years ended
October 31, 2007, 2006 and 2005, are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Federal
|
|
|
State
|
|
|
Federal
|
|
|
State
|
|
|
Federal
|
|
|
State
|
|
|
|
In thousands
|
|
|
Charged to operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
28,233
|
|
|
$
|
4,987
|
|
|
$
|
27,470
|
|
|
$
|
4,977
|
|
|
$
|
19,073
|
|
|
$
|
3,880
|
|
Deferred
|
|
|
15,250
|
|
|
|
3,279
|
|
|
|
14,775
|
|
|
|
3,855
|
|
|
|
24,006
|
|
|
|
5,462
|
|
Amortization of investment tax credits
|
|
|
(434
|
)
|
|
|
|
|
|
|
(534
|
)
|
|
|
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
43,049
|
|
|
|
8,266
|
|
|
|
41,711
|
|
|
|
8,832
|
|
|
|
42,538
|
|
|
|
9,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
7,557
|
|
|
|
1,153
|
|
|
|
9,052
|
|
|
|
1,427
|
|
|
|
15,588
|
|
|
|
2,966
|
|
Deferred
|
|
|
4,644
|
|
|
|
957
|
|
|
|
1,107
|
|
|
|
301
|
|
|
|
(6,407
|
)
|
|
|
(1,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,201
|
|
|
|
2,110
|
|
|
|
10,159
|
|
|
|
1,728
|
|
|
|
9,181
|
|
|
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,250
|
|
|
$
|
10,376
|
|
|
$
|
51,870
|
|
|
$
|
10,560
|
|
|
$
|
51,719
|
|
|
$
|
10,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of income tax expense at the federal statutory
rate to recorded income tax expense for the years ended
October 31, 2007, 2006 and 2005, is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Federal taxes at 35%
|
|
$
|
59,504
|
|
|
$
|
55,867
|
|
|
$
|
57,258
|
|
State income taxes, net of federal benefit
|
|
|
6,745
|
|
|
|
6,864
|
|
|
|
6,894
|
|
Amortization of investment tax credits
|
|
|
(434
|
)
|
|
|
(534
|
)
|
|
|
(541
|
)
|
Sale of propane interests
|
|
|
|
|
|
|
|
|
|
|
(1,624
|
)
|
Other, net
|
|
|
(189
|
)
|
|
|
233
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
65,626
|
|
|
$
|
62,430
|
|
|
$
|
62,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
As of October 31, 2007 and 2006, deferred income taxes
consisted of the following temporary differences.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In thousands
|
|
|
Utility plant
|
|
$
|
239,448
|
|
|
$
|
226,866
|
|
Equity method investments
|
|
|
20,554
|
|
|
|
15,419
|
|
Revenues and cost of gas
|
|
|
23,741
|
|
|
|
25,356
|
|
Deferred cost
|
|
|
21,594
|
|
|
|
9,494
|
|
Other, net
|
|
|
(21,436
|
)
|
|
|
(16,639
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities
|
|
$
|
283,901
|
|
|
$
|
260,496
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2007 and 2006, total deferred income tax
liabilities were $321.3 million and $281.8 million and
total net deferred income tax assets were $37.4 million and
$21.3 million, respectively. Total net deferred income tax
assets as of October 31, 2007 and 2006, were net of a
valuation allowance of $.4 million and $.6 million,
respectively, for net operating loss carryforwards that we
believed were more likely than not to expire before we could use
them. Piedmont and its wholly owned subsidiaries file a
consolidated federal income tax return. As of October 31,
2007 and 2006, we had federal and state net operating loss
carryforwards of $6.9 million and $7.2 million,
respectively, that expire from 2017 through 2025. Piedmont may
use the loss carryforwards to offset taxable income, subject to
an annual limitation of $.3 million.
A reconciliation of changes in the deferred tax valuation
allowance for the years ended October 31, 2007, 2006 and
2005, is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Balance at beginning of year
|
|
$
|
568
|
|
|
$
|
583
|
|
|
$
|
1,245
|
|
Charged (credited) to income tax expense
|
|
|
(174
|
)
|
|
|
(15
|
)
|
|
|
(662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
394
|
|
|
$
|
568
|
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended October 31, 2007, the Internal
Revenue Service finalized its audit of our returns for the tax
years ended October 31, 2003 through 2005. The audit
results, which did not have a material effect on our financial
position or results of operations, have been reflected in the
consolidated financial statements.
|
|
11.
|
Equity
Method Investments
|
The consolidated financial statements include the accounts of
wholly owned subsidiaries whose investments in joint venture,
energy-related businesses are accounted for under the equity
method. These investments are an integral part of our strategy
to meeting our gas supply and storage capacity needs. Our
ownership interest in each entity is included in Equity
method investments in non-utility activities in the
consolidated balance sheets. Earnings or losses from equity
method investments are included in Income from equity
method investments in the consolidated statements of
income.
As of October 31, 2007, there were no amounts that
represented undistributed earnings of our 50% or less owned
equity method investments in our retained earnings.
Cardinal
Pipeline Company, L.L.C.
We own 21.49% of the membership interests in Cardinal Pipeline
Company, L.L.C., a North Carolina limited liability company. The
other members are subsidiaries of The Williams Companies, Inc.,
and SCANA
66
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Corporation. Cardinal owns and operates an intrastate natural
gas pipeline in North Carolina and is regulated by the NCUC.
Cardinal has firm service agreements with local distribution
companies for 100% of the firm transportation capacity on the
pipeline, of which Piedmont subscribes to approximately 37%.
Cardinal is dependent on the Williams-Transco pipeline system to
deliver gas into its system for service to its customers.
Cardinals long-term debt is secured by Cardinals
assets and by each members equity investment in Cardinal.
We have related party transactions as a transportation customer
of Cardinal, and we record in cost of gas the transportation
costs charged by Cardinal. For each of the years ended October
31, 2007, 2006 and 2005, these gas costs were $4.5 million,
$4.7 million and $4.7 million, respectively. As of
October 31, 2007 and 2006, we owed Cardinal
$.3 million and $.1 million, respectively.
Summarized unaudited financial information provided to us by
Cardinal for 100% of Cardinal as of September 30, 2007 and
2006, and for the twelve months ended September 30, 2007,
2006 and 2005, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Current assets
|
|
$
|
8,706
|
|
|
$
|
8,717
|
|
|
|
|
|
Non-current assets
|
|
|
83,388
|
|
|
|
85,933
|
|
|
|
|
|
Current liabilities
|
|
|
3,814
|
|
|
|
4,458
|
|
|
|
|
|
Non-current liabilities
|
|
|
33,637
|
|
|
|
35,520
|
|
|
|
|
|
Revenues
|
|
|
15,369
|
|
|
|
15,524
|
|
|
$
|
15,525
|
|
Gross profit
|
|
|
15,369
|
|
|
|
15,524
|
|
|
|
15,525
|
|
Income before income taxes
|
|
|
8,371
|
|
|
|
8,785
|
|
|
|
8,368
|
|
Pine
Needle LNG Company, L.L.C.
We own 40% of the membership interests in Pine Needle LNG
Company, L.L.C., a North Carolina limited liability company. The
other members are the Municipal Gas Authority of Georgia and
subsidiaries of The Williams Companies, Inc., SCANA Corporation
and Hess Corporation. Pine Needle owns and operates an
interstate liquefied natural gas storage facility in North
Carolina and is regulated by the FERC. Pine Needle has firm
service agreements for 100% of the storage capacity of the
facility, of which Piedmont subscribes to approximately 64%.
Pine Needle enters into interest-rate swap agreements to modify
the interest characteristics of its long-term debt. Our share of
movements in the market value of these agreements are recorded
as a hedge in Accumulated other comprehensive income
in the consolidated balance sheets. Pine Needles long-term
debt is secured by Pine Needles assets and by each
members equity investment in Pine Needle.
We have related party transactions as a customer of Pine Needle,
and we record in cost of gas the storage costs charged by Pine
Needle. For the years ended October 31, 2007, 2006 and
2005, these gas costs were $11.7 million,
$12.7 million and $12.4 million, respectively. As of
October 31, 2007 and 2006, we owed Pine Needle
$.9 million and $1.1 million, respectively.
67
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Summarized unaudited financial information provided to us by
Pine Needle for 100% of Pine Needle as of September 30,
2007 and 2006, and for the twelve months ended
September 30, 2007, 2006 and 2005, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Current assets
|
|
$
|
11,178
|
|
|
$
|
10,823
|
|
|
|
|
|
Non-current assets
|
|
|
85,506
|
|
|
|
88,879
|
|
|
|
|
|
Current liabilities
|
|
|
9,401
|
|
|
|
8,208
|
|
|
|
|
|
Non-current liabilities
|
|
|
29,862
|
|
|
|
34,835
|
|
|
|
|
|
Revenues
|
|
|
18,668
|
|
|
|
19,231
|
|
|
$
|
19,870
|
|
Gross profit
|
|
|
18,668
|
|
|
|
19,231
|
|
|
|
19,870
|
|
Income before income taxes
|
|
|
8,827
|
|
|
|
10,047
|
|
|
|
9,480
|
|
US
Propane, L.P.
Prior to January 20, 2004, we owned 20.69% of the
membership interests in US Propane, L.P. The other members were
subsidiaries of TECO Energy, Inc., AGL Resources, Inc. and Atmos
Energy Corporation. US Propane owned all of the general
partnership interest and approximately 26% of the limited
partnership interest in Heritage Propane Partners, L.P.
(Heritage Propane), a marketer of propane through a nationwide
retail distribution network. In January 2004, we, along with the
other members, completed the sale of US Propanes general
and limited partnership interests in Heritage Propane for
$130 million.
In connection with the sale, the former members of US Propane
formed TAAP, LP, a limited partnership, to receive the
approximately 180,000 common units of Heritage Propane retained
in the sale. On May 21, 2004, TAAP distributed to us 37,244
common units of Energy Transfer Partners, LP (formerly Heritage
Propane) as our share of the retained units. The market value of
these units was recorded as an investment in marketable
securities in the consolidated balance sheet. On
February 1, 2005, we sold 18,622 of the units and on
February 2, 2005, we sold the remaining 18,622 units
for total cash proceeds of $2.4 million. We recorded a
pre-tax gain of $1.5 million in the consolidated statement
of income for the year ended October 31, 2005.
SouthStar
Energy Services LLC
We own 30% of the membership interests in SouthStar Energy
Services LLC, a Delaware limited liability company. Under the
terms of the Amended and Restated Limited Liability Company
Agreement (Restated Agreement) effective January 1, 2004,
earnings and losses are allocated 25% to us and 75% to the other
member, Georgia Natural Gas Company (GNGC), a subsidiary of AGL
Resources, Inc., with the exception of earnings and losses in
the Ohio and Florida markets, which are allocated to us at our
ownership percentage of 30%. SouthStar primarily sells natural
gas to residential, commercial and industrial customers in the
southeastern United States with most of its business being
conducted in the unregulated retail gas market in Georgia.
The SouthStar Restated Agreement includes a provision granting
three options to GNGC to purchase our ownership interest in
SouthStar. By November 1, 2007, with the option effective
on January 1, 2008 (2008 option), GNGC had the option to
purchase one-third of our 30% interest in SouthStar. With the
same notice in the following years, GNGC has the option to
purchase 50% of our interest to be effective on January 1,
2009 (2009 option), and 100% of our interest to be effective on
January 1, 2010. The purchase price would be based on the
market value of SouthStar as defined in the Restated Agreement.
GNGC did not exercise the 2008 option. If GNGC exercises the
2009 option, we, at our discretion, may cause GNGC to purchase
our entire ownership interest.
For further information on this provision, please see the
Restated Agreement that was filed with the SEC as
Exhibit 10.1 in our
Form 10-Q
for the quarter ended April 30, 2004.
68
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
SouthStars business is seasonal in nature as variations in
weather conditions generally result in greater revenue and
earnings during the winter months when weather is colder. Also,
because SouthStar is not a rate-regulated company, the timing of
its earnings can be affected by changes in the wholesale price
of natural gas. While SouthStar uses financial contracts to
moderate the effect of price changes on the timing of its
earnings, wholesale price volatility can cause variations in the
timing of the recognition of earnings.
These financial contracts, in the form of futures, options and
swaps, are considered to be derivatives and fair value is based
on selected market indices. Our share of movements in the market
value of these contracts are recorded as a hedge in
Accumulated other comprehensive income in the
consolidated balance sheets.
We have related party transactions as we sell wholesale gas
supplies to SouthStar, and we record in operating revenues the
amounts billed to SouthStar. For the years ended
October 31, 2007, 2006 and 2005, these operating revenues
were $8.9 million, $21.6 million and
$10.3 million, respectively. As of October 31, 2007
and 2006, SouthStar owed us $1.7 million and
$.8 million, respectively.
Summarized unaudited financial information provided to us by
SouthStar for 100% of SouthStar as of September 30, 2007
and 2006, and for the twelve months ended September 30,
2007, 2006 and 2005, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Current assets
|
|
$
|
204,598
|
|
|
$
|
195,893
|
|
|
|
|
|
Non-current assets
|
|
|
8,899
|
|
|
|
11,136
|
|
|
|
|
|
Current liabilities
|
|
|
60,783
|
|
|
|
69,438
|
|
|
|
|
|
Non-current liabilities
|
|
|
53
|
|
|
|
870
|
|
|
|
|
|
Revenues
|
|
|
908,416
|
|
|
|
1,053,770
|
|
|
$
|
861,091
|
|
Gross profit
|
|
|
177,822
|
|
|
|
155,416
|
|
|
|
148,885
|
|
Income before income taxes
|
|
|
112,260
|
|
|
|
88,765
|
|
|
|
91,200
|
|
Hardy
Storage Company LLC
Piedmont Hardy Storage Company, LLC (Piedmont Hardy), a
wholly-owned subsidiary of Piedmont, owns 50% of the membership
interests in Hardy Storage Company, LLC (Hardy Storage), a West
Virginia limited liability company. The other owner is a
subsidiary of Columbia Gas Transmission Corporation, a
subsidiary of NiSource Inc. Hardy Storage owns and operates an
underground interstate natural gas storage facility located in
Hardy and Hampshire Counties, West Virginia, that is regulated
by the FERC. Phase one service to customers began April 1,
2007 when customers began injecting gas into storage for
subsequent winter withdrawals. Hardy Storage is now in the final
stages of project construction.
On June 29, 2006, Hardy Storage signed a note purchase
agreement for interim notes and a revolving equity bridge
facility for up to a total of $173.1 million for funding
during the construction period. At October 31, 2007, there
was $133.6 million outstanding on the interim notes and the
equity line. In addition, the members had invested equity of
$25.9 million in Hardy Storage in cash and contributed
assets, of which our share was $12.9 million. On
November 1, 2007, Hardy Storage paid off the equity line of
$10.2 million with member equity contributions, leaving an
amount outstanding on the interim notes of $123.4 million.
Also, on November 1, 2007, the members funded additional
construction expenditures of $7 million. As Hardy Storage
finishes its construction and at such time that contingency
wells are needed, the members intend to target a capitalization
structure of 70% debt and 30% equity. After the satisfaction of
certain conditions in the note purchase agreement, amounts
outstanding under the interim notes will convert to a
fifteen-year mortgage-style debt instrument without recourse to
the members. We expect the conversion to occur in late spring to
late summer of 2008. To the extent that more funding is needed,
the members will evaluate options at that time.
69
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
The members of Hardy Storage have each agreed to guarantee 50%
of the construction financing. The guaranty was executed by
Piedmont Energy Partners, Inc. (PEP), a wholly owned subsidiary
of Piedmont and a sister company of Piedmont Hardy. Our share of
the guaranty is capped at $111.5 million. Depending upon
the facilitys performance over the first three years after
the in-service date, there could be additional construction
expenditures of up to $10 million, of which PEP will
guarantee 50%.
Securing PEPs guaranty is a pledge of intercompany notes
issued by Piedmont held by non-utility subsidiaries of PEP.
Should Hardy Storage be unable to perform its payment obligation
under the construction financing, PEP will call on Piedmont for
the payment of the notes, plus accrued interest, for the amount
of the guaranty. Also pledged is our membership interests in
Hardy Storage.
We are recording a liability at fair value for this guaranty
based on the present value of 50% of the construction financing
outstanding at the end of each quarter, with a corresponding
increase to our investment account in the venture. As our risk
in the project changes, the fair value of the guaranty is
adjusted accordingly through a quarterly evaluation.
As of October 31, 2007, with $133.6 million
outstanding under the construction financing, we have recorded a
guaranty liability of $1.3 million.
We have related party transactions as a customer of Hardy
Storage beginning in April 2007, and we record in cost of gas
the storage costs charged to us by Hardy Storage. For the year
ended October 31, 2007, these gas costs were
$3.5 million. As of October 31, 2007, we owed Hardy
Storage $.2 million.
Summarized unaudited financial information provided to us by
Hardy Storage for 100% of Hardy Storage as of October 31,
2007 and 2006, and for the twelve months ended October 31,
2007, 2006 and 2005, is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands
|
|
|
Current assets
|
|
$
|
19,972
|
|
|
$
|
12,807
|
|
|
|
|
|
Non-current assets
|
|
|
160,326
|
|
|
|
87,260
|
|
|
|
|
|
Current liabilities
|
|
|
21,388
|
|
|
|
39,872
|
|
|
|
|
|
Non-current liabilities
|
|
|
123,410
|
|
|
|
58,983
|
|
|
|
|
|
Revenues
|
|
|
13,902
|
|
|
|
*
|
|
|
|
*
|
|
Gross profit
|
|
|
13,902
|
|
|
|
*
|
|
|
|
*
|
|
Income before income taxes
|
|
|
8,918
|
|
|
|
707
|
|
|
|
48
|
|
|
|
|
*
|
|
Hardy Storage is not in service during the periods
presented. The income above is related to AFUDC associated with
the financing and construction activities of the storage
facilities, and is recorded in accordance with regulatory
guidelines. 2006 includes interest expense from a construction
loan and operating expenses in addition to AFUDC.
|
We have two reportable business segments, regulated utility and
non-utility activities. These segments were identified based on
products and services, regulatory environments and our current
corporate organization and business decision-making activities.
Operations of our regulated utility segment are conducted by the
parent company and, through October 25, 2005, by EasternNC.
Operations of our non-utility activities segment are comprised
of our equity method investments in joint ventures.
Operations of the regulated utility segment are reflected in
operating income in the consolidated statements of income.
Operations of the non-utility activities segment are included in
the consolidated statements of income in Income from
equity method investments.
70
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
We evaluate the performance of the regulated utility segment
based on margin, operations and maintenance expenses and
operating income. We evaluate the performance of the non-utility
activities segment based on earnings from the ventures. All of
our operations are within the United States. No single customer
accounts for more than 10% of our consolidated revenues.
Operations by segment for the years ended October 31, 2007,
2006 and 2005, and as of October 31, 2007 and 2006, are
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
|
|
|
Non-Utility
|
|
|
|
|
|
|
Utility
|
|
|
Activities
|
|
|
Total
|
|
|
|
In thousands
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,711,292
|
|
|
$
|
|
|
|
$
|
1,711,292
|
|
Margin
|
|
|
524,165
|
|
|
|
|
|
|
|
524,165
|
|
Operations and maintenance expenses
|
|
|
214,442
|
|
|
|
325
|
|
|
|
214,767
|
|
Depreciation
|
|
|
88,654
|
|
|
|
29
|
|
|
|
88,683
|
|
Income from equity method investments
|
|
|
|
|
|
|
37,156
|
|
|
|
37,156
|
|
Interest expense
|
|
|
57,272
|
|
|
|
|
|
|
|
57,272
|
|
Operating income (loss) before income taxes
|
|
|
188,662
|
|
|
|
(518
|
)
|
|
|
188,144
|
|
Income before income taxes
|
|
|
133,726
|
|
|
|
36,287
|
|
|
|
170,013
|
|
Total assets
|
|
|
2,655,311
|
|
|
|
95,707
|
|
|
|
2,751,018
|
|
Equity method investments in non-utility activities
|
|
|
|
|
|
|
95,193
|
|
|
|
95,193
|
|
Construction expenditures
|
|
|
135,241
|
|
|
|
|
|
|
|
135,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,924,628
|
|
|
$
|
|
|
|
$
|
1,924,628
|
|
Margin
|
|
|
523,479
|
|
|
|
|
|
|
|
523,479
|
|
Operations and maintenance expenses
|
|
|
219,353
|
|
|
|
503
|
|
|
|
219,856
|
|
Depreciation
|
|
|
89,696
|
|
|
|
4
|
|
|
|
89,700
|
|
Income from equity method investments
|
|
|
|
|
|
|
29,917
|
|
|
|
29,917
|
|
Interest expense
|
|
|
52,310
|
|
|
|
50
|
|
|
|
52,360
|
|
Operating income (loss) before income taxes
|
|
|
181,292
|
|
|
|
(623
|
)
|
|
|
180,669
|
|
Income before income taxes
|
|
|
130,730
|
|
|
|
28,889
|
|
|
|
159,619
|
|
Total assets
|
|
|
2,600,411
|
|
|
|
75,877
|
|
|
|
2,676,288
|
|
Equity method investments in non-utility activities
|
|
|
|
|
|
|
75,330
|
|
|
|
75,330
|
|
Construction expenditures
|
|
|
196,730
|
|
|
|
551
|
|
|
|
197,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
1,761,091
|
|
|
$
|
|
|
|
$
|
1,761,091
|
|
Margin
|
|
|
499,139
|
|
|
|
|
|
|
|
499,139
|
|
Operations and maintenance expenses
|
|
|
206,983
|
|
|
|
214
|
|
|
|
207,197
|
|
Depreciation
|
|
|
85,169
|
|
|
|
|
|
|
|
85,169
|
|
Income from equity method investments
|
|
|
|
|
|
|
27,664
|
|
|
|
27,664
|
|
Interest expense
|
|
|
44,256
|
|
|
|
52
|
|
|
|
44,308
|
|
Operating income (loss) before income taxes
|
|
|
177,180
|
|
|
|
(403
|
)
|
|
|
176,777
|
|
Income before income taxes and minority interest
|
|
|
135,758
|
|
|
|
28,440
|
|
|
|
164,198
|
|
Construction expenditures
|
|
|
157,883
|
|
|
|
|
|
|
|
157,883
|
|
71
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
Reconciliations to the consolidated financial statements for the
years ended October 31, 2007, 2006 and 2005, and as of
October 31, 2007 and 2006, are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income before income taxes
|
|
$
|
188,144
|
|
|
$
|
180,669
|
|
|
$
|
176,777
|
|
Utility income taxes
|
|
|
(51,315
|
)
|
|
|
(50,543
|
)
|
|
|
(51,880
|
)
|
Non-utility activities before income taxes
|
|
|
518
|
|
|
|
623
|
|
|
|
403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
137,347
|
|
|
$
|
130,749
|
|
|
$
|
125,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest for reportable
segments
|
|
$
|
170,013
|
|
|
$
|
159,619
|
|
|
$
|
164,198
|
|
Income taxes
|
|
|
(65,626
|
)
|
|
|
(62,430
|
)
|
|
|
(62,326
|
)
|
Less minority interest
|
|
|
|
|
|
|
|
|
|
|
(602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
104,387
|
|
|
$
|
97,189
|
|
|
$
|
101,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
2,751,018
|
|
|
$
|
2,676,288
|
|
|
|
|
|
Eliminations/Adjustments
|
|
|
69,300
|
|
|
|
57,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,820,318
|
|
|
$
|
2,733,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Restructuring
and Other Termination Benefits
|
In 2006, we restructured our management group and recognized a
liability and expense of $7.9 million, which was included
in the regulated utility segment in operations and maintenance
expense for the cost of the restructuring program. This
restructuring was the beginning of an ongoing, larger effort
aimed at streamlining business processes, capturing operational
and organizational efficiencies and improving customer service.
This liability included early retirement for 22 employees
of the management group and severance for 17 additional
employees through further consolidation. Due to the short
discount period, the liability for the program was recorded at
its gross value. As of October 31, 2007 and 2006, there was
a liability of zero and $1.2 million, respectively, for the
management group restructuring program. During 2007, we paid
severance costs of $1.1 million and adjusted the liability
by $.1 million.
We continued additional organizational changes under our
business process improvement program during 2007. As a part of
this effort, we began initiating changes in our customer payment
and collection processes, including no longer accepting customer
payments in our business offices, streamlining our district
operations and closing some of these office locations. We also
further consolidated our call centers. Collections of delinquent
accounts will be consolidated in our central business office.
These new initiatives will be phased in through 2010 and may be
accelerated and completed earlier.
We have accrued costs in connection with these initiatives in
the form of severance benefits to employees who will be either
voluntarily or involuntarily severed. These benefits were paid
pursuant to existing arrangements and accounted for in
accordance with SFAS No. 112, Employers
Accounting for Postemployment Benefits. All costs are
included in the regulated utility segment in operations and
maintenance expenses in the consolidated statements of income.
We accrued $3.6 million during the year ended
October 31, 2007 and paid $2.2 million in the period.
The liability as of October 31, 2007 was $1.4 million.
72
Piedmont Natural Gas Company, Inc.
Notes to Consolidated Financial
Statements (Continued)
On November 1, 2007, we entered into an ASR agreement. On
November 2, 2007, we purchased and retired 1 million
shares of our common stock from an investment bank at the
closing price that day of $24.70 per share. Total consideration
paid to purchase the shares of $24.8 million, including
$92,500 in commissions and other fees, was recorded in
Stockholders equity as a reduction in
Common stock. As part of the ASR, we simultaneously
entered into a forward sale contract with the investment bank
that is expected to mature in approximately 60 trading days.
Under the terms of the forward sale contract, the investment
bank is required to purchase, in the open market, 1 million
shares of our common stock during the term of the contract to
fulfill its obligation related to the shares it borrowed from
third parties and sold to us. At settlement, we, at our option,
are required to either pay cash or issue registered or
unregistered shares of our common stock to the investment bank
if the investment banks weighted average purchase price is
higher than the November 1, 2007 closing price. The
investment bank is required to pay us either cash or shares of
our common stock, at our option, if the investment banks
weighted average price for the shares purchased is lower than
the November 1, 2007 closing price. Through
December 14, 2007, the investment bank had purchased
708,000 shares at a cumulative weighted average price of
$25.8733 per share.
* * * * *
Selected
Quarterly Financial Data (In thousands except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Per Share of
|
|
|
|
Operating
|
|
|
|
|
|
Operating
|
|
|
Income
|
|
|
Common Stock
|
|
|
|
Revenues
|
|
|
Margin
|
|
|
Income (Loss)
|
|
|
(Loss)
|
|
|
Basic
|
|
|
Diluted
|
|
|
Fiscal Year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31
|
|
$
|
677,241
|
|
|
$
|
208,485
|
|
|
$
|
81,697
|
|
|
$
|
70,716
|
|
|
$
|
0.95
|
|
|
$
|
0.94
|
|
April 30
|
|
|
531,579
|
|
|
|
159,727
|
|
|
|
50,621
|
|
|
|
51,120
|
|
|
|
0.69
|
|
|
|
0.69
|
|
July 31
|
|
|
224,442
|
|
|
|
75,158
|
|
|
|
1,021
|
|
|
|
(9,140
|
)
|
|
|
(0.12
|
)
|
|
|
(0.12
|
)
|
October 31
|
|
|
278,030
|
|
|
|
80,795
|
|
|
|
4,008
|
|
|
|
(8,309
|
)
|
|
|
(0.11
|
)
|
|
|
(0.11
|
)
|
Fiscal Year 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31
|
|
$
|
921,347
|
|
|
$
|
209,372
|
|
|
$
|
81,161
|
|
|
$
|
71,997
|
|
|
$
|
0.94
|
|
|
$
|
0.94
|
|
April 30
|
|
|
483,198
|
|
|
|
154,010
|
|
|
|
44,200
|
|
|
|
43,742
|
|
|
|
0.57
|
|
|
|
0.57
|
|
July 31
|
|
|
237,874
|
|
|
|
72,982
|
|
|
|
(1,026
|
)
|
|
|
(12,389
|
)
|
|
|
(0.16
|
)
|
|
|
(0.16
|
)
|
October 31
|
|
|
282,209
|
|
|
|
87,115
|
|
|
|
6,414
|
|
|
|
(6,161
|
)
|
|
|
(0.08
|
)
|
|
|
(0.08
|
)
|
The pattern of quarterly earnings is the result of the highly
seasonal nature of the business as variations in weather
conditions generally result in greater earnings during the
winter months. Basic earnings per share are calculated using the
weighted average number of shares outstanding during the
quarter. The annual amount may differ from the total of the
quarterly amounts due to changes in the number of shares
outstanding during the year.
73
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Managements
Evaluation of Disclosure Controls and Procedures
Management, including the President and Chief Executive Officer
and the Senior Vice President and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and
procedures. Such disclosure controls and procedures are designed
to ensure that all information required to be disclosed in our
reports filed with the SEC is recorded, processed, summarized
and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Based on our
evaluation process, the Chief Executive Officer and the Chief
Financial Officer have concluded that we have effective
disclosure controls and procedures as of October 31, 2007.
Managements report on internal control over financial
reporting and the attestation report of our independent
registered public accounting firm are immediately following.
There were no changes in our internal control over financial
reporting during the fourth quarter that materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.
74
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
December 28, 2007
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting as that term is defined in
Rules 13a-15(f)
under the Securities Exchange Act of 1934 is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles. The Companys internal control over
financial reporting is supported by a program of internal audits
and appropriate reviews by management, written policies and
guidelines, careful selection and training of qualified
personnel and a written Code of Business Conduct and Ethics
adopted by the Companys Board of Directors and applicable
to all Company Directors, officers and employees.
Because of the inherent limitations, any system of internal
control over financial reporting, no matter how well designed,
may not prevent or detect misstatements due to the possibility
that a control can be circumvented or overridden or that
misstatements due to error or fraud may occur that are not
detected. Also, projections of the effectiveness to future
periods are subject to the risk that the internal controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures included
in such controls may deteriorate.
We have conducted an evaluation of the effectiveness of our
internal control over financial reporting based upon the
framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based upon such evaluation, our
management concluded that as of October 31, 2007, our
internal control over financial reporting was effective.
Managements assessment of the effectiveness of our
internal control over financial reporting as of October 31,
2007, has been audited by Deloitte and Touche LLP, an
independent registered public accounting firm.
Piedmont Natural Gas Company, Inc.
Thomas E. Skains
Chairman, President and Chief Executive Officer
David J. Dzuricky
Senior Vice President and Chief Financial
Officer
Jose M. Simon
Vice President and Controller
75
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Piedmont Natural Gas Company, Inc.
We have audited the internal control over financial reporting of
Piedmont Natural Gas, Inc. and subsidiaries (the
Company) as of October 31, 2007, based on
criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of October 31, 2007, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements of the Company as of and for
the year ended October 31, 2007, and our report dated
December 28, 2007 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding the Companys adoption of Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans.
/s/ Deloitte &
Touche LLP
Charlotte, North Carolina
December 28, 2007
76
|
|
Item 9B.
|
Other
Information
|
None.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information concerning our executive officers and directors is
set forth in the sections entitled The Board of
Directors and Executive Officers in our Proxy
Statement for the 2008 Annual Meeting of Shareholders, which
sections are incorporated in this annual report on
Form 10-K
by reference. Information concerning compliance with
Section 16(a) of the Securities Exchange Act of 1934, as
amended, is set forth in the section entitled
Section 16(a) Beneficial Ownership Reporting
Compliance in our Proxy Statement for the 2008 Annual
Meeting of Shareholders, which section is incorporated in this
annual report on
Form 10-K
by reference.
Information concerning our Audit Committee and our Audit
Committee financial experts is set forth in the section entitled
Committees of the Board in our Proxy Statement for
the 2008 Annual Meeting of Shareholders, which section is
incorporated in this annual report on
Form 10-K
by reference.
We have adopted a Code of Business Conduct and Ethics that is
applicable to all our directors, officers and employees,
including our principal executive officer, principal financial
officer and principal accounting officer. The Code of Business
Conduct and Ethics was filed as Exhibit 14.1 to our annual
report on
Form 10-K
for the year ended October 31, 2003, and is available on
our website at
www.piedmontng.com
. If we amend the Code
of Business Conduct and Ethics or grant a waiver, including an
implicit waiver, from the Code of Business Conduct and Ethics
that apply to the principal executive officer, principal
financial officer and controller or persons performing similar
functions and that relate to any element of the code enumerated
in Item 406(b) of
Regulation S-K,
we will disclose the amendment or waiver on the About
Us-Corporate Governance section of our website within four
business days of such amendment or waiver.
|
|
Item 11.
|
Executive
Compensation
|
Information for this item is set forth in the sections entitled
Executive Compensation, Director
Compensation, Compensation Committee Interlocks and
Insider Participation, and Compensation Committee
Report in our Proxy Statement for the 2008 Annual Meeting
of Shareholders, which sections are incorporated in this annual
report on
Form 10-K
by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information for this item is set forth in the section entitled
Security Ownership of Management and Certain Beneficial
Owners in our Proxy Statement for the 2008 Annual Meeting
of Shareholders, which section is incorporated in this annual
report on
Form 10-K
by reference.
We know of no arrangement, or pledge, which may result in a
change in control. Information describing any material changes
to the procedures for recommending nominees to the Board is set
forth in the section entitled Commonly Asked
Questions in our Proxy Statement for the 2008 Annual
Meeting of Shareholders, which section is incorporated in this
annual report on
Form 10-K
by reference.
Information concerning securities authorized for issuance under
our equity compensation plans is set forth in the section
entitled Equity Compensation Plan Information in our
Proxy Statement for the 2008 Annual Meeting of Shareholders,
which section is incorporated in this annual report on
Form 10-K
by reference.
77
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information for this item is set forth in the section entitled
Independence of Board Members and Related Party
Transactions in our Proxy Statement for the 2008 Annual
Meeting of Shareholders, which section is incorporated in this
annual report on
Form 10-K
by reference.
|
|
Item 14.
|
Principal Accounting Fees and Services
|
Information for this item is set forth in the table entitled
Fees For Services in
Proposal B Ratification of
Deloitte & Touche LLP As Independent Registered Public
Accounting Firm For Fiscal Year 2008 in our Proxy
Statement for the 2008 Annual Meeting of Shareholders, which
section is incorporated in this annual report on
Form 10-K
by reference.
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) 1.
Financial Statements
The following consolidated financial statements for the year
ended October 31, 2007, are included in Item 8 of this
report as follows:
(a) 2.
Supplemental Consolidated Financial Statement
Schedules
None
Schedules and certain other information are omitted for the
reason that they are not required or are not applicable, or the
required information is shown in the consolidated financial
statements or notes thereto.
(a) 3.
Exhibits
|
|
|
|
|
|
|
|
|
Where an exhibit is filed by incorporation by reference to a
previously filed registration statement or report, such
registration statement or report is identified in parentheses.
Upon written request of a shareholder, we will provide a copy of
the exhibit at a nominal charge.
|
|
|
|
|
The exhibits numbered 10.1 through 10.25 are management
contracts or compensatory plans or arrangements.
|
|
3
|
.1
|
|
Articles of Incorporation of the Company as of March 3,
2006, filed in the Department of State of the State of North
Carolina (Exhibit 4.1,
Form S-8
Registration Statement
No. 333-132738).
|
|
3
|
.2
|
|
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.
(Exhibits 3.2 and 3.1, Registration Statement on
Form 8-B,
dated March 2, 1994).
|
|
3
|
.3
|
|
By-Laws of Piedmont Natural Gas Company, Inc., dated
December 15, 2006.
|
|
4
|
.1
|
|
Note Agreement, dated as of September 21, 1992, between
Piedmont and Provident Life and Accident Insurance Company
(Exhibit 4.30,
Form 10-K
for the fiscal year ended October 31, 1992).
|
|
4
|
.2
|
|
Amendment to Note Agreement, dated as of September 16,
2005, by and between Piedmont and Provident Life and Accident
Insurance Company.
|
|
4
|
.3
|
|
Medium-Term Note, Series A, dated as of July 23, 1993
(Exhibit 4.7,
Form 10-K
for the fiscal year ended October 31, 1993).
|
78
|
|
|
|
|
|
4
|
.4
|
|
Medium-Term Note, Series A, dated as of October 6,
1993 (Exhibit 4.8,
Form 10-K
for the fiscal year ended October 31, 1993).
|
|
4
|
.5
|
|
First Supplemental Indenture, dated as of February 25,
1994, between PNG Acquisition Company, Piedmont Natural Gas
Company, Inc., and Citibank, N.A., Trustee (Exhibit 4.2,
Form S-3
Registration Statement
No. 33-59369).
|
|
4
|
.6
|
|
Medium-Term Note, Series A, dated as of September 19,
1994 (Exhibit 4.9,
Form 10-K
for the fiscal year ended October 31, 1994).
|
|
4
|
.7
|
|
Form of Master Global Note (Exhibit 4.4,
Form S-3
Registration Statement
No. 33-59369).
|
|
4
|
.8
|
|
Pricing Supplement of Medium-Term Notes, Series B, dated
October 3, 1995 (Exhibit 4.10,
Form 10-K
for the fiscal year ended October 31, 1995).
|
|
4
|
.9
|
|
Pricing Supplement of Medium-Term Notes, Series B, dated
October 4, 1996 (Exhibit 4.11,
Form 10-K
for the fiscal year ended October 31, 1996).
|
|
4
|
.10
|
|
Rights Agreement, dated as of February 27, 1998, between
Piedmont and Wachovia Bank, N.A., as Rights Agent, including the
Rights Certificate (Exhibit 10.1,
Form 8-K
dated February 27, 1998).
|
|
4
|
.11
|
|
Agreement of Substitution and Amendment of Common Shares Rights
Agreement, dated as of December 18, 2003, between Piedmont
and American Stock Transfer and Trust Company, Inc.
(Exhibit 4.10,
Form S-3
Registration Statement
No. 333-111806).
|
|
4
|
.12
|
|
Form of Master Global Note, executed September 9, 1999
(Exhibit 4.4,
Form S-3
Registration Statement
No. 333-26161).
|
|
4
|
.13
|
|
Pricing Supplement of Medium-Term Notes, Series C, dated
September 15, 1999 (Rule 424(b)(3) Pricing Supplement
to
Form S-3
Registration Statement Nos.
33-59369
and
333-26161).
|
|
4
|
.14
|
|
Pricing Supplement of Medium-Term Notes, Series C, dated
September 15, 1999 (Rule 424(b)(3) Pricing Supplement
to
Form S-3
Registration Statement Nos.
33-59369
and
333-26161).
|
|
4
|
.15
|
|
Pricing Supplement No. 3 of Medium-Term Notes,
Series C, dated September 26, 2000
(Rule 424(b)(3) Pricing Supplement to
Form S-3
Registration Statement
No. 333-26161).
|
|
4
|
.16
|
|
Form of Master Global Note, executed June 4, 2001
(Exhibit 4.4,
Form S-3
Registration Statement
No. 333-62222).
|
|
4
|
.17
|
|
Pricing Supplement No. 1 of Medium-Term Notes,
Series D, dated September 18, 2001
(Rule 424(b)(3) Pricing Supplement to
Form S-3
Registration Statement
No. 333-62222).
|
|
4
|
.18
|
|
Second Supplemental Indenture, dated as of June 15, 2003,
between Piedmont and Citibank, N.A., Trustee (Exhibit 4.3,
Form S-3
Registration Statement
No. 333-106268).
|
|
4
|
.19
|
|
Form of 5% Medium-Term Note, Series E, dated as of
December 19, 2003 (Exhibit 99.1,
Form 8-K,
dated December 23, 2003).
|
|
4
|
.20
|
|
Form of 6% Medium-Term Note, Series E, dated as of
December 19, 2003 (Exhibit 99.2,
Form 8-K,
dated December 23, 2003).
|
|
4
|
.21
|
|
Third Supplemental Indenture, dated as of June 20, 2006,
between Piedmont Natural Gas Company, Inc. and Citibank, N.A.,
as trustee (Exhibit 4.1,
Form 8-K
dated June 20, 2006).
|
|
4
|
.22
|
|
Form of 6.25% Insured Quarterly Note Series 2006, Due 2036
(Exhibit 4.2 (as included in Exhibit 4.1),
Form 8-K
dated June 20, 2006).
|
|
4
|
.23
|
|
Agreement of Resignation, Appointment and Acceptance dated as of
March 29, 2007, by and among the registrant, Citibank,
N.A., and The Bank of New York Trust Company, N.A.
(Exhibit 4.1,
Form 10-Q
for quarter ended April 30, 2007).
|
|
|
|
|
Compensatory Contracts:
|
|
10
|
.1
|
|
Form of Director Retirement Benefits Agreement with outside
directors, dated September 1, 1999 (Exhibit 10.54,
Form 10-K
for the fiscal year ended October 31, 1999).
|
|
10
|
.2
|
|
Resolution of Board of Directors, September 2, 2005,
establishing compensation for non-management directors
(Exhibit 10.1,
Form 8-K
dated September 9, 2005).
|
|
10
|
.3
|
|
Executive Long-Term Incentive Plan, dated February 27, 2004
(Exhibit 10.2,
Form 10-Q
for quarter ended April 30, 2004).
|
|
10
|
.4
|
|
Establishment of Measures for Long-Term Incentive Plan 10 (filed
in
Form 8-K
dated October 20, 2006, as Item 1.01).
|
79
|
|
|
|
|
|
10
|
.5
|
|
Form of Award Agreement under Executive Long-Term Incentive Plan
(Exhibit 10.5,
Form 10-K
for the fiscal year ended October 31, 2006).
|
|
10
|
.6
|
|
Employment Agreement with David J. Dzuricky, dated
December 1, 1999 (Exhibit 10.37,
Form 10-K
for the fiscal year ended October 31, 1999).
|
|
10
|
.7
|
|
Employment Agreement with Thomas E. Skains, dated
December 1, 1999 (Exhibit 10.40,
Form 10-K
for the fiscal year ended October 31, 1999).
|
|
10
|
.8
|
|
Employment Agreement with Franklin H. Yoho, dated March 18,
2002 (Exhibit 10.23,
Form 10-K
for the fiscal year ended October 31, 2002).
|
|
10
|
.9
|
|
Employment Agreement with Michael H. Yount, dated May 1,
2006 (Exhibit 10.1,
Form 10-Q
for the quarter ended April 30, 2006).
|
|
10
|
.10
|
|
Employment Agreement with Kevin M. OHara, dated
May 1, 2006 (Exhibit 10.2,
Form 10-Q
for the quarter ended April 30, 2006).
|
|
10
|
.11
|
|
Form of Severance Agreement with Thomas E. Skains, dated
September 4, 2007 (Substantially identical agreements have
been entered into as of the same date with David J. Dzuricky,
Franklin H. Yoho, Michael H. Yount, Kevin M. OHara, June
B. Moore and Jane R. Lewis-Raymond) (Exhibit 10.2,
Form 10-Q
for the quarter ended July 31, 2007).
|
|
10
|
.12
|
|
Schedule of Severance Agreements with Executives
(Exhibit 10.2a,
Form 10-Q
for the quarter ended July 31, 2007).
|
|
10
|
.13
|
|
Piedmont Natural Gas Company, Inc. Supplemental Executive
Benefit Plan (Amended and Restated as of November 1, 2004)
(Exhibit 10.1,
Form 8-K
dated December 10, 2004).
|
|
10
|
.14
|
|
Form of Participation Agreement under the Piedmont Natural Gas
Company, Inc. Supplemental Executive Benefit Plan (Amended and
Restated as of November 1, 2004) (with supplemental
retirement benefit) (Exhibit 10.14,
Form 10-K
for the fiscal year ended October 31, 2004).
|
|
10
|
.15
|
|
Form of Participation Agreement under the Piedmont Natural Gas
Company, Inc. Supplemental Executive Benefit Plan (Amended and
Restated as of November 1, 2004) (without supplemental
retirement benefit) (Exhibit 10.15,
Form 10-K
for the fiscal year ended October 31, 2004).
|
|
10
|
.16
|
|
Establishment of Measures for 2007 Short-Term Incentive Plan
(Item 1.01,
Form 8-K
dated October 20, 2006).
|
|
10
|
.17
|
|
Jerry W. Amos Engagement Letter dated January 3, 2005
(Exhibit 10.1,
Form 8-K
filed January 6, 2005) (Exhibit 10.18,
Form 10-K
for the fiscal year ended October 31, 2004).
|
|
10
|
.18
|
|
Piedmont Natural Gas Company, Inc. Incentive Compensation Plan
(Exhibit 10.1,
Form 8-K
dated March 3, 2006).
|
|
10
|
.19
|
|
Restricted Stock Award Agreement between Piedmont Natural Gas
Company, Inc. and Thomas E. Skains, dated September 1, 2006
(Exhibit 10.26,
Form 10-K
for the fiscal year ended October 31, 2006).
|
|
10
|
.20
|
|
Form of Participation Agreement under the Piedmont Natural Gas
Company, Inc. Short-Term Incentive Plan (STIP)
(Exhibit 10.1,
Form 10-Q
for the quarter ended April 30, 2007).
|
|
10
|
.21
|
|
Form of Performance Unit Award Agreement (Exhibit 10.1,
Form 10-Q
for the quarter ended July 31, 2007).
|
|
10
|
.22
|
|
Amendment No. 1 to the Piedmont Natural Gas Company
Executive Long-Term Incentive Plan, dated September 7, 2007.
|
|
10
|
.23
|
|
Resolution of Board of Directors, September 7, 2007,
establishing compensation for non-management directors.
|
|
10
|
.24
|
|
Incentive Compensation Plan Interpretive Guidelines as of
September 7, 2007.
|
|
10
|
.25
|
|
Description of Measures for Piedmont Natural Gas Company, Inc.
Long-Term Incentive Plan Awards No. 8, 9 and 11.
|
|
|
|
|
Other Contracts:
|
|
10
|
.26
|
|
Amended and Restated Limited Liability Company Agreement of
SouthStar Energy Services LLC, effective January 1, 2004,
between Piedmont Energy Company and Georgia Natural Gas Company
(Exhibit 10.1,
Form 10-Q
for the quarter ended April 30, 2004).
|
80
|
|
|
|
|
|
10
|
.27
|
|
First Amendment to Amended and Restated Limited Liability
Company Agreement of SouthStar Energy Services LLC, dated as of
July 31, 2006, between Piedmont Energy Company and Georgia
Natural Gas Company (Exhibit 10.28,
Form 10-K
for the fiscal year ended October 31, 2006).
|
|
10
|
.28
|
|
Amendment by Written Consent to Amended and Restated Limited
Liability Company Agreement of SouthStar Energy Services LLC,
dated as of August 28, 2006, between Piedmont Energy
Company and Georgia Natural Gas Company (Exhibit 10.29,
Form 10-K
for the fiscal year ended October 31, 2006).
|
|
10
|
.29
|
|
Amendment by Written Consent to Amended and Restated Limited
Liability Company Agreement of SouthStar Energy Services LLC,
dated as of September 20, 2006, between Piedmont Energy
Company and Georgia Natural Gas Company (Exhibit 10.30,
Form 10-K
for the fiscal year ended October 31, 2006).
|
|
10
|
.30
|
|
Equity Contribution Agreement, dated as of November 12,
2004, between Columbia Gas Transmission Corporation and Piedmont
Natural Gas Company (Exhibit 10.1,
Form 8-K
dated November 16, 2004).
|
|
10
|
.31
|
|
Construction, Operation and Maintenance Agreement by and Between
Columbia Gas Transmission Corporation and Hardy Storage Company,
LLC, dated November 12, 2004 (Exhibit 10.2,
Form 8-K
dated November 16, 2004).
|
|
10
|
.32
|
|
Operating Agreement of Hardy Storage Company, LLC, dated as of
November 12, 2004 (Exhibit 10.3,
Form 8-K
dated November 16, 2004).
|
|
10
|
.33
|
|
Guaranty of Principal dated as of June 29, 2006, by
Piedmont Energy Partners, Inc. in favor of U.S. Bank National
Association, as agent (Exhibit 10.1,
Form 8-K
dated July 5, 2006).
|
|
10
|
.34
|
|
Residual Guaranty dated as of June 29, 2006, by Piedmont
Energy Partners, Inc. in favor of U.S. Bank National
Association, as agent (Exhibit 10.2,
Form 8-K
dated July 5, 2006).
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges.
|
|
21
|
|
|
List of Subsidiaries.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 of the Chief Executive Officer.
|
|
31
|
.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 of the Chief Financial Officer.
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 of the Chief Executive Officer.
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 of the Chief Financial Officer.
|
81
Pursuant to the requirements of Section 13 or 15(d) 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)
Thomas E. Skains
Chairman of the Board, President
and Chief Executive Officer
Date: December 28, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Thomas
E. Skains
Thomas
E. Skains
|
|
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
|
Date: December 28, 2007
|
|
|
|
|
|
/s/ David
J. Dzuricky
David
J. Dzuricky
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
Date: December 28, 2007
|
|
|
|
|
|
/s/ Jose
M. Simon
Jose
M. Simon
|
|
Vice President and Controller
(Principal Accounting Officer)
|
|
|
|
Date: December 28, 2007
|
|
|
82
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Jerry
W. Amos
Jerry
W. Amos
|
|
Director
|
|
|
|
/s/ E.
James Burton
E.
James Burton
|
|
Director
|
|
|
|
/s/ D.
Hayes Clement
D.
Hayes Clement
|
|
Director
|
|
|
|
/s/ Malcolm
E. Everett III
/s/
Malcolm E. Everett III
|
|
Director
|
|
|
|
/s/ John
W. Harris
John
W. Harris
|
|
Director
|
|
|
|
/s/ Aubrey
B. Harwell, Jr.
Aubrey
B. Harwell, Jr.
|
|
Director
|
|
|
|
/s/ Frank
B. Holding, Jr.
Frank
B. Holding, Jr.
|
|
Director
|
|
|
|
/s/ Frankie
T. Jones, Sr.
Frankie
T. Jones, Sr.
|
|
Director
|
|
|
|
/s/ Vicki
McElreath
Vicki
McElreath
|
|
Director
|
|
|
|
/s/ Minor
M. Shaw
Minor
M. Shaw
|
|
Director
|
|
|
|
/s/ Muriel
W. Sheubrooks
Muriel
W. Sheubrooks
|
|
Director
|
|
|
|
/s/ David
E. Shi
David
E. Shi
|
|
Director
|
83
Piedmont
Natural Gas Company, Inc.
Form 10-K
For the
Fiscal Year Ended October 31, 2007
Exhibits
|
|
|
|
|
|
3
|
.3
|
|
By-Laws of Piedmont Natural Gas Company, Inc., dated
December 15, 2006
|
|
4
|
.2
|
|
Amendment to Note Agreement, dated as of September 16,
2005, by and between Piedmont and Provident Life and Accident
Insurance Company
|
|
10
|
.22
|
|
Amendment No. 1 to the Piedmont Natural Gas Company
Executive Long-Term Incentive Plan, dated September 7, 2007
|
|
10
|
.23
|
|
Resolution of Board of Directors, September 7, 2007,
establishing compensation for non-management directors
|
|
10
|
.24
|
|
Incentive Compensation Plan Interpretive Guidelines as of
September 7, 2007
|
|
10
|
.25
|
|
Description of Measures for Piedmont Natural Gas Company, Inc.
Long-Term Incentive Plan Awards No. 8, 9 and 11
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges
|
|
21
|
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
31
|
.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 of the Chief Executive Officer
|
|
31
|
.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 of the Chief Financial Officer
|
|
32
|
.1
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley
Act of 2002 of the Chief Executive Officer
|
|
32
|
.2
|
|
Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 of the Chief Financial Officer
|
84
Piedmont Nat Gas (NYSE:PNY)
Historical Stock Chart
From Jun 2024 to Jul 2024
Piedmont Nat Gas (NYSE:PNY)
Historical Stock Chart
From Jul 2023 to Jul 2024