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 JUNE 30, 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 July 31, 1996
----- ----------------------------
Common Stock, $3.33 1/3 par value 13,413,244 Shares
2
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings - Three months, nine months
and twelve months ended June 30, 1996 and 1995.................. 3
Consolidated Balance Sheets at June 30, 1996, 1995
and September 30, 1995.......................................... 5
Consolidated Statements of Capitalization at June 30,
1996, 1995 and September 30, 1995............................... 6
Consolidated Statements of Cash Flows - Nine months and
twelve months ended June 30, 1996 and 1995...................... 7
Notes to Consolidated Financial Statements...................... 8
Independent Auditors' Review 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
Worksheet D
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands except per share amounts)
Three months ended Nine months ended
June 30, June 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------
Operating revenues:
Local transportation $27,570 $27,168 $156,758 $142,278
Natural gas sales 34,428 42,915 203,095 209,638
Energy products and services 3,076 2,772 12,053 9,400
Other revenue 2,650 2,838 9,892 7,935
- -----------------------------------------------------------------------------------------
Total operating revenues 67,724 75,693 381,798 369,251
- -----------------------------------------------------------------------------------------
Operating expenses:
Recovered natural gas costs 34,428 42,915 203,095 209,638
Operations 21,351 21,174 74,628 64,991
Maintenance 2,617 2,161 7,854 6,600
Depreciation and amortization 6,618 6,559 19,517 19,523
Other taxes, principally property 3,048 2,697 9,737 8,678
- -----------------------------------------------------------------------------------------
Total operating expenses 68,062 75,506 314,831 309,430
- -----------------------------------------------------------------------------------------
Operating income (loss) (338) 187 66,967 59,821
- -----------------------------------------------------------------------------------------
Other income (expense):
Income from investments 501 4 1,197 481
Interest income and other 575 573 2,103 1,279
Interest expense (4,303) (4,489) (12,367) (12,780)
- -----------------------------------------------------------------------------------------
Total other income (expense) (3,227) (3,912) (9,067) (11,020)
- -----------------------------------------------------------------------------------------
Income (loss) before income taxes (3,565) (3,725) 57,900 48,801
- -----------------------------------------------------------------------------------------
Federal and state taxes on income (706) (1,435) 22,836 19,238
- -----------------------------------------------------------------------------------------
Net income (loss) (2,859) (2,290) 35,064 29,563
Dividend requirements on preferred stock 73 74 222 225
- -----------------------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $(2,932) $(2,364) $ 34,842 $ 29,338
=========================================================================================
Average number of shares outstanding 13,409 13,347 13,390 13,339
=========================================================================================
EARNINGS (LOSS) PER SHARE $ (0.22) $ (0.18) $ 2.60 $ 2.20
=========================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.385 $ 0.375 $ 1.135 $ 1.105
=========================================================================================
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)
Twelve months ended
June 30,
1996 1995
- -------------------------------------------------------------------------
Operating revenues:
Local transportation $175,304 $159,945
Natural gas sales 228,463 235,092
Energy products and services 14,286 11,288
Other revenue 12,615 9,817
- -------------------------------------------------------------------------
Total operating revenues 430,668 416,142
- -------------------------------------------------------------------------
Operating expenses:
Recovered natural gas costs 228,463 235,092
Operations 93,978 84,534
Maintenance 9,799 8,500
Depreciation and amortization 26,020 25,353
Other taxes, principally property 12,420 11,460
- -------------------------------------------------------------------------
Total operating expenses 370,680 364,939
- -------------------------------------------------------------------------
Operating income 59,988 51,203
- -------------------------------------------------------------------------
Other income (expense):
Income from investments 968 195
Interest income and other 2,451 1,532
Interest expense (16,605) (16,010)
- -------------------------------------------------------------------------
Total other income (expense) (13,186) (14,283)
- -------------------------------------------------------------------------
Income before income taxes 46,802 36,920
- -------------------------------------------------------------------------
Federal and state taxes on income 18,173 14,452
- -------------------------------------------------------------------------
Net income 28,629 22,468
Dividend requirements on preferred stock 294 303
- -------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 28,335 $ 22,165
=========================================================================
Average number of shares outstanding 13,380 13,315
- -------------------------------------------------------------------------
EARNINGS PER SHARE $ 2.12 $ 1.66
- -------------------------------------------------------------------------
DIVIDEND DECLARED PER COMMON SHARE $ 1.51 $ 1.47
=========================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, September 30,
1996 1995 1995
- --------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS:
Plant, at cost $685,857 $670,224 $683,347
Accumulated depreciation & amortization 193,759 180,093 184,942
- --------------------------------------------------------------------------------------------------
Net plant 492,098 490,131 498,405
- --------------------------------------------------------------------------------------------------
Investments 17,054 7,843 9,768
Prepaid benefit plans 24,481 19,912 21,470
Other long-term assets 10,448 9,343 8,898
Current assets:
Cash and temporary cash investments 4,230 4,771 2,759
Accounts receivable, less allowances of
$5,379, $5,563 and $4,232 40,914 44,300 22,066
Unbilled revenues 3,644 3,638 3,747
Deferred gas costs 19,057 9,584 13,190
Inventories, at average cost 20,857 14,105 19,327
Other 5,639 5,352 5,797
- --------------------------------------------------------------------------------------------------
Total current assets 94,341 81,750 66,886
- --------------------------------------------------------------------------------------------------
Regulatory assets:
Income taxes 11,948 10,995 10,595
Other 20,344 13,252 14,333
- --------------------------------------------------------------------------------------------------
$670,714 $633,226 $630,355
==================================================================================================
CAPITALIZATION & LIABILITIES:
Capitalization
Common stock equity $240,843 $231,341 $219,873
Preferred stock equity 5,033 5,219 5,149
Long-term debt, net 209,500 198,000 199,000
- --------------------------------------------------------------------------------------------------
Total capitalization 455,376 434,560 424,022
- --------------------------------------------------------------------------------------------------
Long-term liabilities:
Deferred taxes 75,391 73,865 73,329
Other long-term liabilities 17,430 13,609 15,401
- --------------------------------------------------------------------------------------------------
Total long-term liabilities 92,821 87,474 88,730
- --------------------------------------------------------------------------------------------------
Commitments and contingencies (note 2)
Current Liabilities:
Short-term debt 31,750 5,950 31,500
Accounts payable 33,449 27,542 28,704
Fuel purchase commitments 13,171 11,349 15,801
Refunds due customers 22,100 47,167 28,928
Deferred and accrued taxes 14,311 12,001 4,677
Other 7,736 7,183 7,993
- --------------------------------------------------------------------------------------------------
Total current liabilities 122,517 111,192 117,603
- --------------------------------------------------------------------------------------------------
$670,714 $633,226 $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)
June 30, September 30,
1996 1995 1995
- -----------------------------------------------------------------------------------------------------
(Unaudited) (Audited)
Common stock equity:
Common stock, $3.33 1/3 par value, authorized
36,000,000 shares; 13,412,244, 13,350,394 and
13,353,394 shares outstanding $ 44,707 $ 44,501 $ 44,511
Paid-in-capital 101,467 100,302 100,339
Retained earnings 94,669 86,538 75,023
- -----------------------------------------------------------------------------------------------------
Total common stock equity 240,843 231,341 219,873
- -----------------------------------------------------------------------------------------------------
Cumulative preferred stock:
Non-redeemable cumulative preferred stock 2,572 2,572 2,572
Redeemable cumulative preferred stock 2,461 2,647 2,577
- -----------------------------------------------------------------------------------------------------
Total cumulative preferred stock 5,033 5,219 5,149
- -----------------------------------------------------------------------------------------------------
Long-term debt:
Revolving credit agreement 13,000 20,000 6,000
Notes 196,500 178,000 193,000
- -----------------------------------------------------------------------------------------------------
Long-term debt, net 209,500 198,000 199,000
- -----------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION $455,376 $434,560 $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)
Nine months ended Twelve months ended
June 30, June 30,
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,064 $ 29,563 $ 28,629 $ 22,468
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 19,517 19,523 26,020 25,353
Deferred income taxes 628 5,801 1,735 10,597
Investment income and AFUDC (2,871) (904) (3,449) (587)
Changes in operating assets and liabilities:
Accounts receivable (18,848) (18,807) 3,386 3,930
Accounts payable 4,745 248 5,907 (5,026)
Taxes 9,715 5,151 1,148 (3,304)
Deferred gas costs and refunds due customers (12,695) 34,337 (34,540) 21,648
Prepaid benefit plans (3,011) 3,015 (4,569) 1,722
Other (11,598) 3,513 (13,131) 11,197
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,646 81,440 11,136 87,998
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant (31,942) (40,709) (43,851) (58,012)
Proceeds from sale of rental assets 20,667 -- 20,667 --
Other investments (4,438) (1,455) (6,480) (2,129)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,713) (42,164) (29,664) (60,141)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,324 1,356 1,371 3,828
Dividends on common stock (15,198) (14,742) (20,204) (19,574)
Dividends on preferred stock (222) (225) (294) (303)
Issuances of long-term debt 17,000 7,000 25,000 17,000
Retirements of preferred stock and long-term debt (6,616) (74) (13,686) (126)
Short-term debt 250 (31,800) 25,800 (26,000)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,462) (38,485) 17,987 (25,175)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND TEMPORARY CASH INVESTMENTS 1,471 791 (541) 2,682
Cash and temporary cash investments at beginning of period 2,759 3,980 4,771 2,089
- ----------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 4,230 $ 4,771 $ 4,230 $ 4,771
================================================================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 13,453 $ 12,686 $ 17,265 $ 15,891
================================================================================================================
Income taxes $ 10,926 $ 6,270 $ 12,197 $ 7,449
================================================================================================================
The accompanying notes are an integral part of these statements.
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Notes to Consolidated Financial Statements
June 30, 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 reports of December 31, 1995 and
March 31, 1996.
Because of the seasonal nature of the Company's business, the results of
operations for the three and nine months ended June 30, 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
(in thousands):
Ownership Investments at June 30,
percentages 1996 1995
- -----------------------------------------------------------------------------
MASSPOWER 17.5% $ 2,961 $2,934
PNGTS 17.8% 7,267 3,012
Wells LNG 100.0% 6,739 1,863
KBC 33.3% 53 --
Other -- 34 34
- -----------------------------------------------------------------------------
Total $17,054 $7,843
=============================================================================
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. Such preliminary determination was,
in fact, issued on July 31, 1996 finding that the pipeline project is required
by the public convenience and necessity.
In July 1996, the Company refiled its application with the FERC for the storage
facility in Wells, ME. This is a replacement for the application filed by
Granite State on November 3, 1994. That application was "dismissed without
prejudice to the refiling of the proposal" reflecting the evolution of the
project from being primarily for the use as a seasonal baseload facility to one
which will be used to meet peak winter demands. Also in July, the
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Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(Unaudited)
NOTE 2 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Company signed a precedent agreement which obligated Gaz Metropolitain to accept
50% of the storage capacity of this facility upon release by Northern Utilities
at the time of inception of service on PNGTS. The agreement also provides Gaz
Metropolitain with the option of becoming a 50% partner in this proposed
facility. On August 5th the Maine Public Utilities Utilities Commission made a
formal decision in support of this project.
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 owned equally by a subsidiary of
Granite State and affiliates of Connecticut Natural Gas Corporation and Koch Gas
Services Company. KBC 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 a successful 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 June 30,
1996, and 1995 were $47,000 and $67,000, respectively. Exclusive of amounts
accrued for future expenditures, at June 30, 1996, and 1995, approximately $4.4
million and $3.1 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. The company has made a filing with the Maine Public Utilities
Commission requesting deferral of environmental costs and a mechanism for
recovering them.
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
June 30, 1996 and 1995
(Unaudited)
NOTE 3 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the twelve months ended June 30,
1996, and for the years ended September 30 are set forth below.
June Year ended September 30
-------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992 1991
-------------------------------------------------------------------
Earnings:
Net income $28,629 $23,128 $24,485 $22,807 $18,363 $15,817
Adjustments:
Income taxes 18,173 14,575 15,642 13,726 11,250 8,733
Fixed charges (see below) 20,254 19,365 17,359 15,906 15,170 14,832
-------------------------------------------------------------------
Total adjusted earnings $67,056 $57,068 $57,486 $52,439 $44,783 $39,382
===================================================================
Fixed charges:
Total interest expense $17,761 $17,300 $15,305 $13,610 $13,073 $12,253
Interest component of rents 2,493 2,065 2,054 2,296 2,097 2,579
-------------------------------------------------------------------
Total fixed charges $20,254 $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' Review 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 June 30, 1996 and
1995, the related consolidated statements of earnings for the three months, nine
months, and twelve months then ended and the related statements of cash flows
for the nine 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
July 23, 1996
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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 June 30, 1996, operating revenues were $67.7 million,
down from $75.7 million in the prior year, while earnings per share were ($0.22)
versus ($0.18) a year earlier. Losses during the quarters ending June and
September are typical for natural gas distribution companies, due to seasonal
decline in demand for natural gas heating. The major reasons for the increase in
the loss was a reversal of a previously recognized tax savings relating to
environmental response costs, which was partially offset by a deferral of
restructuring costs that the company had previously expensed.
For the nine months ended June 30, 1996 earnings per share were $2.60 up 18.2%
from $2.20 a year earlier. For the twelve-month period ended June 30, 1996,
earnings per share were $2.12 compared to $1.66 for the same period the year
before. The increase in earnings for these periods is primarily the result of
weather which was 11.2% colder than the prior year for the nine-month period,
and 11.3% colder than the prior year for the twelve-month period.
Dividends declared per common share were $.385 for the three-month period ended
June 30, 1996, compared to $.375 for the same period last year. This quarterly
dividend represents an annualized dividend rate of $1.54 per common share, up
from the $1.50 annualized dividend last year. For the twelve-month period ended
June 30, 1996, dividends declared were $1.51, compared to $1.47 for the same
period in the prior year.
Local Transportation revenues
- -----------------------------
The following table details the components of Local Transportation revenues:
Nine months ended Twelve months ended
June 30, June 30,
In thousands 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
Transportation only customers $ 5,612 $ 3,348 $ 6,574 $ 3,992
Transportation for natural gas sales customers 151,146 138,930 168,730 155,953
- --------------------------------------------------------------------------------------------------------
Total $156,758 $142,278 $175,304 $159,945
========================================================================================================
As the result of colder weather, increased gas utilization per customer and
customer additions, Local Transportation revenues increased for the nine and
twelve months from the same periods in the prior year. For the nine-month period
ended June 30, 1996, the weather was 3.9% colder than normal and 11.2% colder
than the comparative period in 1995. For the twelve months ended June 30, 1996,
the weather was 11.3% colder than the prior year and the company added 5,800 new
customers during the period.
Natural gas revenues
- --------------------
For the twelve-months ended June 30, 1996, the firm volume of natural gas sold
increased 10.0%, 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 decreased 2.8%. The decrease in revenues was
primarily the result of lower gas costs charged to customers during the winter
of 1995 - 96 as pipeline refunds were returned to customers, and were offset
slightly by higher sales volumes. Similar decreases also exist for the three-and
nine- month periods ending June 30, 1996.
Page 12
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Energy Products and Services revenues
- -------------------------------------
Revenues from Energy Products and Services revenues were $12.1 million for the
fiscal year to date, up 28.2% from the $9.4 million for the prior fiscal year to
date. For the twelve months ended June 30, 1996, Energy Products and Services
revenues were $14.3 million, up 26.6% from $11.3 million of revenues from the
prior twelve month period. These increases are primarily the result of increased
sales of retail propane (due to the colder than normal weather), and increases
in water heater rental revenues.
Operating expenses
- ------------------
Total operating expenses for the three- and nine- month periods ending June 30,
1996 were $68.1 million and $314.8 million compared to $75.5 million and $309.4
million for the prior year, respectively. Operating expenses for the
twelve-month period ended June 30, 1996 were $370.7 million, compared to $364.9
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. Depreciation for
the nine- 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 $1,197,000 for the nine-month
period, compared to $481,000 for the prior year nine-month period. For the
twelve-month period income was $968,000, up from the prior year twelve-month
period of $195,000. These increases in income were primarily due to the
Company's investment in MASSPOWER.
Interest expense
- ----------------
Interest expense for the nine-month period ended June 30, 1996, was $12.4
million, compared to $12.8 million for the same period last year. For the twelve
months ended June 30, 1996, interest expense was $16.6 million, compared to
$16.0 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
$11.5 million in long-term debt issued and a $25.8 million increase in the
amount of short term debt.
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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 June 30, 1996 is up $25.8 million and $0.2 million
from June 30, 1995, and September 1995, respectively. This increase from last
year is primarily the result of the large balance of refunds due customers which
were returned during the past twelve months. Cash flows from operating
activities have decreased over the nine month- and twelve month- periods ending
June 30, 1996. This is primarily due to the payment of refunds due customers
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 nine-month and twelve-month periods.
Additions to plant decreased by $8.8 million for the nine-month period and $14.1
million for the twelve-month period ended June 30, 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, the company has invested $5.1 million in the PNGTS and
Wells LNG projects.
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. 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.
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15
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
There were no material legal proceedings instituted in the third 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 June 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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: August 12, 1996
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