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 DECEMBER 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 January 31, 1997
----- -------------------------------
Common Stock, $3.33 1/3 par value 13,443,594 Shares
2
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings - Three months and
twelve months ended December 31, 1996 and 1995.................... 3
Consolidated Balance Sheets at December 31, 1996, 1995
and September 30, 1996............................................ 4
Consolidated Statements of Capitalization at December 31,
1996, 1995 and September 30, 1996................................. 5
Consolidated Statements of Cash Flows - Three months and
twelve months ended December 31, 1996 and 1995.................... 6
Notes to Consolidated Financial Statements........................ 7
Independent Auditors' Report...................................... 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........... 11
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........................................................... 17
3
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 Twelve months ended
December 31, December 31,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------
Operating revenues: $137,000 $132,740 $433,043 $431,572
Operating expenses:
Recovered natural gas costs 73,485 70,330 229,991 238,793
Operations 25,700 23,908 98,056 87,435
Maintenance 2,940 2,360 10,975 8,772
Depreciation and amortization 6,801 6,514 26,597 26,076
Other taxes, principally property 3,315 3,169 12,887 11,814
------------------------------------------------------------------------------------
Total operating expenses 112,241 106,281 378,506 372,890
- --------------------------------------------------------------------------------------
Operating income 24,759 26,459 54,537 58,682
- --------------------------------------------------------------------------------------
Other income:
Income from investments 458 215 1,347 296
AFUDC and other 340 433 2,207 1,271
- --------------------------------------------------------------------------------------
Income before interest and taxes 25,557 27,107 58,091 60,249
- --------------------------------------------------------------------------------------
Interest income (153) (158) (442) (624)
Interest expense 4,223 4,037 16,249 17,125
Federal and state taxes on income 8,283 8,850 16,387 16,719
- --------------------------------------------------------------------------------------
Net income 13,204 14,378 25,897 27,029
Dividend requirements on preferred stock 73 74 293 297
======================================================================================
EARNINGS APPLICABLE TO COMMON STOCK $ 13,131 $ 14,304 $ 25,604 $ 26,732
======================================================================================
Average number of shares outstanding 13,437 13,363 13,415 13,350
======================================================================================
EARNINGS PER SHARE $ 0.98 $ 1.07 $ 1.91 $ 2.00
======================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.385 $ 0.375 $ 1.53 $ 1.49
======================================================================================
The accompanying notes are an integral part of these statements.
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4
BAY STATE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, September 30,
1996 1995 1996
- ------------------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS:
Plant, at cost $714,454 $668,506 $701,204
Accumulated depreciation & amortization 203,869 184,017 198,389
- ------------------------------------------------------------------------------------
Net plant 510,585 484,489 502,815
- ------------------------------------------------------------------------------------
Investments 19,441 11,346 17,601
Prepaid benefit plans 19,674 24,838 26,733
Other long-term assets 9,709 9,322 9,697
Current assets:
Cash and temporary cash investments 7,153 5,004 4,583
Accounts receivable, less allowances of
$2,829, $5,185 and $3,557 61,815 52,386 27,143
Unbilled revenues 10,443 12,145 3,709
Deferred gas costs 42,078 14,232 27,447
Inventories, at average cost 27,707 17,681 24,699
Other 5,271 6,241 6,059
- ------------------------------------------------------------------------------------
Total current assets 154,467 107,689 93,640
- ------------------------------------------------------------------------------------
Regulatory assets:
Income taxes 11,059 12,345 12,105
Other 31,155 15,627 21,662
- ------------------------------------------------------------------------------------
$756,090 $665,656 $684,253
====================================================================================
CAPITALIZATION & LIABILITIES:
Capitalization
Common stock equity $236,297 $229,572 $227,986
Preferred stock equity 5,010 5,144 5,009
Long-term debt, net 216,500 214,500 196,500
- ------------------------------------------------------------------------------------
Total capitalization 457,807 449,216 429,495
- ------------------------------------------------------------------------------------
Long-term liabilities:
Deferred taxes 81,184 78,379 80,854
Other long-term liabilities 17,163 15,328 16,650
- ------------------------------------------------------------------------------------
Total long-term liabilities 98,347 93,707 97,504
- ------------------------------------------------------------------------------------
Commitments and contingencies (note 2)
Current Liabilities:
Short-term debt 86,500 33,950 64,650
Current maturities of long-term debt 18,000 -- 18,000
Accounts payable 47,783 43,917 31,858
Fuel purchase commitments 22,988 14,165 21,332
Refunds due customers 9,862 16,158 10,427
Deferred and accrued taxes 7,269 6,839 3,174
Other 7,534 7,704 7,813
- ------------------------------------------------------------------------------------
Total current liabilities 199,936 122,733 157,254
- ------------------------------------------------------------------------------------
$756,090 $665,656 $684,253
====================================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands)
December 31, September 30,
1996 1995 1996
- ---------------------------------------------------------------------------------------
(Unaudited) (Audited)
Common stock equity:
Common stock, $3.33 1/3 par value, authorized
36,000,000 shares; 13,443,594, 13,377,394 and
13,428,244 shares outstanding $ 44,812 $ 44,558 $ 44,761
Paid-in-capital 102,089 100,695 101,784
Retained earnings 89,396 84,319 81,441
- ---------------------------------------------------------------------------------------
Total common stock equity 236,297 229,572 227,986
- ---------------------------------------------------------------------------------------
Cumulative preferred stock:
Non-redeemable cumulative preferred stock 2,572 2,572 2,572
Redeemable cumulative preferred stock 2,438 2,572 2,437
- ---------------------------------------------------------------------------------------
Total cumulative preferred stock 5,010 5,144 5,009
- ---------------------------------------------------------------------------------------
Long-term debt:
Revolving credit agreement 18,000 13,000 18,000
Notes 216,500 201,500 196,500
- ---------------------------------------------------------------------------------------
Total long-term debt 234,500 214,500 214,500
Less current maturities of long-term debt 18,000 -- 18,000
- ---------------------------------------------------------------------------------------
Long-term debt, net 216,500 214,500 196,500
- ---------------------------------------------------------------------------------------
TOTAL CAPITALIZATION $457,807 $449,216 $429,495
=======================================================================================
The accompanying notes are an integral part of these statements.
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BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three months ended Twelve months ended
December 31, December 31,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,204 $ 14,378 $ 25,897 $ 27,029
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,801 6,514 26,597 26,076
Deferred income taxes 1,744 284 8,203 2,750
Investment income and AFUDC (824) (568) (4,242) (875)
Changes in operating assets and liabilities:
Accounts receivable (34,672) (30,142) (9,429) (5,797)
Unbilled revenues (6,734) (8,398) 1,702 (2,192)
Accounts payable 15,924 14,752 3,865 7,615
Taxes 3,727 5,140 (3,682) 2,059
Deferred gas costs and refunds due customers (15,196) (13,812) (34,142) (451)
Other (2,518) (7,936) (11,337) (8,771)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (18,544) (19,788) 3,432 47,443
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant (14,910) (10,710) (49,957) (45,470)
Proceeds from sale of rental assets -- 20,667 -- 20,667
Other investments (933) (1,009) (4,572) (4,055)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (15,843) 8,948 (54,529) (28,858)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 356 403 1,648 711
Dividends on common stock (5,176) (5,011) (20,525) (19,891)
Dividends on preferred stock (73) (74) (293) (297)
Issuances of long-term debt 20,000 17,000 25,000 30,000
Retirements of preferred stock and long-term debt -- (1,505) (5,134) (8,649)
Short-term debt 21,850 2,450 52,550 (19,675)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 36,957 13,263 53,246 (17,801)
- -----------------------------------------------------------------------------------------------------
NET INCREASE IN CASH
AND TEMPORARY CASH INVESTMENTS 2,570 2,423 2,149 784
Cash and temporary cash investments at beginning period 4,583 2,581 5,004 4,220
- -----------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period 7,153 $ 5,004 $ 7,153 $ 5,004
=====================================================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 5,799 $ 6,606 $ 19,231 $ 18,922
=====================================================================================================
Income taxes $ 2,509 $ 3,003 $ 11,441 $ 10,677
=====================================================================================================
The accompanying notes are an integral part of these statements.
Page 6
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Notes to Consolidated Financial Statements
December 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, 1996.
Because of the seasonal nature of the Company's business, the results of
operations for the three months ended December 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 has been reached with PPLC that will extend
the lease to April 1998. Long-term, two projects to replace the capacity
provided by the PPLC lease, and for additional capacity expansion are being
pursued, a 2.0 million MMBtu liquefied natural gas ("LNG") storage facility in
Wells, Maine ("Wells LNG"), and the Portland Natural Gas Transmission System
("PNGTS").
INVESTMENTS. The following table summarizes the Company's current investments
(in thousands):
Ownership Investments at December 31,
percentages 1996 1995
- --------------------------------------------------------------------------
MASSPOWER 17.5% $ 2,852 $ 2,639
PNGTS 17.8% 8,873 4,165
Wells LNG 100.0% 7,507 4,418
KBC 33.3% 175 51
Other -- 34 73
- --------------------------------------------------------------------------
Total $19,441 $11,346
- --------------------------------------------------------------------------
PNGTS is an interstate pipeline that will extend 272 miles from the US-Canadian
border to the New Hampshire-Massachusetts border. In January 1997, Northeast
Utilities chose PNGTS to transport incremental natural gas supplies, and will
also join PNGTS as an equity partner, acquiring a five-percent equity interest
in the project. Bay State continues to hold a 17.8% equity interest. The PNGTS
project is scheduled to be completed and available for service in November 1998.
In September 1996, the FERC issued a "Notice of Intent" to the Company to
prepare a supplement to its January 1996 Draft Environmental Impact Statement to
consider alternate sites for Wells LNG. This supplement was issued January 30,
1997. The schedule for public comment, review, and issuance of the Final
Environmental Impact Statement is expected to allow construction to begin the
summer 1997, for completion by November 1999.
Amounts invested to date in PNGTS and Wells LNG consist principally of the
Company's share of feasibility, engineering, legal, and other costs of
developing each project, and the carrying costs on these expenditures. Recovery
of these investments is dependent upon, among other things, successful
completion of the projects.
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Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(Unaudited)
While their completion is subject to a number of factors beyond the Company's
control, it believes that these projects will be successful.
KBC Energy Services ("KBC") markets natural gas supplies and energy-related
services on a non-regulated basis to 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. The
Company only intends to sell its equity interest in MASSPOWER if the sale would
provide a fair value for this investment.
LONG-TERM OBLIGATIONS. The company has long-term contracts for the purchase,
storage, and delivery of approximately half of the Company's 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, exclusive of insurance
recoveries, if any, expenditures to remediate and monitor known environmental
sites will range from $4.9 million to $10.0 million. Accordingly, the Company
has accrued $4.9 million with an offsetting charge to a regulatory asset.
Environmental expenditures for the quarter ended December 31, 1996 and 1995 were
$258,000 and $614,000, respectively. Exclusive of amounts accrued for future
expenditures, at December 31, 1996 and 1995, approximately $4.8 million and $3.4
million, respectively, of environmental expenditures had 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.
Approval from the Maine Public Utilities Commission for deferral of
environmental costs has been received, and a filing for a recovery mechanism has
been made.
REGULATORY MATTERS. Significant regulatory assets arising from the rate-making
process associated with income taxes, company restructuring costs, employee
benefits, and environmental response costs have been recorded. During the
three-month period ending December 31, 1996 approximately $9.1 million of costs,
consisting primarily of an early retirement program related to the restructuring
of the Company, were deferred. The total deferred asset for restructuring was
$10.4 million at December 31, 1996. 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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NOTE 3 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the twelve months ended December 31,
1996, and for the years ended September 30 are set forth below.
Year ended September 30
December ----------------------------------------------
(Dollars in thousands) 1996 1996 1995 1994 1993 1992
---------------------------------------------------------
Earnings:
Net income $25,897 $27,072 $23,128 $24,485 $22,807 $18,363
Adjustments:
Income taxes 16,387 16,953 14,575 15,642 13,726 11,250
Fixed charges (see below) 20,451 20,187 19,365 17,359 15,906 15,170
---------------------------------------------------------
Total adjusted earnings $62,735 $64,212 $57,068 $57,486 $52,439 $44,783
=========================================================
Fixed charges:
Total interest expense $17,507 $17,345 $17,300 $15,305 $13,610 $13,073
Interest component of rents 2,944 2,842 2,065 2,054 2,296 2,097
---------------------------------------------------------
Total fixed charges $20,451 $20,187 $19,365 $17,359 $15,906 $15,170
=========================================================
Ratio of earnings to fixed charges 3.07 3.18 2.95 3.31 3.30 2.95
=========================================================
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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 December 31, 1996
and 1995, and the related consolidated statements of earnings and cash flows for
the three 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, 1996, 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, 1996, we expressed an
unqualified opinion on those consolidated financial statements.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 21, 1997
Page 10
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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 December 31, 1996, operating revenues were $137.0
million, up from $132.7 million in the prior year, while net income per average
common share was $.98 versus $1.07 a year earlier. Earnings per share decreased
primarily due to weather, which was 6.0% warmer than the same period last year,
and 2.8% warmer than normal. The negative impact of warm weather on earnings was
partially offset by the addition of more than 6,300 customers within the past
12-month period. Also contributing to the decrease in income per average share
for the three-month period was operations expense, which increased 7.5% over the
same period in the prior year.
For the twelve-month period ended December 31, 1996, earnings per average common
share were $1.91 compared to $2.00 for the same period the year before. The
decrease in earnings for the twelve month period is primarily the result of
increased operations expenses.
Dividends declared per common share were $.385 for the three-month period ended
December 31, 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 December 31, 1996, dividends declared were $1.53, compared to $1.49
for the same period in the prior year.
Operating revenues
- ------------------
Revenues and income before interest and taxes for the Company's three business
segments for the three months ended December 31, 1996 and 1995 were as follows:
Operating Income (loss) before
revenues interest and taxes
- --------------------------------------------------------------------------------
In thousands 1996 1995 1996 1995
- --------------------------------------------------------------------------------
Local Transportation $132,598 $130,034 $25,298 $25,582
Energy Products &
Services 5,582 4,608 (328) 827
Energy Ventures 21,723 17,530 587 698
Intersegment eliminations (22,903) (19,432) -- --
- --------------------------------------------------------------------------------
Total $137,000 $132,740 $25,557 $27,107
- --------------------------------------------------------------------------------
Intersegment eliminations of revenues consist primarily of sales from an
interstate pipeline within the Energy Ventures business segment to the local
distribution companies within the Local Transportation business segment.
Page 11
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Local Transportation
The following table details the components of Local Transportation revenues for
the three months ended December 31, 1996 and 1995:
In thousands 1996 1995
----------------------------------------------------------
Transportation only customers $ 2,598 $ 1,416
Transportation for natural gas
sales customers 52,102 54,055
----------------------------------------------------------
Transportation revenues 54,700 55,471
Natural gas sales 73,485 70,330
----------------------------------------------------------
Transportation and natural gas sales 128,185 125,801
Other 4,413 4,233
----------------------------------------------------------
Total Local Transportation revenues $132,598 $130,034
----------------------------------------------------------
Primarily as the result of warmer weather, transportation revenues decreased
1.4% for the three months from the same period prior year. For the three-month
period ended December 31, 1996, the weather was 2.8% warmer than normal and 6%
warmer than the comparative period in 1995. Revenues were positively impacted in
fiscal year 1997 by the addition of 6,300 customers.
For the three-month period ended December 31, 1996, revenues from natural gas
sales grew by 4.5%, primarily due to lower billed gas costs in the prior fiscal
year resulting from lower deferred gas costs.
Other revenues primarily consist of customer service revenues, merchandise
sales, conversion burner rentals, and liquefaction services. The increase in
other revenues for the comparable three-month periods is primarily the result of
increased merchandise sales.
Energy Products & Services
The following table details the components of Energy Products & Services
revenues for the three months ended December 31, 1996 and 1995:
In thousands 1996 1995
------------------------------------------------
Propane $3,185 $2,459
Water heater rentals 1,111 1,065
Appliance repair insurance 1,062 1,069
Other 224 15
------------------------------------------------
Total $5,582 $4,608
------------------------------------------------
Revenues from other energy products and services grew by 21.1% for the
three-month period. This increase is primarily the result of propane revenues,
which increased due to higher sales volumes and higher propane fuel prices.
Water heater rental revenues and appliance repair insurance revenues are
consistent for the comparative periods. Increases in other revenues are due to
the growth of the energy advisory service business.
Page 12
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Energy Ventures
This business segment currently manages an interstate pipeline, and participates
in three major projects: MASSPOWER, an operating cogeneration facility; PNGTS;
and Wells LNG. Operating revenues and income within Energy Ventures are
generated by the interstate pipeline, which had an operating loss of $14,000 for
the quarter ended December 31, 1996 and operating income of $218,000 for the
same period prior year. For the twelve month periods ended December 31, 1996 and
1995, the pipeline had operating income of $167,000 and $1.6 million,
respectively. The decrease in operating income for the three- and twelve-month
periods are primarily the result of increased operating expenses due to rate
case proceedings for this pipeline.
Income from the investment in MASSPOWER was $448,000 and $245,000 for the
quarters ended December 31, 1996 and 1995, respectively, and $1.4 million and
$370,000 for the twelve month periods ended December 31, 1996 and 1995,
respectively. The company is currently seeking a buyer for its 17.5% equity
interest in MASSPOWER, which has been a successful investment, but does not
represent a future core business.
Operating expenses
- ------------------
Total operating expenses, for the three months ended December 31, 1996 were
$112.2 million, compared to $106.3 million for the prior year. Operating
expenses for the twelve-month period ended December 31, 1996 were $378.5 million
compared to $372.9 million for the prior twelve months. The increase for the
three-month period is primarily attributable to the increase in fuel costs,
payroll costs, and advertising expense. The increase for the twelve-month period
is primarily attributable to increases in propane fuel costs, lease expenses,
and expenses related to the expansion of the rental business.
Interest expense and dividend requirements on preferred stock
- -------------------------------------------------------------
Interest expense for the three-month period ended December 31, 1996 was $4.2
million, compared to $4.0 million for the same period last year. For the twelve
months ended December 31, 1996, interest expense was $16.2 million, compared to
$17.1 million for 1995. The decrease in interest expense for the twelve month
period is primarily the result of retirement of long-term debt during the twelve
months ended December 31, 1996.
Dividend requirements on preferred stock were relatively flat for the
comparative periods.
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.
During the month of December 1996, $20.0 million of 6.375% medium-term notes
were issued. Total net short-term debt is up approximately $53 million from
December 31, 1995 to December 31, 1996. Lower levels of short-term debt were
required in the first quarter of fiscal year 1996 due to a sale of rental assets
which occurred during that period.
Cash flows from operating activities have decreased over the twelve-month period
ending December 31, 1996, primarily due to increasing deferred gas costs related
to higher natural gas costs, and a change in the rate structure in the
Massachusetts service territory. The Company financed these higher deferred gas
costs through increased short-term debt. As revenues are collected over the
winter period, the levels of deferred gas costs incurred during the summer
season and of short-term debt, should decrease.
Page 13
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Capital expenditures for plant increased by $4.2 million for the three-month
period and $4.5 million for the twelve-month period ended December 31, 1996, as
compared to the year before. The warmer weather during the first three months of
fiscal 1997 has enabled the Company to complete more capital additions during
this period than in the prior year.
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, the regulatory environment, 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 14
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PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
- -------------------------
There were no material legal proceedings instituted in the first quarter of
1997, 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
- -----------------------------------------------------------
On December 9, 1996, a notice of the annual meeting of common shareholders,
a proxy and a proxy statement were sent to shareholders.
At the annual meeting held on January 23, 1997, shareholders approved the
following items :
1. To elect the following four directors for terms of three years
expiring at the annual meeting of shareholders in 2000:
Nominee John H. Larson George W. Sarney
Votes for: 10,931,481 11,930,090
Votes against or withheld: 205,455 189,546
Abstentions: None None
Broker non-votes: None None
Nominee Thomas W. Sherman Charles H. Tenney II
Votes for: 11,020,241 10,975,656
Votes against or withheld: 178,695 223,280
Abstentions: None None
Broker non-votes: None None
Directors with continuing terms of office are as follows: Lawrence J. Finnegan,
Douglas W. Hawes, Walter C. Invancevic, Jack E. McGregor, Daniel J. Murphy, Joel
L. Singer, and Roger A. Young.
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
Page 15
16
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 December 31, 1996.
Page 16
17
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: February 11, 1997
Page 17
18
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
15 Consent of KPMG Peat Marwick LLP re: Registration Statement
No. 33-57702
27 Financial Data Schedule
5