Thomas E. Skains - Chairman, Chief Executive Officer and President
Judy Z. Mayo - Assistant Secretary
Piedmont Natural Gas Co Inc. (PNY) 2013 Annual Shareholder Meeting March 6, 2013 8:30 AM ET
Thomas E. Skains
Well, good morning, ladies and gentlemen. I'm Tom Skains, Chairman, President and Chief Executive Officer of Piedmont Natural Gas. On behalf of the Board of Directors, it is my pleasure to welcome you to our 2013 Annual Meeting of Shareholders. I would now like to call the meeting to order. You should have received an agenda in connection with the meeting at your seats, and we will conduct the formal part of the annual meeting first. And if you need a ballot now, could you please raise your hand, we'd be happy to hand you one. Does anyone need a ballot this morning? It looks like everyone is set. So thank you very much.
After the conclusion of the formal part of the meeting, we will review our business highlights and financial results for fiscal year 2012. However, we will not be discussing our first quarter 2013 results today or further commenting on our 2013 earnings guidance. Those matters will be addressed in the press release to be issued later today, concurrent with the filing of our first quarter Form 10-Q, and at our first quarter earnings call scheduled for tomorrow morning.
I would now like to make some introductions. First, I would like to recognize Judy Mayo, our Deputy General Counsel and Assistant Corporate Secretary, who will serve as the parliamentarian of this meeting. Judy, thank you very much. Next, I would like to recognize Eileen Little, of Deloitte & Touche, the company's independent registered public accounting firm. Eileen, would you like to make any statements or comments?
Good morning. Thank you. First, to serve as [indiscernible] at that. We did relay [ph] our 2012 audit, issued our report over on the next segment, as well as the company's [indiscernible] the next one for you. Those reports were unqualified of [indiscernible]. And we appreciate your [indiscernible] with Deloitte & Touche.
Thomas E. Skains
Thank you, Eileen. I appreciate the service that Deloitte & Touche provides to our company and our shareholders. I would also like to take a minute to introduce the retired company directors and officers who are with us here this morning. First, Hayes Clement, Retired Director, former Audit Committee Chair, his wife, Clem, would you please stand and be recognized, please? Thank you for that. That so much for driving down from Greensburg. And I'd also like to introduce Nancy Brinning, former officer of the company. Nancy, would you would you mind standing and be recognized as well? Did I miss anyone else in the morning rush at the gathering? Okay, if not, thank you Clem and Hayes and Nancy for joining us this morning. We really appreciate your attendance.
We will now proceed to the formal part of the meeting, regarding the election of directors, the ratification, the appointment of our independent registered public accounting firm and the advisory vote to approve named executive officer compensation.
Today, I will be serving as chairman of the meeting, and Judy Mayo will serve as secretary and will record the minutes of the meeting. She has reported to me that the required notice of the meeting was timely mailed by our tabulating agent, Broadridge Financial Solutions, beginning on January 18, 2013, to all shareholders of record as of January 2, 2013. As a result, this meeting is being held pursuant to proper notice. Also, a certified list of shareholders is available for inspection.
I have appointed Mr. Sid Rodrigue of Broadridge Financial Solutions to act as the inspector of election at this meeting, and his report will be filed along with the minutes of the meeting.
Now if you've completed the ballot for today's election and have not turned it in yet, if you raise your hand, we'll have someone collect it. I think we're good to go on that count. Thank you very much.
We have over 85% of the company's outstanding shares represented here today, either in person or by proxy. And therefore, a quorum is present. The minutes of the annual meeting of shareholders held March 8, 2012 are in the custody of the secretary, and copies are available. I will entertain a motion to waive the reading of those minutes and that the minutes be approved as recorded.
Thank you. Do I hear a second to that motion?
I second the motion.
Thomas E. Skains
Thank you, Victor. It has been moved and seconded that the reading of the minutes of annual meeting of shareholders held March 8, 2012, be waived, and that minutes be approved as recorded. All in favor, say "aye," please.
Thank you. The ayes have it and the motion is carried. I will now report the voting results. First, the election of directors. The following persons previously elected by the shareholders to serve on the board have again been nominated for election to serve as Class III Directors. They are Frankie T. Jones, Sr., Vicki McElreath and Thomas E. Skains. Phillip D. Wright, who the board elected as a director in 2012, has also been nominated for election to serve as a Class III Director. If elected, these 4 directors will serve 3-year terms expiring in 2016. A director nominee must receive the affirmative vote of the plurality of the shares voted in order to be elected. Will the secretary please report on the vote of the shareholders on these nominations?
Judy Z. Mayo
The inspector of election reports that each person nominated for election as a director received the affirmative votes of at least 96% of the shares of common stock voted.
Thomas E. Skains
Thank you, Judy. I hereby declare that all nominees had been duly elected to serve as Class III Directors of the company. It is now my pleasure to present your Board of Directors. Will each Director please stand as your name is announced: E. James Burton; Malcolm E. Everett III; John W. Harris; Aubrey B. Harwell, Jr.; Frank B. Holding, Jr.;
Frankie T. Jones, Sr.; Vicki McElreath; Minor E.M. Shaw; Muriel W. Sheubrooks; David E. Shi; Thomas E. Skains; and Phillip D. Wright. Thank you, ladies gentlemen, for your service to our company and our shareholders.
The next item of business is ratification of the appointment of our independent registered public accounting firm for the fiscal year ended October 31, 2013. The Audit Committee of the Board of Directors has appointed the firm of Deloitte & Touche. This proposal requires the affirmative vote of the majority of the shares voted on the matter. Will the secretary please report on the vote of the shareholders?
Judy Z. Mayo
The inspector of election reports that 99% of the shares of common stock voted, which is the majority of the votes cast, were voted in favor of this appointment of the Audit Committee.
Thomas E. Skains
Thank you, Judy. 99%, that's a nice vote, Eileen. I hereby declare the appointment of Deloitte & Touche as our independent registered public accounting firm for the fiscal year ending October 31, 2013, duly ratified.
The next item of business is the advisory vote to approve named executive officer compensation. For this proposal, the affirmative vote of the majority of the shares voted on the matter is required for advisory approval. Will the secretary please report on the vote of the shareholders?
Judy Z. Mayo
The inspector of election reports that 76% of the shares of common stock voted, which is the majority of the votes cast, were voted in favor of the companies named executive officer compensation.
Thomas E. Skains
Thank you, Judy, and I thank the shareholders for your vote of support on our executive compensation programs. Our Compensation Committee and the Board of Directors will take into account this advisory vote of shareholders as they determine how to continue to structure our named executive officer compensation in the long-term best interest of shareholders.
Is there are any further business to come before the meeting? If not, I will entertain a motion to adjourn.
I move that the formal part of the meeting be adjourned.
Thomas E. Skains
Do I hear a second?
I second the motion.
Thomas E. Skains
Thank you. All in favor, say "aye," please.
Those opposed? Okay, this concludes the formal part of the meeting. Thank you very much.
I would now like to discuss Piedmont's 2012 business and financial results. And my remarks today will focus on our business highlights for fiscal year 2012, our financial results for the year, our long-term financial performance, shareholder returns and dividend growth, our strategic directives and how we've acted on those directives and our compelling industry fundamentals.
But before I continue, as always a word from my lawyers, I need to say that my comments today may contain forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, and please refer to our 2012 Form 10-K for information about the risk factors that could cause our actual results to differ from our expectations.
As you know, Piedmont provides natural gas service to more than 1 million customers across the state of North Carolina, the upstate of South Carolina and the metropolitan Nashville area in Tennessee. And through our investment in SouthStar Energy Services, we also provide unregulated natural gas service to about 0.5 million customers in the state of Georgia.
2012 was a significant financial, operational and strategic success for our company. Despite weather that was the warmest we've experienced in over 35 years, we achieved net income of $119.8 million, and diluted earnings per share of $1.66, a 6% improvement from 2011.
Your Board of Directors increased the dividend for the 34th consecutive year to a new annualized level of $1.20 per share, a 3.4% increase over to prior year. We also added over 13,000 new customers to our distribution system, with growth across all customer categories. This was the strongest year of new customer growth since 2008.
In 2012, we also executed the largest capital program in the history of the company. This was largely as the result of our work on pipeline expansion projects to provide natural gas delivery services to the new, state-of-the-art power generation facilities for Duke Energy/Progress. We placed the Wayne County Project into service in June of 2012, and we remain on schedule to complete the Sutton Project by June of 2013.
Upon completion of service to the sub-plant, we will have put into service 5 projects for Duke Energy, totaling more than $500 million of utility capital investment. The expansion of natural gas service to new, combined cycle plants highlights the growing demand for clean, efficient and affordable natural gas in the power-generation markets.
As a result of these efforts, Piedmont's throughput increased 16% in 2012, led by an 82% increase in the power-generation market.
Last January, we also settled a general rate case in Tennessee, and new rates went into effect in March of 2012. However, even with higher base rates, Tennessee customers, today, are still paying bills that are 40% lower than they were in 2008. This is because of the lower cost of natural gas.
We're also expanding our presence in the compressed natural, or CNG, vehicle market. We now own and operate 8 CNG fueling stations throughout our service areas. These stations not only serve our own fleet of CNG vehicles, but also third-party customer fleets, such as AT&T and Frito-Lay.
In 2012, we continued our focus on robust safety programs. 98% of our employees participated in a behavioral-based safety program to enhance our culture of safety at Piedmont. In addition, our large utility capital expenditure program of $550 million to $600 million planned for this year is largely devoted to pipeline integrity, safety and compliance programs, as well as supporting system and technology infrastructure.
Finally, we entered fiscal year 2013, as we did fiscal year 2012, in a strong financial position with an excellent balance sheet, high-quality credit ratings and continued access to capital markets. In fact, we've successfully executed a secondary common equity offering in January to help finance our large capital program. Our company remains well-positioned to take advantage of future growth opportunities.
And now, let's look at Piedmont's 2012 financial performance, dividends and shareholder returns. As I've mentioned earlier, diluted earnings per share in 2012 were $1.66, which is a 6% increase over last year. Over the last 5 years, our earnings per share has grown by an average annual growth rate of about 3%. Good performance, we believe, in an otherwise sluggish economy.
As you can also see on this slide, our improved results have come from growth in the regulated utility segment. Average annual growth of utility over the last 5 years has been 6%, which has given our board the confidence continue to provide a steady and increasing dividend.
Our management team and Board of Directors are continuously focused on long-term value for shareholders. As you can see from this chart, Piedmont has a long-term track record of earnings and dividend growth. We've paid a dividend to shareholders every year since 1956, and as I mentioned earlier, we've increased our dividend every year since 1978.
I would note that our dividend is on the board agenda for our meeting later this morning. The long-term value proposition of being a Piedmont Natural Gas shareholder is best demonstrated by our history of providing attractive total shareholder returns, price appreciation with dividends reinvested.
Over a 3-year period, a $100 investment at Piedmont Natural Gas in October 2009 would've grown to $154 in October of 2012. This is an average annual growth rate 15%, which is in line with our peer group and better than the 13% annual return for the S&P 500.
Over a 5-year period, a $100 investment at Piedmont Natural Gas back in October of 2007 would've grown to $152 by October of 2012. This return not only outpaces our peers, but is vastly superior to the S&P 500, which was basically flat over that same period.
And finally, over a 20-year period, a $100 investment in our company back in October of 1992 would've grown to $756 at the end of our 2012 fiscal year. That translates to 11% annual growth, and as you can see, is far superior to both our peer group and the S&P 500, and we're extremely proud of these results.
Last year, I introduced our renewed strategic directives, which guide our long-term strategies and our annual business objectives. These directives are: to promote the benefits of natural gas; to expand our core natural gas and complementary energy-related businesses to enhance shareholder value; to preserve our financial strength and flexibility; to achieve excellence in customer service every time; to be the energy and service provider of choice; to execute sustainable business practices; and to enhance our healthy, high-performance corporate culture. Led by these directives, we've taken significant steps to position your company for future success.
As I mentioned earlier, we plan to spend between $550 million and $600 million in 2013 to support our growth plans and to provide safe and reliable natural gas service to our 1 million utility customers.
Last November, we announced the new joint-venture investment in Constitution Pipeline. Constitution is a regulated interstate pipeline that will transport Marcellus gas from Northern Pennsylvania to major northeastern markets. Subject to regulatory approval, the project is scheduled to go into service in March of 2015. We're excited about this pipeline infrastructure investment because it will create value for both natural gas producers and consumers by transporting clean, low-cost, natural gas from the largest, supply basin in North America to high-value East Coast markets.
We also announced in November the further execution of our supply diversification strategy that will lower our dependence on natural gas supplies from the Gulf Coast. We signed 2 long-term contracts that, once operational, will enable our customers to receive the benefits of supply diversity and reliability of Marcellus natural gas. The first is a market-competitive supply agreement, and the second is a firm transportation agreement that will transport these Marcellus gas supplies back to our Carolina markets. Both agreements are scheduled to commence in December 2015, subject to regulatory approvals. We expect these supply arrangements to provide diversification, reliability and gas cost benefits for Piedmont's customers for years to come.
Finally, I continue to believe that this is an exciting time to be in the natural gas distribution business. Natural gas is clearly a foundation fuel in a new energy economy, and we're at the right place at the right time. Our country's enormous natural gas resource base is resulting in significantly lower energy cost for our customers and a more competitive position for our company in the energy marketplace. Our product is clean and efficient. Our service is safe and reliable. And our industry is creating economic growth and jobs and enhancing our national energy security.
Likewise, I also believe this is a promising time for your company, Piedmont Natural Gas. We've taken steps to secure a bright future for both our customers and our shareholders. And with a strong financial position, energetic and talented employees across the organization and a healthy high-performance culture, we're ready to capitalize on any and all opportunities for future success.
So on behalf of the Piedmont Natural Gas Board, management team and employees, I want to express my sincere appreciation for the confidence and support you have shown us through your investment in our company.
I thank you for being here today. I would now like to open the meeting for any questions our shareholders may have. And I would ask, if you do have a question, you can make it over to an aisle, we'll have an attendant meet you there with a microphone, and please state your name and who you represent before you ask your question. Thank you so much for being here.
Any questions this morning from our shareholders? My goodness, that's 5 years in a row. With that silence, I'm going to take that as a sign of your support and encouragement. Thank you so much for being here this morning. Thank you for your investment in Piedmont Natural Gas. Travel safely home, and have a wonderful day. Thank you.
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