1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
------------------------
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
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 Identification No.)
incorporation or organization)
300 FRIBERG PARKWAY, WESTBOROUGH, MASSACHUSETTS 01581-5039 (508/836-7000)
(Address and telephone number of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------------------- -----------------------------------------
Common Stock, $3.33 1/3 par value New York Stock Exchange
Boston Stock Exchange
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2
PART I
Parts I, III and Items 5, 6, 7, 9 of Part II of this Form 10-K has been
intentionally omitted because this Amendment No. 1 does not effect any changes
to the Items. The sole purpose of this filing is to update Part II, Item 8 and
Part IV, Item 14.
I-1
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
IN THOUSANDS EXCEPT PER SHARE AMOUNTS 1997 1996 1995
-------- -------- --------
Operating revenues............................................ $473,581 $428,843 $418,216
-------- -------- --------
Operating expenses:
Recovered natural gas costs.............................. 262,571 226,836 235,005
Other cost of goods sold................................. 10,328 5,805 3,435
Operations............................................... 95,455 90,509 80,903
Restructuring costs (note 8)............................. 11,213 -- --
Maintenance.............................................. 10,573 10,426 8,636
Depreciation and amortization............................ 28,486 26,311 26,026
Other taxes, principally property taxes.................. 13,251 12,741 11,362
-------- -------- --------
Total operating expenses...................................... 431,877 372,628 365,367
Operating income.............................................. 41,704 56,215 52,849
-------- -------- --------
Other income:
Income from sale of subsidiary (note 9).................. 13,344 -- --
Income from investments.................................. 2,667 2,502 427
AFUDC equity and other................................... 2,653 1,594 965
-------- -------- --------
Income before interest and income taxes....................... 60,368 60,311 54,241
-------- -------- --------
Interest income............................................... (515) (477) (567)
Interest expense.............................................. 17,842 16,763 17,105
Federal and state taxes on income (note 2).................... 16,979 16,953 14,575
-------- -------- --------
Net income.................................................... 26,062 27,072 23,128
Dividend requirements on preferred stock...................... 288 293 299
-------- -------- --------
Earnings applicable to common stock........................... $ 25,774 $ 26,779 $ 22,829
======== ======== ========
Average number of common shares outstanding................... 13,455 13,397 13,342
======== ======== ========
Earnings per share............................................ $ 1.92 $ 2.00 $ 1.71
======== ======== ========
Dividends declared per common share........................... $ 1.56 $ 1.52 $ 1.48
======== ======== ========
The accompanying notes are an integral part of these statements.
16
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CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
ASSETS
IN THOUSANDS 1997 1996
--------- ---------
Plant, as cost..................................................... $ 740,266 $ 701,204
Accumulated depreciation and amortization.......................... 216,965 198,389
--------- ---------
Net plant.......................................................... 523,301 502,815
--------- ---------
Investments (note 9)............................................... 19,382 17,601
Prepaid benefit plans (note 7)..................................... 21,941 26,733
Other long-term assets............................................. 8,064 9,697
Current assets:
Cash and temporary cash investments........................... 3,672 4,583
Accounts receivable, less allowances of $4,138 and $3,557..... 32,713 27,143
Unbilled revenues............................................. 3,708 3,709
Deferred gas costs............................................ 39,764 27,447
Inventories, at average cost (note 6)......................... 30,473 24,699
Other......................................................... 4,828 6,059
--------- ---------
Total current assets............................................... 115,158 93,640
--------- ---------
Regulatory assets:
Income taxes.................................................. 11,045 12,105
Other......................................................... 23,228 21,662
--------- ---------
$ 722,119 $ 684,253
========= =========
CAPITALIZATION AND LIABILITIES
Capitalization (see accompanying statements and note 3):
Common stock equity........................................... $ 234,378 $ 227,986
Preferred stock equity........................................ 4,917 5,009
Long-term debt................................................ 229,500 196,500
--------- ---------
Total capitalization............................................... 468,795 429,495
--------- ---------
Long-term liabilities:
Deferred taxes (note 2)....................................... 81,770 80,854
Other long-term liabilities................................... 13,583 16,650
--------- ---------
Total long-term liabilities........................................ 95,353 97,504
--------- ---------
Commitments and contingencies (note 9)
Current liabilities:
Short-term debt (note 5)...................................... 51,625 64,650
Current maturity of long-term debt (note 3)................... 5,000 18,000
Accounts payable.............................................. 41,404 31,858
Fuel purchase commitments (note 6)............................ 22,817 21,332
Refunds due customers......................................... 25,802 10,427
Deferred and accrued taxes (note 2)........................... 3,326 3,174
Other......................................................... 7,997 7,813
--------- ---------
Total current liabilities.......................................... 157,971 157,254
--------- ---------
$ 722,119 $ 684,253
========= =========
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF CAPITALIZATION
YEARS ENDED SEPTEMBER 30, 1997 AND 1996
1997 1996
------------------- -------------------
IN THOUSANDS AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
Common stock equity:
Common stock, $3.33 1/3 par value, authorized 36,000,000
shares; 13,506,594 and 13,428,244 shares outstanding... $ 45,025 $ 44,761
Paid-in-capital.......................................... 103,126 101,784
Retained earnings........................................ 86,227 81,441
-------- ----- -------- -----
Total common stock equity................................ 234,378 50.0 227,986 53.1
-------- ----- -------- -----
Cumulative preferred stock; $100 par value, authorized
200,000 shares; $50 par value, authorized 150,000
shares
$100 par value:
5% series; 16,862 shares outstanding................ 1,686 1,686
4.7% series; 10,127 and 10,627 shares outstanding... 1,013 1,063
$50 par value:
7.2% series; 17,710 shares outstanding.............. 886 886
$3.80 series; 5,315 and 5,693 shares outstanding.... 266 284
5 5/8% series; 5,199 shares outstanding............. 260 260
$3.25 series; 16,125 and 16,599 shares
outstanding....................................... 806 830
-------- ----- -------- -----
Total cumulative preferred stock......................... 4,917 1.0 5,009 1.2
-------- ----- -------- -----
Long-term debt:
Revolving Credit Agreement, due 2001..................... 18,000 18,000
6.30% Notes, due 1998.................................... 5,000 5,000
6.00% Notes, due 2000.................................... 10,000 10,000
6.00% Notes, due 2001.................................... 5,000 5,000
7.42% Notes, due 2001.................................... 10,000 10,000
6.625% Notes, due 2002................................... 5,000 5,000
7.25% Notes, due 2002.................................... 20,000 20,000
7.37 - 7.55% Notes, due 2002............................. 28,000 28,000
6.00% Notes, due 2003.................................... 15,000 15,000
6.58% Notes, due 2005.................................... 10,000 10,000
6.375% Notes, due 2006................................... 20,000 --
6.93% Notes, due 2010.................................... 10,000 10,000
9.20% Notes, due 2011.................................... 8,500 8,500
6.43% Notes, due 2020.................................... 10,000 10,000
8.15% Notes, due 2022.................................... 12,000 12,000
7.625% Notes, due 2023................................... 10,000 10,000
9.70% Notes, due 2031.................................... 13,000 13,000
9.45% Notes, due 2031.................................... 25,000 25,000
-------- ----- -------- -----
Total long-term debt..................................... 234,500 214,500
Less current maturities.................................. 5,000 18,000
-------- ----- -------- -----
Long-term debt, net...................................... 229,500 49.0 196,500 45.7
-------- ----- -------- -----
Total capitalization..................................... $468,795 100.0 $429,495 100.0
======== ===== ======== =====
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
COMMON STOCK
----------------------------------------------- CUMULATIVE
PAID-IN RETAINED PREFERRED
IN THOUSANDS EXCEPT SHARE AMOUNTS SHARES PAR VALUE CAPITAL EARNINGS STOCK
---------- --------- -------- -------- ----------
BALANCE AT SEPTEMBER 30, 1994.......... 13,290,491 $ 44,302 $ 99,145 $ 71,942 $5,293
Net income............................. 23,128
Dividends declared:
Preferred stock................... (299)
Common stock...................... (19,748)
Common stock issued:
DRP*.............................. 42,103 140 864
KESOP*............................ 20,800 69 360
Capital stock expense.................. (17)
Redemption of preferred stock.......... (13) (144)
---------- ------- -------- -------- ------
BALANCE AT SEPTEMBER 30, 1995.......... 13,353,394 44,511 100,339 75,023 5,149
Net income............................. 27,072
Dividends declared:
Preferred stock................... (293)
Common stock...................... (20,361)
Common stock issued:
KESOP*............................ 74,850 250 1,467
Redemption of preferred stock.......... (22) (140)
---------- ------- -------- -------- ------
BALANCE AT SEPTEMBER 30, 1996.......... 13,428,244 44,761 101,784 81,441 5,009
Net income............................. 26,062
Dividends declared:
Preferred stock................... (288)
Common stock...................... (20,988)
Common stock issued:
KESOP*............................ 78,350 264 1,354
Redemption of preferred stock.......... (12) (92)
---------- ------- -------- -------- ------
BALANCE AT SEPTEMBER 30, 1997.......... 13,506,594 $ 45,025 $103,126 $ 86,227 $4,917
========== ======= ======== ======== ======
* Dividend reinvestment and key employee stock option plans.
The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995.
IN THOUSANDS 1997 1996 1995
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 26,062 $ 27,072 $ 23,128
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 28,486 26,311 26,026
Deferred income taxes.................................... 1,603 6,743 6,908
Gain from sale of subsidiary............................. (13,344) -- --
Investment income and AFUDC.............................. (3,568) (3,981) (1,051)
Changes in operating assets and liabilities:
Accounts receivable...................................... (5,570) (4,899) 3,249
Accounts payable......................................... 9,546 2,693 1,871
Taxes.................................................... 525 (2,390) (3,257)
Deferred gas costs and refunds due customers............. 3,058 (32,758) 12,492
Other.................................................... (2,258) (11,653) 3,162
-------- -------- --------
Net cash provided by operating activities..................... 44,540 7,138 72,528
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant............................................ (57,638) (50,731) (53,336)
Proceeds from sale of subsidiary.............................. 17,000 -- --
Proceeds from sale of building................................ 10,145 -- --
Proceeds from sale of rental assets........................... -- 20,667 --
Other investments............................................. (2,171) (4,623) (3,553)
-------- -------- --------
Net cash used in investing activities......................... (32,664) (34,687) (56,889)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock...................................... 1,618 1,717 1,416
Dividends on common stock..................................... (20,988) (20,361) (19,748)
Dividends on preferred stock.................................. (288) (293) (299)
Issuance of long-term debt.................................... 20,000 22,000 20,000
Retirements of preferred stock and long-term debt............. (104) (6,662) (12,157)
Short-term debt............................................... (13,025) 33,150 (6,250)
-------- -------- --------
Net cash provided by (used in) financing activities........... (12,787) 29,551 (17,038)
-------- -------- --------
Net increase (decrease) in cash and temporary cash
investments................................................. (911) 2,002 (1,399)
Cash and temporary cash investments at beginning of period.... 4,583 2,581 3,980
======== ======== ========
Cash and temporary cash investments at end of period.......... $ 3,672 $ 4,583 $ 2,581
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized)..................... $ 19,229 $ 18,134 $ 16,355
======== ======== ========
Income taxes............................................. $ 14,711 $ 11,935 $ 8,720
======== ======== ========
The accompanying notes are an integral part of these statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Bay State Gas Company ("Bay State" or the "Company")
operates in three related energy segments: Utility, Energy Products & Services,
and Energy Ventures. Bay State's Utility segment serves about 300,000 natural
gas customers in the states of Massachusetts, New Hampshire, and Maine. The
Company's non-regulated Energy Products & Services segment serves about 88,000
residential, commercial, and industrial customers throughout New England, and
markets products and services under the brand name, "EnergyUSA(TM)." Bay State's
Energy Ventures segment develops business opportunities and projects which are
closely related to the Company's core businesses.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The preparation of
consolidated financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses. It is
expected that actual results will not be materially different from those
estimates.
The consolidated financial statements include the accounts of Bay State Gas
Company and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated. Certain information in the prior
period financial statements has been reclassified to conform with the current
period's presentation.
REGULATION AND OPERATIONS. The Company is subject to regulation with
respect to rates, accounting, and other matters, where applicable, by the
Massachusetts Department of Public Utilities ("MADPU"), the New Hampshire Public
Utilities Commission, the Maine Public Utilities Commission, and the Federal
Energy Regulatory Commission ("FERC"). The Company's accounting policies conform
to generally accepted accounting principles and reflect the effects of the
ratemaking process in accordance with Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation."
PLANT. Plant is stated at original cost and consists of utility plant and
Energy Products & Services plant assets. The original cost of depreciable units
of utility plant retired, together with the cost of removal, net of salvage, is
charged to accumulated depreciation. The costs of maintenance, repairs, and
replacements of minor items are charged to expense as incurred.
Depreciation is provided for all classes of utility plant on a group
straight-line basis in amounts equivalent to overall composite rates of 3.63%
for 1997, 3.66% for 1996, and 3.88% for 1995. Depreciation for plant used by the
Energy Products & Services business segment is provided for on a straight-line
basis over the estimated useful lives of the assets.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC). AFUDC is the
estimated cost of funds used for construction purposes. Such allowances are
charged to plant and reported as other income (cost of equity funds) or a
reduction of interest expense (cost of borrowed funds). AFUDC was $901,000, $1.4
million, and $573,000 for 1997, 1996, and 1995, respectively.
INVESTMENTS. The Company accounts for its partnership investments by the
equity method.
CASH AND TEMPORARY CASH INVESTMENTS. The Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
TRANSPORTATION, NATURAL GAS SALES, AND DEFERRED GAS COSTS. Transportation
revenues and natural gas sales are based on the volume of gas transported or
sold at billing rates authorized by regulatory authorities and include unbilled
revenues for transportation services and gas delivered, but not billed. The
Company's rates include cost of gas adjustment ("CGA") clauses pursuant to which
gas and certain other costs are recovered from customers. Any differences
between gas costs incurred and amounts collected are deferred for recovery from
or refund to customers in future periods. Also included in natural gas sales are
sales to interruptible customers and spot sales for resale. Substantially all
profit margins from these types of sales are used to reduce gas costs to
customers through CGA clauses.
21
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ENVIRONMENTAL COSTS. In accordance with orders of regulatory authorities,
the Company defers costs incurred to remediate environmental damage. Deferred
environmental costs in Massachusetts, Maine, and New Hampshire are amortized to
expense over periods of five to 10 years as they are recovered from customers.
INCOME TAXES. Deferred taxes are provided for using the asset and
liability method for temporary differences between financial and tax reporting.
Deferred income taxes are recognized for the expected tax consequences of
temporary differences by applying enacted statutory tax rates, applicable to
future years, to differences between the financial reporting basis and tax basis
of assets and liabilities (see note 2).
PENSION AND OTHER EMPLOYEE BENEFIT PLANS. The Company has noncontributory
defined benefit pension plans covering substantially all employees. Benefits
under the plans are generally based on years of service and the level of
compensation during the final years of employment. Other postretirement benefits
consist of certain health and life insurance benefits for retired and active
employees hired before September 30, 1990. Postemployment benefits consist of
workers compensation claims, long-term disability payments, and medical coverage
continuation payments. These costs are generally recognized on the accrual
method of accounting over the expected periods of employee service based on
actuarial assumptions (see note 7).
EARNINGS PER SHARE. Earnings per common share have been computed by
dividing earnings applicable to common stock by the weighted average number of
shares of common stock outstanding during each year.
STOCK-BASED COMPENSATION. On October 1, 1995, the Company adopted
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-based Compensation." Pursuant to SFAS 123, stock-based compensation
for employees and Directors is recognized as expense using a fair-value
accounting method. The adoption of this accounting standard did not have a
material impact on cash flows, financial condition, or results of operations
(see note 3).
ACCOUNTING FOR LONG-LIVED ASSETS. In 1997, the Company adopted Statement
of Financial Accounting Standard No. 121, "Accounting for Long-lived Assets,"
which requires a review of long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of this standard did not have a material impact on
cash flows, financial condition, or the results of operations.
NEW ACCOUNTING STANDARDS. The Financial Accounting Standards Board has
issued three new accounting standards effective for fiscal year 1998. SFAS 128
requires the presentation of basic and diluted earnings per share, SFAS 130
requires reporting comprehensive income and its components, and SFAS 131
requires reporting financial and descriptive information about reportable
operating segments. It is expected that the adoption of these standards will not
have a material impact on cash flows, financial condition, or the results of
operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2
INCOME TAXES
The components of income tax expense are as follows:
IN THOUSANDS 1997 1996 1995
------- ------- -------
Current:
Federal........................... $12,891 $ 8,785 $ 6,699
State............................. 2,885 1,824 1,368
------- ------- -------
Total current................ 15,776 10,609 8,067
------- ------- -------
Deferred:
Federal........................... 1,292 5,551 5,799
State............................. 311 1,192 1,109
------- ------- -------
Total deferred............... 1,603 6,743 6,908
------- ------- -------
Deferred investment tax credits, net... (400) (399) (400)
------- ------- -------
Total income tax expense............... $16,979 $16,953 $14,575
======= ======= =======
The annual provision for deferred income taxes is comprised of the
following:
IN THOUSANDS 1997 1996 1995
------- ------ -------
Accelerated tax depreciation............ $ 5,557 $3,858 $ 3,681
Capitalization overheads................ (827) (418) (2,225)
Pension................................. 342 771 1,252
Demand-side-management costs............ (709) 545 1,569
Restructuring costs..................... (2,543) -- --
Postretirement benefits................. 348 (537) 1,002
Investment in MASSPOWER................. (2,212) 494 602
Other................................... 1,647 2,030 1,027
------- ------ -------
Total deferred tax expense.............. $ 1,603 $6,743 $ 6,908
======= ====== =======
The Company's effective income tax rate for fiscal years 1997, 1996, and
1995 is 39%, consisting of a federal income tax rate of 35% and state income
taxes, net of federal benefit, of 4%. Temporary differences that resulted in
deferred income tax assets and liabilities as of September 30, 1997 and 1996 are
as follows:
IN THOUSANDS 1997 1996
-------- --------
Deferred income tax assets:
Allowance for doubtful accounts.................. $ 1,828 $ 1,562
Restructuring costs.............................. 2,543 --
Inventory and overhead costs..................... 2,943 1,998
Unamortized investment tax credits............... 3,235 3,495
Other............................................ 2,636 2,461
------- -------
Total deferred income tax assets............ 13,185 9,516
------- -------
Deferred income tax liabilities:
Prepaid pension and other benefits............... 13,746 13,148
Plant related.................................... 78,533 73,759
Other............................................ 5,724 6,884
------- -------
Total deferred income tax liabilities....... 98,003 93,791
------- -------
Net deferred income tax liability................ $ 84,818 $ 84,275
======= =======
At September 30, 1997 and 1996, unamortized deferred investment tax credits
included in long-term deferred taxes amounted to $5.0 million and $5.4 million,
respectively.
23
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3
CAPITALIZATION
COMMON STOCK. A Stock Performance Sharing Plan (formerly Key Employee
Long-Term Incentive Plan) awards performance shares to certain employees. All or
a portion of the performance shares become vested and earned at the end of the
three-year period beginning on the date the award was granted, depending on the
total return to shareholders for such period. Performance shares eligible for
payment in fiscal year 1999 and 1998 are 74,471 and 41,986, respectively.
Compensation expense equal to the value of the vested shares will be recorded
when it is likely that vested shares will be paid out. No compensation expense
was recorded in 1997 or 1996.
A Key Employee Stock Option Plan provides for the granting of options to
key employees to purchase an aggregate of 1,050,000 shares of common stock.
Options are exercisable upon grant and expire within 10 years from the date of
grant. Outstanding options are exercisable through 2002. Option activity is as
follows:
OPTIONS OUTSTANDING
AND EXERCISABLE SHARES OPTION PRICE PER SHARE
---------------------------------------------- ------- ----------------------
September 30, 1994............................ 676,500 $ 17.75 - $22.00
Options exercised............................. (20,800) $ 17.75 - $19.63
------- ----------------
September 30, 1995............................ 655,700 $ 17.75 - $22.00
Options exercised............................. (74,850) $ 17.75 - $22.00
------- ----------------
September 30, 1996............................ 580,850 $ 17.75 - $22.00
Options exercised............................. (78,350) $ 17.75 - $22.00
------- ----------------
September 30, 1997............................ 502,500 $ 17.75 - $22.00
======= ================
On January 1, 1997 the Company adopted the Stock Accumulation Plan for
certain outside Directors of the Company. Its intent is to align the interests
of the outside Directors with the interests of the Company's shareholders by
paying a portion of their annual retainer in common stock of the Company. During
1997, the Company reacquired 1,620 shares for reissuance under this plan.
A Shareholder Rights Plan provides one right ("Right") to buy one share of
common stock at a purchase price of $70 for each share of common stock issued
and to be issued. The Rights expire on November 30, 1999 and only become
exercisable, or separately transferable, 10 days after a person or group
acquires, or announces an intention to acquire, beneficial ownership of 20% or
more of the Company's common stock. The Rights are redeemable by the Board at a
price of $.01 per Right, at any time prior to the acquisition by a person or a
group of beneficial ownership of 20% or more of the Company's common stock. Once
a person or group acquires more than 20% of the Company's common stock, however,
the Rights may not be redeemed.
At September 30, 1997, there were 385,000 authorized but unissued shares of
common stock reserved for the Dividend Reinvestment Plan ("DRP"). On December 1,
1994, the DRP was converted to a market-based plan. It is anticipated that no
further shares will be issued under this plan.
CUMULATIVE PREFERRED STOCK AND LONG-TERM DEBT. The cumulative preferred
stocks rank equally and are preferred over common stock in voluntary liquidation
at the redemption price in effect at the time of such voluntary liquidation and
in involuntary liquidation at the par value per share, in each case plus accrued
dividends, except for the $3.80 Series, $50 par value, which has a voluntary
liquidation value of $83 per share and a set involuntary liquidation value of
$81.50 per share, plus accrued dividends.
24
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SINKING FUND REQUIREMENTS AND MATURITIES. Annual sinking fund requirements
and maturities of long-term debt and preferred stock for the next five years and
thereafter are as follows:
LONG-TERM PREFERRED MAXIMUM
IN THOUSANDS DEBT STOCK CASH REQUIRED
--------- --------------- -------------
1998.................................. $ 5,000 $ 180 $ 5,180
1999.................................. 833 180 1,013
2000.................................. 10,833 143 10,976
2001.................................. 33,833 143 33,976
2002.................................. 53,833 124 53,957
Thereafter............................ 130,168 1,575 131,743
--------- ------- ---------
Total................................. $ 234,500 $ 2,345 $ 236,845
========= ======= =========
As of September 30, 1997, long-term debt agreements contain no provisions
restricting the payment of dividends on common stock. All debt is unsecured.
As of September 30, 1997 and 1996, $18.0 million of long-term debt was
outstanding under revolving credit agreements at weighted average interest rates
of 5.96% and 5.85%, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The estimated fair values of the
Company's financial instruments are as follows:
ESTIMATED
CARRYING FAIR
IN THOUSANDS AMOUNT VALUE
-------- ---------
September 30, 1997
Capital lease obligations............................ $ 694 $ 697
Long-term debt....................................... $234,500 $ 245,619
September 30, 1996
Capital lease obligations............................ $ 1,612 $ 1,621
Long-term debt....................................... $196,500 $ 220,376
The fair values of capital lease obligations are estimated using the
present value of the minimum lease payments discounted at market rates. The fair
values of long-term debt are estimated based on current rates offered to the
Company for debt of the same remaining maturities. The carrying amounts for cash
and temporary cash investments, accounts receivable, accounts payable, accrued
liabilities, and short-term debt approximate their fair values, due to the
short-term nature of these instruments.
25
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4
LEASES
Noncancelable operating and capital leases have been entered into for the
use of certain facilities and equipment. The operating lease agreements
generally contain renewal options. The capital lease relates to a liquefied
natural gas storage facility. Certain leases contain renewal and purchase
options and escalation clauses. Future annual minimum rental payments under
long-term noncancelable leases at September 30, 1997, are as follows:
CAPITAL OPERATING
IN THOUSANDS LEASES LEASES
------- ---------
1998............................................... $ 726 $ 6,930
1999............................................... -- 6,567
2000............................................... -- 5,879
2001............................................... -- 5,642
2002............................................... -- 5,595
Thereafter......................................... -- 21,352
----- -------
Future minimum lease payments...................... 726 $51,965
=======
Less amount representing interest.................. 32
-----
Present value of future minimum lease payments..... $ 694
=====
On May 30, 1997, Bay State completed the purchase, sale, and leaseback of
the Easton LNG facility. The lease is a 15-year operating lease with a number of
early termination options.
On June 30, 1997 Bay State executed a sale and leaseback of its
Westborough, Massachusetts headquarters building. Bay State sold the 88,000
square-foot building and ten acres of land for $10.1 million. The Company then
leased back the building, under an operating lease, with a 15-year term and two
five-year options to extend. In conformity with its regulatory accounting
requirements, rent expense is recorded as if all leases were operating leases.
The following rentals were charged to operating expenses:
CAPITAL OPERATING
IN THOUSANDS LEASES LEASES
------- ---------
1997.............................................. $ 1,096 $10,258
1996.............................................. $ 1,281 $ 8,007
1995.............................................. $ 1,281 $ 5,437
Interest included in capital lease payments was $119,000, $173,000, and
$253,000 in 1997, 1996, and 1995, respectively.
NOTE 5
SHORT-TERM DEBT AND LINES OF CREDIT
IN THOUSANDS 1997 1996
-------- --------
Unsecured bank lines of credit
Principal outstanding (thousands)............. $ 26,625 $ 24,650
Weighted average interest rate................ 6.72% 6.18%
Commercial paper
Principal outstanding (thousands)............. $ 25,000 $ 40,000
Weighted average interest rate................ 5.62% 5.42%
Total short-term debt
Principal outstanding (thousands)............. $ 51,625 $ 64,650
Weighted average interest rate................ 6.19% 5.71%
26
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has unsecured bank lines of credit aggregating $90.0 million
for which it pays commitment fees, and access to an additional $30.0 million
under the Fuel Purchase Agreements as described in note 6.
NOTE 6
FUEL PURCHASE AGREEMENTS
Up to $30.0 million can be raised through credit agreements (the
"Agreements") underlying the Fuel Purchase Agreements with a corporation
established to provide financing, through borrowing on a demand basis or selling
supplemental gas inventories. Any inventories sold must be repurchased and any
associated carrying costs paid when the gas is withdrawn from storage. All gas
costs, carrying costs, and administrative charges are fully recoverable through
the CGA approved in each state regulatory jurisdiction. The Agreements contain
an expiration date of September 2000.
NOTE 7
PENSION AND EMPLOYEE BENEFIT PLANS
PENSION PLANS. The funded status of the Company's pension plans as of
September 30, 1997 and 1996, is as follows:
IN THOUSANDS 1997 1996
-------- --------
Vested benefits.................................... $ 61,060 $ 67,364
Nonvested benefits................................. 978 1,312
-------- --------
Accumulated benefit obligation..................... 62,038 68,676
Additional benefits related to future compensation
levels........................................... 9,138 11,938
-------- --------
Projected benefit obligation....................... 71,176 80,614
Plan assets at fair value.......................... 86,907 92,342
-------- --------
Plan assets in excess of plan benefits
obligation....................................... $ 15,731 $ 11,728
======== ========
Plan assets are primarily invested in marketable pooled funds holding
equity and corporate debt securities and cash equivalents. Plan assets decreased
in 1997 as a result of early retirement benefits paid as part of the Company's
restructuring (see note 8). The majority of early retirees selected the option
of receiving their pension benefits in the form of a lump-sum payment rather
than the traditional pension annuity. Certain changes in items shown above are
not recognized as they occur, but are systematically amortized over subsequent
periods. Unrecognized amounts as of September 30, 1997 and 1996, are as follows:
IN THOUSANDS 1997 1996
------- -------
Unrecognized net gain.............................. $ 9,634 $ 1,970
Unrecognized prior service cost.................... (4,311) (4,480)
Unrecognized net transaction obligation............ (2,683) (3,866)
Prepaid pension costs included in the Consolidated
Balance Sheets................................... 13,091 18,104
------- -------
Plan assets in excess of plan benefit
obligations...................................... $15,731 $11,728
======= =======
27
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The discount rate and expected long-term rate of return on plan assets used
in determining the actuarial present value of projected benefit obligation were
8.0% and 9.0% for both 1997 and 1996. The rate of increase in future
compensation levels used was 4.5% for 1997 and 1996. Net pension cost for 1997,
1996, and 1995 included the following components:
IN THOUSANDS 1997 1996 1995
-------- ------- -------
Service cost-benefits earned.............. $ 1,883 $ 2,052 $ 1,790
Interest cost on benefit obligations...... 5,731 6,292 5,668
Actual return on plan assets.............. (14,753) (8,210) (9,762)
Net amortization and deferral............. 9,242 2,309 4,431
Restructuring - early retirement.......... 4,923 -- --
-------- ------- -------
Net pension cost.......................... $ 7,026 $ 2,443 $ 2,127
======== ======= =======
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The present value of the
accumulated benefit obligation for postretirement benefits other than pensions
was $23.5 million and $24.7 million, at September 30, 1997 and 1996,
respectively. The expense recognized was $6.6 million, $2.6 million, and $2.7
million for 1997, 1996, and 1995, respectively. The components of expense are as
follows:
IN THOUSANDS 1997 1996 1995
------- ------- -------
Interest cost.............................. $ 1,775 $ 1,880 $ 1,872
Service cost............................... 307 453 445
Actual return on plan assets............... (3,649) (2,355) (2,848)
Net amortization........................... 2,352 1,656 2,581
Deferred................................... 1,815 967 613
Restructuring - early retirement........... 3,995 -- --
------- ------- -------
Other postretirement benefit expense....... $ 6,595 $ 2,601 $ 2,663
======= ======= =======
The funded status of the Company's other postretirement benefit plans as of
September 30, 1997 and 1996 is as follows:
IN THOUSANDS 1997 1996
-------- --------
Retirees........................................... $ 12,324 $ 12,511
Fully eligible active employees.................... 3,768 4,165
Other active employees............................. 7,405 7,983
-------- --------
Accumulated other postretirement benefit
obligation....................................... 23,497 24,659
Fair value of plan assets.......................... (25,772) (20,791)
Unrecognized net transition obligation............. (17,025) (21,469)
Unrecognized net gain.............................. 11,548 8,069
-------- --------
Prepaid other postretirement benefits recorded in
the Consolidated Balance Sheets.................. $ 7,752 $ 9,532
======== ========
Plan assets are held in voluntary employee benefit association ("VEBA")
trusts and medical funds in the pension plans. VEBA assets are invested in
common stocks, bonds, and cash equivalents. The accumulated other postretirement
benefit obligation for 1997 and 1996 was determined using an assumed discount
rate of 8.0%, an expected long-term pre-tax rate of return on plan assets of
9.0%, and a health care cost trend rate of 5.0% and 8.0%, in 1997 and 1996,
respectively. An annual 1% increase in the health care cost trend rate would
increase the accumulated postretirement benefit obligation by $2.2 million and
the cost for 1997 by $220,000.
RETURN ON PREPAYMENTS OF POSTRETIREMENT BENEFITS. As permitted by
regulatory authorities, noncash returns of $1.7 million, $1.5 million, and $1.7
million for 1997, 1996, and 1995, respectively, have been recorded on amounts of
prepayments associated with employee postretirement benefit plans other than
pensions. Regulators permit the accrual of returns on these prepayments because
the plan funding will significantly reduce the future costs of the plans.
POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS. The present value of the
accumulated benefit obligation for postemployment benefits other than pensions
was $4.9 million at September 30, 1997 and 1996.
28
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE SAVINGS PLAN. Employee Savings Plans ("ESP") provide eligible
employees with an incentive to save and invest regularly. The ESP are defined
contribution plans, which allow eligible employees to defer a portion of their
salaries to employee-funded pretax retirement savings accounts. Matching
contributions to certain employee deferrals were $1.2 million, $1.3 million, and
$1.2 million in 1997, 1996, and 1995, respectively.
NOTE 8
RESTRUCTURING COSTS
The Company has been restructured in response to deregulation within the
natural gas industry. The Company spent a total of $13.1 million on
restructuring which consisted primarily of early retirement programs for certain
employees, consulting fees, and other related costs. Eighty-six employees
(approximately 8.5% of the workforce) accepted an offer of enhanced retirement
benefits which resulted in $4.9 million in additional pension benefits and $4.0
million in additional medical benefits to be funded by the Company's pension and
VEBA plans. At September 30, 1997, all restructuring costs incurred in the
Massachusetts jurisdiction were expensed, resulting in an $11.2 million charge
to income. These costs had been initially deferred pending regulatory approval
of the Company's petition to amortize these costs over future periods. During
the fourth quarter, the Company withdrew its Massachusetts petition as part of a
negotiated settlement in the Performance-based Rate filing (see note 9). The
September 30, 1997 balance of $1.7 million is deferred for amortization in
future periods in other jurisdictions.
NOTE 9
COMMITMENTS AND CONTINGENCIES
LONG-TERM OBLIGATIONS. The Company has long-term contracts for the
purchase, storage, and transportation 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.
The Company currently transports natural gas imported from Canada through a
converted oil pipeline leased from the Portland Pipe Line Corporation ("PPLC").
PNGTS, a long-term capacity addition, is currently planned by a consortium of
energy investors, including an affiliate of the Company, to provide a permanent
pipe-line link with Canadian gas suppliers. This project has been certificated
by the FERC and plans to provide service by November 1998. As insurance against
a possible delay, the Company has secured an option from PPLC to extend its
lease until April 1999.
INVESTMENT RECOVERY. The following table summarizes the Company's current
investments:
INVESTMENTS
OWNERSHIP ------------------
PERCENTAGE 1997 1996
--------- ------- -------
PNGTS........................................ 17.8% $11,470 $ 7,974
Wells LNG.................................... 100.0% 7,878 7,131
MASSPOWER.................................... -- -- 2,404
Other........................................ -- 34 92
------- -------
Total........................................ $19,382 $17,601
======= =======
PNGTS is an interstate pipeline that will extend 292 miles from the
U.S./Canada border to the New Hampshire-Massachusetts border. The FERC issued a
Certificate of Public Convenience and Necessity for the PNGTS project in
September 1997. The project has secured contracts for service to the New England
market and has received most of its other necessary regulatory approvals. PNGTS
expects to receive final federal and state regulatory authorizations later this
year. In addition, the project is dependent upon approval by the Canadian
National Energy Board ("NEB") of various facilities to accommodate the delivery
of western Canadian natural gas into the PNGTS system at the U.S./Canada border
near Pittsburg, NH. The decision of the NEB is expected to be received in the
Spring of 1998. Subject to regulatory approvals and completion of financing,
PNGTS plans to begin construction in the Spring of 1998, and to provide service
by November 1998.
29
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Wells LNG is a proposed 2 Bcf liquefied natural gas storage facility in
Wells, Maine. In July 1997, the FERC issued a Final Environmental Impact
Statement to the Company determining that the proposed Wells LNG facility would
result in limited adverse environmental impact during construction and
operation. The Company is currently engaged in settlement discussions to resolve
all issues in this FERC certificate proceeding. The project was originally
proposed in November 1994, and has obtained all federal and state environmental
approvals. Because of regulatory delays, completion of the project is not
expected before the winter of 2000.
Additional investments by the Company will be required in 1998 and later
years to complete these projects. Amounts invested in PNGTS and Wells LNG
consist principally of the Company's share of the costs of developing each
project and the carrying costs on these expenditures. Full recovery of these
investments is dependent upon the receipt of satisfactory regulatory treatment.
On June 30, 1997 the Company sold a subsidiary which owned the Company's
17.5% equity investment in MASSPOWER electric cogeneration facility for $17.0
million.
ACQUISITIONS. EnergyUSA(TM) has an agreement to purchase the outstanding
stock of Savage-Alert, Inc. The purchase price, consisting of cash and notes, is
not material to the consolidated financial position of the Company.
ENVIRONMENTAL ISSUES. Like other companies in the natural gas industry,
the Company is 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 (see
note 1). Environmental expenditures for 1997, 1996, and 1995 were $1.2 million,
$2.5 million, and $387,000, respectively. Exclusive of amounts accrued for
future expenditures, at September 30, 1997 and 1996, approximately $4.9 million
and $4.7 million, respectively, of environmental expenditures had been deferred
for future recovery from customers. Deferred environmental costs are being
recovered from customers over five to 10 years.
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. 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.
Bay State is awaiting approval from the MADPU on its Performance-based Rate
filing. The plan provides Bay State with near-term rate recovery of costs
relating to the maintenance of our distribution system and industry unbundling,
while providing customers with a "cap" on prices, and an incentive for Bay State
to lower its future costs.
LITIGATION. The Company is involved in various legal actions and claims
arising in the normal course of business. Based on its current assessment of the
facts of law, and consultations with outside counsel, management does not
believe that the outcome of any action or claim will have a material effect upon
the consolidated financial position, results of operations, or liquidity of the
Company.
30
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10
UNAUDITED QUARTERLY FINANCIAL DATA
QUARTER ENDED
--------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
1997
Operating revenues................................ $ 137,000 $199,879 $84,624 $ 52,078
Operating income (loss)........................... $ 24,759 $ 41,212 $ (526) $(23,741)
Net income (loss)................................. $ 13,204 $ 22,934 $ 6,098 $(16,174)
Per average common share:
Income (loss)................................ $ 0.98 $ 1.70 $ .45(A) $ (1.21)(B)
Dividend declared and paid................... $ .385 $ .385 $ .395 $ .395
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
----------- -------- ------- ------------
1996
Operating revenues................................ $ 132,740 $181,336 $67,737 $ 47,030
Operating income (loss)........................... $ 26,459 $ 40,846 $ (338) $(10,752)
Net income (loss)................................. $ 14,378 $ 23,545 $(2,859) $ (7,992)
Per average common share:
Income (loss)................................ $ 1.07 $ 1.75 $ (.22) $ (.60)
Dividend declared and paid................... $ .375 $ .375 $ .385 $ .385
In the opinion of management, quarterly financial date includes all
adjustments, consisting only of normal recurring accruals, necessary for a fair
representation of such information. Revenue and income amounts vary
significantly due to seasonal weather conditions.
- ---------------
A -- In the third quarter of fiscal year 1997, Bay State sold a subsidiary which
held a 17.5% equity investment in MASSPOWER resulting in a $0.58 per share
gain.
B -- In the fourth quarter of fiscal year 1997, Bay State wrote off previously
deferred restructuring costs resulting in a $0.50 per share loss.
31
19
REPORT OF MANAGEMENT
The management of Bay State Gas Company and its subsidiaries has the
responsibility for preparing the accompanying financial statements. We believe
the financial statements were prepared in conformity with generally accepted
accounting principles. Management also prepared the other information in the
annual report and is responsible for its accuracy and consistency with the
financial statements.
To fulfill its responsibility, management maintains a system of internal
control that has been designed to provide reasonable assurance as to the
integrity and reliability of the financial statements and the safeguarding of
Company assets.
The Company has established statements of corporate policy relating to
conflict of interest and conduct of business and annually receives from
appropriate employees confirmation of compliance with these policies.
The Company's financial statements have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The independent accountants are
elected by the Company's Directors and report any recommendations concerning the
Company's system of internal control to the Audit Committee of the Board of
Directors. The Audit Committee meets periodically with Management, internal
auditors, and KPMG Peat Marwick LLP, to review and monitor the Company's
financial reporting, accounting practices, and business conduct.
Although there are inherent limitations in any system of internal control,
management believes that as of September 30, 1997, the Company's system of
internal control was adequate to accomplish the objectives discussed herein.
Roger A. Young Thomas W. Sherman
Chairman of the Board and Chief Financial Officer
Chief Executive Officer
32
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Bay State Gas Company
We have audited the accompanying consolidated balance sheets and statements
of capitalization of Bay State Gas Company and subsidiaries as of September 30,
1997 and 1996, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the years in the three-year
period ended September 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bay State Gas Company and
subsidiaries at September 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended
September 30, 1997 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 22, 1997
33
21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Directors of the Registrant as set forth on pages
2 and 3 of the 1998 annual meeting proxy statement, dated December 9, 1997, is
incorporated herein by reference. Information relating to the Executive Officers
of the Registrant is contained in Part I, Item 1, Business.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of the Registrant's executive officers
as set forth on pages 8 through 13 of the 1998 annual meeting proxy statement,
dated December 9, 1997, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners
and management as set forth on pages 4 and 5 of the 1998 annual meeting proxy
statement, dated December 9, 1997, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions as set
forth on page 15 of the 1998 annual meeting proxy statement, dated December 9,
1997, is incorporated herein by reference.
34
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THE REPORT:
(1) The following financial statements are included herein under Part II,
Item 8, Financial Statements and Supplementary Data
Consolidated Statements of Earnings for the Years ended September 30, 1997,
1996, and 1995
Consolidated Balance Sheets as of September 30, 1997 and 1996
Consolidated Statements of Capitalization as of September 30, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the Years ended
September 30, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years ended September 30,
1997, 1996, and 1995 Independent Auditors' Report
(2) The following additional data should be read in conjunction with the
financial statements included in Part II, Item 8, Financial Statements
and Supplementary Data. Schedules not included herein have been omitted
because they are not required or are not applicable, or the required
information is shown in such financial statements or notes thereto.
PAGES IN
FORM 10-K
---------
VIII Consolidated Valuation and Qualifying Accounts -- 1997, 1996, and 1995
(3) Exhibits -- See Exhibit index on page 37.
(B) REPORTS ON FORM 8-K:
The Company did not file a report on Form 8-K during the fourth quarter of
fiscal 1997.
35
23
SCHEDULE VIII
BAY STATE GAS COMPANY
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS(A) PERIOD
- -------------------------------------------- ------------ ---------- ------------- ----------
YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts........... $3,557 $6,429 $ 5,848 $4,138
YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts........... $4,232 $5,444 $ 6,119 $3,557
YEAR ENDED SEPTEMBER 30, 1995
Allowance for doubtful accounts........... $5,072 $5,007 $ 5,847 $4,232
- ---------------
(a) Write-off of uncollectible accounts, net of recoveries.
36
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ THOMAS W. SHERMAN
-----------------------------------
THOMAS W. SHERMAN
EXECUTIVE VICE PRESIDENT
Date: December 8, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------------------ ------------------------------- ----------------
/s/ ROGER A. YOUNG Chairman of the Board; Chief December 8, 1997
- ------------------------------------------ Executive Officer; Director
ROGER A. YOUNG
(CHAIRMAN OF THE BOARD)
/s/ JOEL L. SINGER President; Chief Operating December 8, 1997
- ------------------------------------------ Officer; Director
JOEL L. SINGER
(PRESIDENT)
/s/ THOMAS W. SHERMAN Chief Financial and Accounting December 8, 1997
- ------------------------------------------ Officer; Director
THOMAS W. SHERMAN
(EXECUTIVE VICE PRESIDENT)
/s/ LAWRENCE J. FINNEGAN Director December 8, 1997
- ------------------------------------------
LAWRENCE J. FINNEGAN
/s/ DOUGLAS W. HAWES Director December 8, 1997
- ------------------------------------------
DOUGLAS W. HAWES
/s/ WALTER C. IVANCEVIC Director December 8, 1997
- ------------------------------------------
WALTER C. IVANCEVIC
/s/ JOHN H. LARSON Director December 8, 1997
- ------------------------------------------
JOHN H. LARSON
/s/ JACK E. MCGREGOR Director December 8, 1997
- ------------------------------------------
JACK E. MCGREGOR
/s/ DANIEL J. MURPHY III Director December 8, 1997
- ------------------------------------------
DANIEL J. MURPHY III
/s/ GEORGE W. SARNEY Director December 8, 1997
- ------------------------------------------
GEORGE W. SARNEY
/s/ CHARLES H. TENNEY II Director December 8, 1997
- ------------------------------------------
CHARLES H. TENNEY II
37
25
EXHIBIT INDEX
(3) Articles of incorporation and by-laws:
EXHIBIT
NO. DESCRIPTION REFERENCE
- ----------- ---------------------------------------- ----------------------------------------
*3.1 Articles of Incorporation Exhibit 3.1 to Form 10-Q
dated February 9, 1995
(File No. 1-7479)
*3.2 By-Laws, as amended Exhibit 3.2 to Form 10-Q
dated May 2, 1996
(File No. 1-7479)
- ---------------
* Incorporated by reference to the indicated filing.
(4) Instruments defining the rights of security holders, including indentures:
The following is a listing of debt instruments defining the rights of
security holders, including indentures and/or note agreements for Bay State,
Northern, and Granite. None of these instruments represent any securities in an
amount authorized or outstanding which exceeds 10 % of the total assets of the
Company as of September 30, 1997. The Company will furnish the Securities and
Exchange Commission with copies of any of the instruments listed below upon
request.
Revolving Credit Agreement between Northern and The First National Bank of
Boston, to borrow up to $20,000,000, dated as of March 17, 1997, due March 17,
2001.
Indenture between Bay State and The First National Bank of Boston, Trustee,
dated as of April 1, 1991, for Senior Unsecured Debt Securities under which the
following Notes have been issued under a Prospectus dated April 18, 1991:
- - $8,500,000 Principal Amount of 9.20% Notes due June 6, 2011
- - $25,000,000 Principal Amount of 9.45% Notes due September 5, 2031
- - $12,000,000 Principal Amount of 8.15% Notes due August 26, 2022
- - $4,000,000 Principal Amount of 7.55% Notes due November 1, 2002
- - $1,000,000 Principal Amount of 7.55% Notes due October 2, 2002
- - $5,000,000 Principal Amount of 7.45% Notes due December 16, 2002
- - $5,000,000 Principal Amount of 7.38% Notes due December 31, 2002
- - $7,000,000 Principal Amount of 7.375% Notes due November 1, 2002
- - $1,000,000 Principal Amount of 7.375% Notes due December 31, 2002
- - $5,000,000 Principal Amount of 7.37% Notes due December 31, 2002
- - $20,000,000 Principal Amount of 7.25% Notes due August 5, 2002
Indenture between Bay State and The First National Bank of Boston, Trustee,
dated as of April 1, 1991, for Senior Unsecured Debt Securities under which the
following Notes have been issued under a Prospectus dated April 7, 1993:
- - $10,000,000 Principal Amount of 7.42% Notes due September 10, 2001
- - $10,000,000 Principal Amount of 7.625% Notes due June 19, 2023
- - $10,000,000 Principal Amount of 6.0% Notes due July 6, 2000
- - $15,000,000 Principal Amount of 6.0% Notes due September 29, 2003
- - $10,000,000 Principal Amount of 6.58% Notes due June 21, 2005
- - $5,000,000 Principal Amount of 6.0% Notes due January 30, 2001
- - $5,000,000 Principal Amount of 6.625% Notes due June 28, 2002
- - $10,000,000 Principal Amount of 6.43% Notes due December 15, 2025
- - $20,000,000 Principal Amount of 6.375% Notes due December 15, 2006
38
26
Note Purchase Agreement between Northern and First Colony Life Insurance
for the purchase and sale of $13,000,000 principal amount of 9.70% Notes dated
as of January 1, 1992, due September 1, 2031.
Note Purchase Agreement between Northern and the Mutual Life Insurance
Company of New York for the purchase and sale of $10,000,000 principal amount of
6.93% Notes dated as of September 29, 1996, due September 27, 2010.
Note Purchase Agreement between Northern and the Mutual Life Insurance
Company of New York for the purchase and sale of $5,000,000 principal amount of
6.30% Notes dated as of September 29, 1996, due September 30, 1998.
(10) Material contracts:
EXHIBIT
NO. DESCRIPTION REFERENCE
- ------- ----------------------------------------------------- ------------------------------
*10.01 Key Employee Stock Option Plan covering key employees
of the Company....................................... Exhibit 10.16 to Form 10-K for
1989 (File No. 1-7479)
*10.02 Key Employee Deferred Compensation Plan covering the
Chairman of the Board of Directors, the President,
and Vice Presidents of the Company................... Exhibit 10.21 to Form 10-K for
1992 (File No. 1-7479)
*10.03 Supplemental Executive Retirement Plan covering the
Chairman of the Board of Directors, the President,
and Vice Presidents of the Company................... Exhibit 10.22 to Form 10-K for
1992 (File No. 1-7479)
*10.04 Senior Advisory Agreement between Bay State and
Charles H. Tenney II, dated January 27, 1995......... Exhibit 10.05 to Form 10-K for
1996 (File No. 1-7479)
10.05 Severance agreements between Bay State and each of
the executive officers of the Company................ Filed herewith
*10.06 Directors' Retirement Plan........................... Exhibit 10.07 to Form 10-K for
1995 (File No. 1-7479)
*10.07 Stock Performance Sharing Plan (formerly Key Employee
Long-term Incentive Plan)............................ Filed herewith
*10.08 Stock Accumulation Plan for Outside Directors........ Filed herewith
(11) Statement re: computation of per share earnings, filed herewith.
(12) Statement re: computation of ratio of earnings to fixed charges, filed
herewith.
(21) Subsidiaries of the Registrant, filed herewith.
(23) Consent of Independent Auditors, filed herewith.
(27) Financial Data Schedule, filed herewith.
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* Incorporated by reference to the indicated filing.
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