FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1160
THE PROVIDENCE GAS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0203650
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
(Address of principal executive offices)
(Zip Code)
401-272-5040
Registrant's telephone number, including area code
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
Common Stock, $1.00 par value; 1,243,598 shares outstanding at
May 12, 1995.
THE PROVIDENCE GAS COMPANY
FORM 10-Q
MARCH 31, 1995
PART I: FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements
Consolidated Statements of Income for the
three, six and twelve months ended
March 31, 1995 and 1994 I-1
Consolidated Balance Sheets as of
March 31, 1995, March 31, 1994 and
September 30, 1994 I-2
Consolidated Statements of Cash Flow for the
six months ended March 31, 1995 and 1994 I-3
Consolidated Statements of Capitalization as of
March 31, 1995, March 31, 1994 and
September 30, 1994 I-4
Notes to Consolidated Financial Statements I-5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations I-8
PART II: OTHER INFORMATION
Item 6 - Reports on Form 8-K II-1
Signature II-2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
THREE MONTHS SIX MONTHS
1995 1994 1995 1994
(thousands, except per share amounts)
Operating revenues $ 64,401 $ 81,813 $112,683 $143,868
Cost of gas sold 35,949 50,281 61,641 88,650
Operating margin 28,452 31,532 51,042 55,218
Operating expenses:
Other operation 10,703 13,114 20,547 23,431
Maintenance 1,144 1,155 1,998 1,922
Depreciation and
amortization 2,485 2,326 4,970 4,647
Taxes -
State gross
receipts 1,812 2,331 3,105 4,194
Local property and
other 1,710 1,747 3,306 3,335
Federal income 3,097 3,130 4,772 4,988
Total operating
expenses 20,951 23,803 38,698 42,517
Operating income 7,501 7,729 12,344 12,701
Other income, net
169 247 318 441
Income before
interest expense 7,670 7,976 12,662 13,142
Interest expense:
Long-term debt 1,268 1,292 2,551 2,410
Other 700 361 1,088 632
Interest capitalized (25) (31) (47) (53)
1,943 1,622 3,592 2,989
Net income 5,727 6,354 9,070 10,153
Dividends on
preferred stock (174) (174) (348) (348)
Net income applicable
to common stock $ 5,553 $ 6,180 $ 8,722 $ 9,805
======== ======== ======== ========
Earnings per common
share $ 4.47 $ 4.97 $ 7.01 $ 7.88
======== ======== ======== ========
Dividends paid per
common share $ .89 $ .89 $ 1.78 $ 1.78
======== ======== ======== ========
Weighted average common
shares outstanding 1,243.6 1,243.6 1,243.6 1,243.6
======== ======== ======== =======
PAGE I-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
TWELVE MONTHS
1995 1994
(thousands, except per share amounts)
Operating revenues $187,958 $214,480
Cost of gas sold 106,306 134,672
Operating margin 81,652 79,808
Operating expenses:
Other operation 38,624 42,417
Maintenance 3,811 3,788
Depreciation and
amortization 9,668 9,091
Taxes -
State gross
receipts 5,237 6,176
Local property and
other 6,058 6,625
Federal income 4,153 1,910
Total operating
expenses 67,551 70,007
Operating income 14,101 9,801
Other income, net
286 578
Income before
interest expense 14,387 10,379
Interest expense:
Long-term debt 5,128 5,074
Other 1,697 1,205
Interest capitalized (101) (94)
6,724 6,185
Net income 7,663 4,194
Dividends on
preferred stock (696) (696)
Net income applicable
to common stock $ 6,967 $ 3,498
======== ========
Earnings per common
share $ 5.60 $ 2.81
======== ========
Dividends paid per
common share $ 3.56 $ 3.56
======== ========
Weighted average common
shares outstanding 1,243.6 1,243.6
======== ========
PAGE I-1(a)
THE PROVIDENCE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
March 31, March 31, September 30,
1995 1994 1994
ASSETS
Gas plant, at original cost $238,781 $219,259 $230,926
Less - Accumulated depreciation 83,997 75,573 79,447
154,784 143,686 151,479
Current assets:
Cash and temporary cash investments 1,382 2,210 844
Accounts receivable, less allowance of
$3,405 at 3/31/95, $4,679 at 3/31/94
and $2,923 at 9/30/94 40,013 53,047 17,664
Unbilled revenues 8,512 8,557 2,877
Deferred gas costs - 4,704 15,349
Inventories, at average cost -
Liquefied natural gas, propane and under-
ground storage 6,530 5,242 11,123
Materials and supplies 1,419 1,946 1,590
Prepaid and refundable taxes 3,002 2,140 3,507
Prepayments 549 491 1,458
61,407 78,337 54,412
Deferred charges and other assets 14,887 13,272 15,286
Total assets $231,078 $235,295 $221,177
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization: $142,440 $140,692 $137,919
Current liabilities:
Notes payable 14,000 15,000 24,700
Current portion of long-term debt 2,077 2,075 2,085
Accounts payable 21,690 37,601 18,039
Accrued taxes 9,360 9,420 6,057
Accrued vacation 1,798 1,882 1,543
Customer deposits 3,713 3,356 3,520
Refundable gas costs 9,564 - -
Other 2,335 2,887 2,779
64,537 72,221 58,723
Deferred credits and reserves:
Accumulated deferred Federal income taxes 15,642 14,008 15,065
Unamortized investment tax credits 2,747 2,905 2,826
Other 5,712 5,469 6,644
24,101 22,382 24,535
Total capitalization and liabilities $231,078 $235,295 $221,177
======== ======== ========
PAGE I-2
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31
(Unaudited)
1995 1994
(Thousands of Dollars)
Cash provided by (used for)
Operations:
Net income $ 9,070 $ 10,153
Items not requiring cash -
Depreciation and amortization 4,958 4,635
Deferred Federal income taxes 577 236
Amortization of investment tax credits (79) (79)
Change in assets and liabilities
which provided (used) cash:
Accounts receivable (22,349) (36,107)
Unbilled revenues (5,635) (5,770)
Inventories 4,764 5,938
Prepaid and refundable taxes 505 3,028
Prepayments 909 346
Accounts payable 3,651 14,575
Accrued taxes 3,303 3,318
Refundable gas costs 24,913 16,228
Accrued vacation, customer deposits
& other 4 611
Net cash provided by operations 24,591 17,112
Investment Activities:
Expenditures for property, plant and
equipment (8,108) (6,456)
Deferred charges and other (769) (452)
Total (8,877) (6,908)
Financing Activities:
Issuance of mortgage bonds - 16,000
(Decrease) in long-term debt (1,839) (230)
(Decrease) in notes payable (10,700) (21,800)
Cash dividends on common stock (2,289) (2,213)
Cash dividends on preferred stock (348) (348)
Total (15,176) (8,591)
Increase in cash & temporary cash
investments 538 1,613
Cash and cash equivalents at beginning
of period 844 597
Cash and cash equivalents at end of period $ 1,382 $ 2,210
========= ========
Changes in components of assets and liabilities
Supplemental disclosures of cash flow information:
Cash paid year-to-date -
Interest (net of amount capitalized) $ 3,500 $ 2,852
Income taxes (net of refunds) $ 1,400 $ 300
PAGE I-3
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS)
(unaudited)
March 31, March 31, September 30,
1995 1994 1994
Common stock equity:
Common stock, $1 par
Authorized - 2,500 shares
Outstanding - 1,244 at 3/31/95,
3/31/94 and 9/30/94 $ 1,244 $ 1,244 $ 1,244
Amount paid in excess of par 37,802 36,367 37,883
Retained earnings 37,147 34,757 30,714
Total common stock equity 76,193 72,368 69,841
Cumulative preferred stock:
Redeemable 8.70% Series, $100 par
Authorized - 80 shares
Outstanding - 80 shares at 3/31/95,
3/31/94 and 9/30/94 8,000 8,000 8,000
Long-term debt:
First mortgage bonds 59,400 61,000 61,000
Capital leases 924 1,399 1,163
Total long-term debt 60,324 62,399 62,163
Less: current portion 2,077 2,075 2,085
Long-term debt, net 58,247 60,324 60,078
Total capitalization $142,440 $ 140,692 $ 137,919
========= ========= =========
PAGE I-4
PROVIDENCE GAS COMPANY
Notes to Consolidated Financial Statements
Accounting Policies
It is the Registrant's opinion that the financial
information contained in this report reflects all normal,
recurring adjustments necessary to provide a fair statement
of the results for the periods reported; however, such
results are not necessarily indicative of results to be
expected for the year, due to the seasonal nature of the
Registrant's operations. Certain information and footnote
disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in this
Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, the disclosures
herein when read with the annual report for 1994 filed on
Form 10-K are adequate to make the information presented not
misleading.
Reclassifications
Certain prior year balance sheet amounts have been
reclassified for consistent presentation with the current
period.
Environmental Matters
Federal, state and local laws and regulations
establishing standards and requirements for the protection of
the environment have increased in number and in scope within
recent years. The Registrant cannot predict the future
impact of such standards and requirements which are subject
to change and can take effect retroactively. The Registrant
continues to monitor the status of these laws and
regulations. Such monitoring involves the review of past
activities and current operations. To the best of its
knowledge, subject to the following paragraph, the Registrant
believes it is in substantial compliance with such laws and
regulations. However, should future costs be incurred,
related to the items mentioned below, the Registrant
anticipates recovery from third parties or through rates.
PAGE I-5
The Registrant has previously reported that it was aware
of four sites at which it may incur costs for environmental
investigation and possible clean-up. With respect to one
site, the Registrant expects to join with other entities
which have been designated as "potentially responsible
parties" ("PRP's") under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 ("CERCLA") in
entering into an Administrative Consent Order ("ACO") with
the Massachusetts Department of Environmental Protection
regarding a site in Plympton, Massachusetts on which waste
material is alleged to have been deposited by disposal
contractors employed in the past either directly or
indirectly by the Registrant and the other PRP's. Under the
proposed ACO, the share of costs to be borne by the
Registrant, pursuant to the ACO, will not be material to the
operations or the financial condition of the Registrant.
Based on current information, the amount of any costs
for environmental investigation and possible clean-up at the
other two sites is not anticipated to be material to the
operations or financial position of the Registrant.
Additionally, the Registrant has been advised by the
Rhode Island Department of Environmental Management that no
remediation will be required on a site currently owned by the
Registrant.
Management anticipates requesting rate relief for all
costs related to environmental matters and believes that the
ultimate resolution of these matters will not have a
materially adverse effect on the Registrant's results of
operations and financial condition.
FERC Order 636
Federal Energy Regulatory Commission (FERC) Order 636 and
other related orders (the Orders) have significantly changed
the structure and types of services offered by pipeline
transportation companies. The most significant components
of the restructuring occurred in November 1993. In response
to these changes, the Registrant has successfully negotiated
new pipeline transportation and gas storage contracts.
At the same time, a number of contracts with gas suppliers
have been negotiated to complement the transportation and
storage contracts. The portfolio of supply contracts is
designed to be market responsive and is diversified with
respect to contract lengths, source location, and other
contract terms. On a periodic basis, the Registrant reviews
all of its contracts to ensure a diverse, secure, flexible
and economical supply portfolio is maintained.
PAGE I-6
To meet the requirements of the Orders, the pipelines have
incurred significant costs, collectively known as transition
costs. The majority of these costs will be reimbursed by
the pipeline customers, including the Registrant. Based
upon current information, the Registrant anticipates its
transition costs to total between $16 million and $19
million of which $8.3 million has been included in the Cost
of Gas Adjustment (CGA) clause and is currently being
collected from customers. The remaining minimum obligation
of $7.7 million has been recorded in the accompanying
consolidated balance sheet along with a regulatory asset
anticipating future recovery through the CGA.
The Registrant's ultimate liability may differ from the
above estimates based on FERC settlements with the
Registrant's pipeline transportation suppliers. FERC has
approved settlements with two of its pipelines, which
account for the bulk of its transition costs. Negotiations
are continuing on the two additional pipelines, but recent
developments have considerably reduced the uncertainty
surrounding the two remaining pipelines. Therefore, the
Registrant believes that its current range for transition
costs is appropriate.
PAGE I-7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Registrant's current operating revenues, operating
margin and net income applicable to common stock for the
current quarter and six month period and operating revenues
for the twelve month period have decreased, while operating
margin and net income applicable to common stock have
increased over the comparable fiscal periods last year as
displayed in the table below.
THREE MONTHS SIX MONTHS TWELVE MONTHS
ENDED MARCH ENDED MARCH ENDED MARCH
1995 1994 1995 1994 1995 1994
(000's)
Operating revenues $64,401 $81,813 $112,683 $143,868 $187,958 $214,480
=============== ================= ==================
Operating margin $28,452 $31,532 $ 51,042 $ 55,218 $ 81,652 $ 79,808
=============== ================= ==================
Net income
applicable to $ 5,553 $ 6,180 $ 8,722 $ 9,805 $ 6,967 $ 3,498
common stock =============== ================= ==================
Factors having a direct impact on these results were:
During the latest quarter, the Registrant experienced
unseasonably warm weather resulting in temperatures averaging
18.2 percent warmer than last year. This loss of heating
load due to the warmer temperatures represents $3.3 million
or $1.75 cents per share of common stock, net of tax,
decrease in operating margin.
The warmer temperatures during the current fiscal year-
to-date period have also averaged 18.4 percent warmer than
last year. As a result, operating margin has decreased $5.8
million or $3.08 cents per share of common stock, net of tax.
The warmer than normal weather would have affected
earnings more dramatically in prior years. However, a new
rate structure effective October 15, 1993 implementing a
declining block rate structure, implementing seasonal gas
cost accounting and an increased customer charge has reduced
the Registrant's earnings sensitivity to weather by
approximately 40 to 50 percent.
The net increase in the average number of customers for
the latest period as compared to last year was approximately
1,700 or 1.1 percent. The modest increase was the result of
new housing construction and conversions from other energy
sources offset by shut-offs for non-payments and housing
vacancies due to a stagnant economy.
PAGE I-8
As a result of the warm temperatures experienced during
the latest quarter, offset by a slight increase in customers,
residential sales, which provide the Registrant with its
greater source of operating margin, decreased 1,000 million
cubic feet (MMcf) or 14.7 percent.
Overall, other operating and maintenance expenses
decreased, during the current quarter versus last year,
approximately $2.4 million or 17 percent. The primary
reasons for the decrease are attributable to a lower
uncollectible revenue provision due to the decrease in
operating revenues, as a result of the warmer temperatures, a
reduction in labor and related costs resulting from the
restructuring initiative that occurred in June 1994 and the
impact of efficiency reviews as part of our continuous
improvement program (CIP). The restructuring savings,
however, will be mitigated once the Registrant's vacant
positions have been filled. The savings in the uncollectible
revenue provision, labor, and efforts from the CIP initiative
were also contributing factors to the six month ($2.8 million
or 11.1 percent) and twelve month ($3.8 million or 8.2
percent) decrease in operation and maintenance expenses.
As a result of the warmer-than-normal temperatures
experienced during the latest fiscal year-to-date period, the
Registrant has initiated a temporary cost containment
program. The program is designed to try to recoup some of
the gas margin lost due to weather by reducing spending on
certain types of expenses.
Taxes for the current quarter and six month periods
versus last year decreased approximately $600,000 or 8.2
percent and $1.3 million or 10.7 percent, respectively. The
decrease in taxes, mainly Federal income and state gross
receipts tax, was the result of lower pretax income and lower
operating revenues.
Interest expense increased approximately $300,000 or 19.8
percent, $600,000 or 20.2 percent and $500,000 or 8.7 percent
for the current quarter, six and twelve month periods,
respectively. An increase in short-term interest rates
offset by a slight decrease in weighted average short-term
borrowings caused short-term interest expense to increase.
The Registrant's long-term interest expense for the six and
twelve month periods has increased slightly as a result of
the Series Q First Mortgage Bond issuance in November 1993.
PAGE I-9
LIQUIDITY AND CAPITAL RESOURCES
The Registrant meets seasonal cash requirements and
finances its capital expenditures program on an interim basis
through short-term borrowings. For example, during the
latest quarter, the Registrant's accounts receivable and
unbilled revenue have increased $7.8 million. These
fluctuations are the result of higher monthly sales during
the latest quarter and a moratorium on residential shut-offs
during the heating season. Because of these increases, which
negatively impact cashflow, the Registrant must borrow to
maintain an appropriate level of liquidity. Management
believes its available financings are sufficient to meet
these seasonal needs.
The Registrant experienced an increase in its net cash
provided by operations during the latest quarter as compared
to last year. The primary reasons for the increase were due
to the collection of gas costs from the undercollection that
existed in 1994 to an overcollection of gas costs in 1995.
Capital expenditures for the latest fiscal year-to-date
period were $8.1 million as compared to $6.5 million last
year. The increase in capital expenditures was for
electronic meter reading equipment associated with the
Registrant's Automated Meter Reading initiative. Anticipated
capital expenditures for the next three years are expected to
total between $45 million to $55 million.
In February 1995, the Registrant filed for rate relief
requesting an approximate 8 percent general rate increase.
If the requested rate relief is granted in its entirety, the
Registrant's annual operating revenues are expected to
increase by $14.9 million under normal weather conditions.
However, there is no assurance that all or any portion of the
requested relief will be granted. A decision from the Rhode
Island Public Utilities Commission on the rate request is not
expected until November 1995.
In November 1993, the Registrant received proceeds of
$16 million related to an issuance of First Mortgage Bonds,
Series Q (5.62%). The net proceeds received from the
issuance were used to pay down short-term debt. Short-term
debt was used earlier to call long-term debt bearing a higher
interest rate. The previous issuances called were First
Mortgage Bonds, Series L (8.85%) and the Series II Senior
Debentures (8.50%).
The Registrant is currently contemplating an issuance of
debt possibly within the next six to twelve months.
PAGE I-10
PROVIDENCE GAS COMPANY
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders for the Registrant's
parent company, Providence Energy Corporation, was held on
January 19, 1995 and the following nominees to the
Registrant's Board of Directors were elected as Directors for
terms expiring at the time of the 1998 annual meeting by the
following vote:
Mr. Gilbert R. Bodell, Jr. 4,148,929 FOR 37,172 WITHHELD
Mr. Paul F. Levy 4,129,915 FOR 56,186 WITHHELD
Ms. M. Anne Szostak 4,129,484 FOR 56,617 WITHHELD
Mr. W. Edward Wood 4,132,103 FOR 53,998 WITHHELD
Item 6 (b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for
which this report is filed.
PAGE II-1
THE PROVIDENCE GAS COMPANY
It is the opinion of management that the financial infor-
mation contained in this report reflects all adjustments
necessary to a fair statement of results for the period
reported,but such results are not necessarily indicative of
results to be expected for the year, due to the seasonal
nature of the Registrant's gas operations. All accounting
policies and practices have been applied in a manner
consistent with prior periods.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
The Providence Gas Company
(Registrant)
BY:/s/Gary S. Gillheeney
GARY S. GILLHEENEY
Vice President, Financial
and Information Services,
Treasurer and Assistant
Secretary
Date: May 12, 1995
PAGE II-2
THE PROVIDENCE GAS COMPANY
It is the opinion of management that the financial infor-
mation contained in this report reflects all adjustments
necessary to a fair statement of results for the period
reported, but such results are not necessarily indicative of
results to be expected for the year, due to the seasonal
nature of the Registrant's gas operations. All accounting
policies and practices have been applied in a manner
consistent with prior periods.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
The Providence Gas Company
(Registrant)
BY:
GARY S. GILLHEENEY
Vice President, Financial
and Information Services,
Treasurer and Assistant Secretary
Date: May 12, 1995
PAGE II-2