1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1996
Commission file number 1-7479
-----------------
BAY STATE GAS COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-2548120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Friberg Parkway, Westborough, Massachusetts 01581-5039 (508/836-7000)
(Address and telephone number of principal executive offices)
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1996
----- -----------------------------
Common Stock, $3.33 1/3 par value 13,407,244 Shares
2
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings - Three months, six months
and twelve months ended March 31, 1996 and 1995 ................ 3
Consolidated Balance Sheets at March 31, 1996, 1995
and September 30, 1995 ......................................... 5
Consolidated Statements of Capitalization at March 31,
1996, 1995 and September 30, 1995 .............................. 6
Consolidated Statements of Cash Flows - Six months and
twelve months ended March 31, 1996 and 1995 .................... 7
Notes to Consolidated Financial Statements ..................... 8
Independent Auditors' Report ................................... 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................... 15
Item 2. Changes in Securities ................................... 15
Item 3. Defaults Upon Senior Securities ......................... 15
Item 4. Submission of Matters to a Vote of Security Holders ..... 15
Item 5. Other Information ....................................... 15
Item 6. Exhibits and Reports on Form 8-K ........................ 15
SIGNATURES ....................................................... 16
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands except per share amounts)
3 months ended 6 months ended
March 31, March 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
Local transportation $ 74,445 $ 67,618 $ 129,188 $ 115,111
Natural gas sales 98,337 100,180 168,667 166,723
Energy products and services 5,949 4,946 9,983 7,556
Other revenue 2,565 1,525 6,183 4,168
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 181,296 174,269 314,021 293,558
- -------------------------------------------------------------------------------------------------------------------
Operating expenses:
Recovered natural gas costs 98,337 100,180 168,667 166,723
Operations 29,110 23,004 53,226 43,817
Maintenance 2,878 2,306 5,237 4,439
Depreciation and amortization 6,603 6,500 12,897 12,964
Other taxes, principally property 3,517 3,263 6,685 5,981
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 140,445 135,253 246,712 233,924
- -------------------------------------------------------------------------------------------------------------------
Operating income 40,851 39,016 67,309 59,634
- -------------------------------------------------------------------------------------------------------------------
Other income (expenses):
Income from investments 481 305 696 477
Interest income and other 933 383 1,525 706
Interest expense (4,027) (4,361) (5,065) (8,292)
- -------------------------------------------------------------------------------------------------------------------
Total other income (expense) (2,613) (3,673) (5,844) (7,109)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 38,238 35,343 61,465 52,525
- -------------------------------------------------------------------------------------------------------------------
Federal and state taxes on income 14,693 13,967 23,542 20,672
- -------------------------------------------------------------------------------------------------------------------
Net income 23,545 21,376 37,923 31,853
Dividend requirements on preferred
stock 75 75 149 151
- -------------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 23,470 $ 21,301 $ 37,774 $ 31,702
===================================================================================================================
Average number of shares outstanding 13,397 13,339 13,380 13,334
===================================================================================================================
EARNINGS PER SHARE $ 1.75 $ 1.60 $ 2.82 $ 2.38
===================================================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.375 $ 0.365 $ 0.75 $ 0.73
===================================================================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
Consolidated Statements of Earnings
(Unaudited, in thousands except per share amounts)
12 months ended
March 31,
1996 1995
- ----------------------------------------------------------------------------
Operating revenues:
Local transportation $174,903 $157,813
Natural gas sales 236,950 229,470
Energy products and services 15,871 12,644
Other revenue 10,860 7,569
- ----------------------------------------------------------------------------
Total operating revenues 438,584 407,496
- ----------------------------------------------------------------------------
Operating expenses:
Recovered natural gas costs 236,950 229,470
Operations 93,750 83,844
Maintenance 9,344 8,566
Depreciation and amortization 25,959 24,910
Other taxes, principally property 12,064 11,513
- ----------------------------------------------------------------------------
Total operating expenses 378,067 358,303
- ----------------------------------------------------------------------------
Operating income 60,517 49,193
- ----------------------------------------------------------------------------
Other income (expense):
Income from investments 472 197
Interest income and other 2,446 1,648
Interest expense (16,792) (15,489)
- ----------------------------------------------------------------------------
Total other income (expense) (13,874) (13,644)
- ----------------------------------------------------------------------------
Income before income taxes 46,643 35,549
- ----------------------------------------------------------------------------
Federal and state taxes on income 17,445 13,828
- ----------------------------------------------------------------------------
Net income 29,198 21,721
Dividend requirements on preferred stock 298 306
- ----------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 28,900 $ 21,415
============================================================================
Average number of shares outstanding 13,365 13,262
- ----------------------------------------------------------------------------
EARNINGS PER SHARE $ 2.16 $ 1.61
- ----------------------------------------------------------------------------
DIVIDEND DECLARED PER COMMON SHARE $ 1.50 $ 1.46
============================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, SEPTEMBER 30,
1996 1995 1996
- --------------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS:
Plant, at cost $ 674,366 $ 659,028 $ 683,347
Accumulated depreciation & amortization 189,668 173,980 184,942
- --------------------------------------------------------------------------------------------------------
Net plant 484,698 485,048 498,405
- --------------------------------------------------------------------------------------------------------
Investments 15,355 7,169 9,768
Prepaid benefit plans 23,698 20,761 21,470
Other long-term assets 10,453 9,518 8,898
Current assets:
Cash and temporary cash investments 11,004 5,850 2,759
Accounts receivable, less allowances of
$6,353, $6,248 and $4,232 80,410 71,423 22,066
Unbilled revenues 9,957 8,901 3,747
Deferred gas costs 13,712 10,491 13,190
Inventories, at average cost 10,982 14,840 19,327
Other 6,845 5,464 5,797
- --------------------------------------------------------------------------------------------------------
Total current assets 132,910 116,969 66,886
- --------------------------------------------------------------------------------------------------------
Regulatory assets:
Income taxes 13,020 11,012 10,595
Other 18,362 12,722 14,333
- --------------------------------------------------------------------------------------------------------
$ 698,496 $ 663,199 $ 630,355
========================================================================================================
CAPITALIZATION & LIABILITIES:
Capitalization
Common stock equity $ 248,831 $ 238,524 $ 219,873
Preferred stock equity 5,047 5,219 5,149
Long-term debt, net 209,500 193,000 199,000
- --------------------------------------------------------------------------------------------------------
Total capitalization 463,378 436,743 424,022
- --------------------------------------------------------------------------------------------------------
Long-term liabilities:
Deferred taxes 75,123 73,012 73,329
Other long-term liabilities 15,502 13,592 15,401
- --------------------------------------------------------------------------------------------------------
Total long-term liabilities 90,625 86,604 88,730
- --------------------------------------------------------------------------------------------------------
Commitments and contingencies (see note 2)
Current Liabilities:
Short-term debt 41,000 17,950 31,500
Accounts payable 40,629 32,501 28,704
Fuel purchase commitments 6,291 11,530 15,801
Refunds due customers 22,844 49,541 28,928
Deferred and accrued taxes 25,417 20,078 4,677
Other 8,312 8,252 7,993
- --------------------------------------------------------------------------------------------------------
Total current liabilities 144,493 139,852 117,603
- --------------------------------------------------------------------------------------------------------
$ 698,496 $ 663,199 $ 630,355
========================================================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
Consolidated Statements of Capitalization
(In thousands)
March 31, September 30,
1996 1995 1995
- -----------------------------------------------------------------------------------------------
(Unaudited) (Audited)
Common stock equity:
Common stock, $3.33 1/3 par value, authorized
36,000,000 shares; 13,407,244, 13,341,294 and
13,353,394 shares outstanding $ 44,691 $ 44,471 $ 44,511
Paid-in-capital 101,379 100,145 100,339
Retained earnings 102,761 93,908 75,023
- -----------------------------------------------------------------------------------------------
Total common stock equity 248,831 238,524 219,873
- -----------------------------------------------------------------------------------------------
Cumulative preferred stock:
Non-redeemable cumulative preferred stock 2,572 2,572 2,572
Redeemable cumulative preferred stock 2,475 2,647 2,577
- -----------------------------------------------------------------------------------------------
Total cumulative preferred stock 5,047 5,219 5,149
- -----------------------------------------------------------------------------------------------
Long-term debt:
Revolving credit agreement 13,000 20,000 6,000
Notes 196,500 173,000 193,000
- -----------------------------------------------------------------------------------------------
Long-term debt, net 209,500 193,000 199,000
- -----------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION $463,378 $436,743 $424,022
===============================================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended Twelve months ended
March 31, March 31,
1996 1995 1996 1995
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,923 $ 31,853 $ 29,198 $ 21,721
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 12,897 12,964 25,959 24,910
Deferred income taxes (348) 4,258 (2,993) (1,686)
Investment income and AFUDC (2,392) (780) (2,662) (471)
Changes in operating assets and liabilities:
Accounts receivable (58,344) (45,930) (8,987) 23,906
Unbilled revenues (6,210) (5,240) (1,056) 506
Accounts payable 11,925 5,207 8,128 (5,571)
Taxes 20,457 13,901 8,435 6,976
Deferred gas costs and refunds due customers (6,606) 35,804 (29,918) 27,953
Prepaid benefit plans (2,228) 2,166 (2,937) (13,764)
Other (9,619) 2,050 (10,589) 3,306
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (2,545) 56,253 12,578 87,786
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant (17,231) (26,886) (42,620) (56,119)
Proceeds from sale of rental assets 20,667 -- 20,667 --
Other investments (3,577) (905) (5,956) (1,365)
----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (141) (27,791) (27,909) (57,484)
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,220 1,169 1,454 6,200
Dividends on common stock (10,038) (9,736) (20,050) (19,356)
Dividends on preferred stock (149) (151) (297) (306)
Issuances of long-term debt 17,000 2,000 30,000 12,000
Retirements of preferred stock and long-term debt (6,602) (74) (13,672) (6,126)
Short-term debt 9,500 (19,800) 23,050 (20,400)
----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 10,931 (26,592) 20,485 (27,988)
----------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 8,245 1,870 5,154 2,314
Cash and temporary cash investments at beginning of period 2,759 3,980 5,850 3,536
----------------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 11,004 $ 5,850 $ 11,004 $ 5,850
============================================================================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 8,724 $ 8,219 $ 17,102 $ 16,052
============================================================================================================================
Income taxes $ 4,472 $ 1,468 $ 10,480 $7,781
============================================================================================================================
The accompanying notes are an integral part of these statements.
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Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(Unaudited)
NOTE 1 - ACCOUNTING POLICY
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles. In the opinion of management, the consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position, results of operations and
cash flows for all periods shown. Certain information in the prior period
financial statements has been reclassified to conform with the current period's
presentation. It is suggested that these financial statements and accompanying
notes be read in conjunction with the financial statements and the notes
included in the Company's annual report to shareholders for the year ended
September 30, 1995 and the subsequent quarterly report of December 31, 1995.
Because of the seasonal nature of the Company's business, the results of
operations for the three and six months ended March 31, 1996 and 1995 are not
necessarily indicative of the results for the full fiscal year.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
CAPACITY REQUIREMENTS. The Company currently transports natural gas imported
from Canada through a converted oil pipeline leased from the Portland Pipe Line
Corporation ("PPLC"). An agreement in principle has been reached with PPLC that
will extend the lease from March 31, 1997 to April 30, 1998. Long-term, two
projects to replace the pipeline capacity provided by the PPLC lease are being
pursued, the Portland Natural Gas Transmission System ("PNGTS") and a 2.0
million MMBtu liquefied natural gas ("LNG") storage facility in Wells, Maine
("Wells LNG").
INVESTMENTS. The following table summarizes the Company's current investments:
Ownership Investments at March 31,
percentages 1996 1995
---------------------------------------------------------------
MASSPOWER 17.5% 3,143 3,433
PNGTS 17.8% 6,102 2,600
Wells LNG 100.0% 6,013 1,102
KBC 33.3% 19 --
Other -- 78 34
---------------------------------------------------------------
Total 15,355 7,169
---------------------------------------------------------------
PNGTS is an interstate pipeline that will extend 250 miles from the US-Canadian
border to the New Hampshire-Massachusetts border. On March 1, 1996, PNGTS signed
an agreement to sell 40% of the partnership to two new equity partners, who will
be shippers on the completed pipeline. This sale reduced the Company's ownership
percentage to 17.8%. Also during March 1996, PNGTS filed an application with the
Federal Energy Regulatory Commission ("FERC") for approval to construct and
operate the pipeline. In its application PNGTS requested that the FERC make a
preliminary determination on non-environmental issues by August 1, 1996 and
issue a final certificate by July 1, 1997.
In January 1996, the FERC issued a Draft Environmental Impact Statement which
found that the Wells LNG project could be built and operated safely without
significant environmental impact. During March 1996 the Company signed a
contract for $34 million with CBI Na-Con, Inc. for the design, engineering, and
construction of the storage facility.
Page 8
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Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Amounts invested to date in PNGTS and Wells LNG consist principally of the
Company's share of feasibility, engineering, legal, other costs of developing
each project, and the carrying costs on these expenditures. Recovery of these
expenditures is dependent upon, among other things, successful completion of the
projects and the terms of required regulatory approvals. While the Company
believes that these projects will be successful, their completion is subject to
a number of factors beyond the Company's control. Both projects are scheduled to
be completed and available for service in November 1998.
KBC Energy Services ("KBC") is a partnership with Connecticut Natural Gas
Corporation and Koch Gas Services Company, which markets natural gas supplies
and energy-related services on a non-regulated basis to commercial and
industrial end-users.
MASSPOWER is a cogeneration facility which has been in operation since 1993. The
Company is seeking buyers for its 17.5% equity interest in MASSPOWER which has
been an outstanding investment, but does not represent a future core business.
LONG-TERM OBLIGATIONS. The company has long-term contracts for the purchase,
storage, and delivery of gas supplies. Certain of these contracts contain
minimum purchase provisions which, in the opinion of management, are not in
excess of the Company's requirements.
ENVIRONMENTAL ISSUES. Like other companies in the natural gas industry, the
Company is a party to governmental actions associated with former gas
manufacturing sites. Management estimates that expenditures to remediate and
monitor known environmental sites will range from $4.8 million to $10.0 million.
Accordingly, the Company has accrued $4.8 million with an offsetting charge to a
regulatory asset. Environmental expenditures for the quarters ended March 31,
1996, and 1995 were $1,350,000 and $147,000, respectively. Exclusive of amounts
accrued for future expenditures, at March 31, 1996, and 1995, approximately $4.6
million and $3.2 million, respectively, of environmental expenditures have been
deferred for future recovery from customers. Deferred environmental costs in
Massachusetts and New Hampshire are being recovered from customers over seven to
ten years.
REGULATORY MATTERS. Significant regulatory assets arising from the rate-making
process associated with income taxes, employee benefits, and environmental
response costs have been recorded. Based on its assessments of decisions by
regulatory authorities, management believes that all regulatory assets will be
settled at recorded amounts through specific provisions of current and future
rate orders.
LITIGATION. The Company is involved in various legal actions and claims arising
in the normal course of business. Management does not believe that the outcome
of any action or claim will have a material adverse effect upon the consolidated
financial position, results of operations, or liquidity of the Company.
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Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(Unaudited)
NOTE 3 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the twelve months ended March 31,
1996, and for the years ended September 30 are set forth below.
Year ended September 30
March ---------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992 1991
--------------------------------------------------------------
Earnings:
Net income $29,198 $23,128 $24,485 $22,807 $18,363 $15,817
Adjustments:
Income taxes 17,445 14,575 15,642 13,726 11,250 8,733
Fixed charges (see below) 20,158 19,365 17,359 15,906 15,170 14,832
--------------------------------------------------------------
Total adjusted earnings $66,801 $57,068 $57,486 $52,439 $44,783 $39,382
==============================================================
Fixed charges:
Total interest expense $17,725 $17,300 $15,305 $13,610 $13,073 $12,253
Interest component of rents 2,433 2,065 2,054 2,296 2,097 2,579
--------------------------------------------------------------
Total fixed charges $20,158 $19,365 $17,359 $15,906 $15,170 $14,832
==============================================================
Ratio of earnings to fixed charges 3.31 2.95 3.31 3.30 2.95 2.66
==============================================================
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Independent Auditors' Report
- ----------------------------
The Board of Directors
Bay State Gas Company:
We have reviewed the consolidated balance sheets and statements of
capitalization of Bay State Gas Company and subsidiaries as of March 31, 1996
and 1995, the related consolidated statements of earnings for the three months,
six months, and twelve months then ended and the related statements of cash
flows for the six months and twelve months then ended. These consolidated
financial statements are the responsibility of the Company's management.
We have conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of the interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and statement of capitalization of Bay
State Gas Company and subsidiaries as of September 30, 1995, and the related
consolidated statements of earnings and cash flows for the year then ended (not
presented herein); and, in our report dated October 24, 1995, we expressed an
unqualified opinion on those consolidated financial statements.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
April 24, 1996
Page 11
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Item 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
Earnings and dividends
- ----------------------
For the three months ended March 31, 1996, operating revenues were $181.3
million, up from $174.3 million in the prior year, while earnings per share were
$1.75 versus $1.60 a year earlier. Earnings per share improved primarily due to
a $6.8 million increase in local transportation revenues. This increase in
revenues resulted primarily from weather that was 11.7% colder than the year
earlier, and was offset somewhat by restructuring costs.
For the six months ended March 31, 1996 earnings per share were $2.82 up 18.5%
from $2.38 a year earlier. For the twelve-month period ended March 31, 1996,
earnings per share were $2.16 compared to $1.61 for the same period the year
before. The increase in earnings for these periods is primarily the result of
weather which was 14.1% colder than the prior year for the six-month period, and
14.0% colder than the prior year for the twelve-month period.
Dividends declared per common share were $.375 for the three-month period ended
March 31, 1996, compared to $.365 for the same period last year. This quarterly
dividend represents an annualized dividend rate of $1.50 per common share, up
from the $1.46 annualized dividend last year. For the twelve-month period ended
March 31, 1996, dividends declared were $1.50, compared to $1.46 for the same
period in the prior year. On May 2, 1996, the quarterly common stock dividend
was increased 2.7% to $.385 per share, indicating an annualized dividend of
$1.54 per share.
Local Transportation revenues
- -----------------------------
The following table details the components of Local Transportation revenues:
Six months ended Twelve months ended
March 31, March 31,
In millions 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------
Transportation only customers $ 3,702 $ 2,296 $ 5,715 $ 3,568
Transportation for natural gas sales customers 125,486 112,815 169,188 154,245
- ----------------------------------------------------------------------------------------------
Total $129,188 $115,111 $174,903 $157,813
- ----------------------------------------------------------------------------------------------
As the result of colder weather and customer additions, Local Transportation
revenues increased for the six months 12.2% from one year ago. For the six-month
period ended March 31, 1996, the weather was 4.3% colder than normal and 14.1%
colder than the comparative period in 1995. For the twelve months ended March
31, 1996, Local Transportation revenues improved 10.8%. This was due to the
weather which was 14.0% colder than the prior year, the addition of 5,300 new
customers and an increase in gas utilization per customer.
Natural gas revenues
- --------------------
For the twelve- months ended March 31, 1996, the volume of natural gas sold
increased 8.6%, due to the colder than normal weather, customer growth and an
increase in gas utilization per customer. For the same twelve month period, the
corresponding natural gas revenues increased only 3.2%. The increase in revenues
that resulted from higher sales volumes was offset by lower per unit prices
charged to customers during the current fiscal year as pipeline refunds were
returned to customers. This trend also exists for the three- and six-month
periods ending March 31, 1996.
page 12
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Energy Products and Services revenues
- -------------------------------------
Revenues from Energy Products and Services were $10.0 million for the fiscal
year to date, up 31.6% from the $7.6 million for the prior fiscal year to date.
For the twelve months ended March 31, 1996, Energy Products and Services
revenues were $15.9 million, up 26.2% from $12.6 million of revenues from the
prior twelve month period. This increase is primarily the result of increased
sales of retail propane (due to the colder than normal weather), and increases
in equipment rental revenues. The company expects to integrate its existing
appliance insurance business and its energy management services business during
the next six months.
Operating expenses
- ------------------
Total operating expenses for the three- and six-month periods ending March 31,
1996 were $140.4 million and $246.7 million compared to $135.2 million and
$233.9 million for the prior year respectively. Operating expenses for the
twelve-month period ended March 31, 1996 were $378.1 million, compared to $358.3
million for the prior twelve months. These increases in operating expenses are
primarily attributable to increases in bad debts, resulting from increased
sales, increased propane fuel costs, and restructuring costs. Despite a normal
level of capital additions, depreciation for the three- and six- month period
declined due to the sale and lease-back of the Company's rental assets during
October 1995.
Income from investments
- -----------------------
Bay State has operating results from two investments: MASSPOWER, a cogeneration
facility, and KBC Energy Services ("KBC"), a partnership with Connecticut
Natural Gas Corporation and Koch Gas Services Company, which markets natural gas
supplies and energy-related services on a non-regulated basis to commercial and
industrial end-users. Income from investments were $696,000 for the six-month
period, and $477,000 for the prior year six-month period. For the twelve-month
period income was $472,000 up from the prior year twelve-month period of
$197,000. During the quarter ended March 31, 1996, dividends from MASSPOWER of
$213,000 were distributed to the Company.
Interest expense
- ----------------
Interest expense for the six-month period ended March 31, 1996, was $8.1
million, compared to $8.3 million for the same period last year. For the twelve
months ended March 31, 1996, interest expense was $16.8 million, compared to
$15.5 million for the prior year twelve-month period. The increase in interest
expense for the twelve-month period was primarily the result of an additional
$16.5 million in long-term debt issued and a $23.0 million increase in the
amount of short term debt.
Forward looking information
- ---------------------------
This report and other company reports contain forward looking statements. The
company cautions that, while it believes such statements to be reasonable and
makes them in good faith, they almost always vary from actual results, and the
differences between assumed facts or basis and actual results can be material,
depending upon the circumstances. Where in any forward-looking statement, the
Company, or its management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement,
expectation or belief will result, be achieved, or accomplished.
Investors should be aware of important factors that could have a material impact
on future results. These factors include, but are not limited to, weather, the
regulatory environment, financial market conditions, interest rate fluctuations,
customers' preferences, unforeseen competition, and other uncertainties, all of
which are difficult to predict, and many of which are beyond the control of the
company.
Page 13
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LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the gas distribution business creates large short-term
working capital requirements to finance customers accounts receivable and
deferred gas costs, as well as construction expenditures. Short-term funds are
obtained from the issuance of commercial paper, traditional bank lines of
credit, and demand loans under Fuel Purchase Agreements.
Total net short-term debt at March 31, 1996 is up approximately $23.0 million
and $9.5 million from March 31, 1995, and September 1995, respectively. This is
primarily the result of the large balance of refunds due customers which were
paid down during the year. Cash flows from operating activities have decreased
over the six month- and twelve month- periods ending March 31, 1996. This is
primarily due to the payment of refunds due customers and the increasing
balances of accounts receivable caused by colder weather and higher revenues
recorded during the first two quarters of fiscal 1996. Proceeds from the sale of
rental assets during the month of October 1995, have enabled the Company to keep
new debt financing to a minimum for the six-month and twelve-month periods.
Additions to plant decreased by $9.7 million for the six-month period and $9.5
million for the twelve-month period ended March 31, 1996, as compared to the
year before. This was primarily due to the colder weather which limited capital
construction as compared to the prior year, and the temporary suspension of the
Metscan installation program due to a lack of units to install.
During fiscal year 1996, cash invested in the PNGTS and Wells LNG projects was
$3.5 million.
Page 14
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PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
- ---------------------------------
There were no material legal proceedings instituted in the second
quarter of 1996, and there were no material developments during
the quarter in legal proceedings disclosed in previous filings.
Item 2. Changes in Securities
- ------------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------
(a) Exhibits:
15. Consent of KPMG Peat Marwick LLP re: Registration
Statement No. 33-57702
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1996.
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16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAY STATE GAS COMPANY
---------------------
(Registrant)
By: /s/ Thomas W. Sherman
------------------------------
Thomas W. Sherman
Executive Vice President and Chief
Financial and Accounting Officer
By: /s/ Stephen J. Curran
-------------------------------
Stephen J. Curran
Controller
Date: May 13, 1996
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