<PAGE> 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, 1995
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.
<TABLE>
<CAPTION>
Class Outstanding at January 31, 1996
----- -------------------------------
<S> <C>
Common Stock, $3.33 1/3 par value 13,379,394 Shares
</TABLE>
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings - Three months and
twelve months ended December 31, 1995 and 1994.................... 3
Consolidated Balance Sheets at December 31, 1995, 1994
and September 30, 1995............................................ 4
Consolidated Statements of Capitalization at December 31,
1995, 1994 and September 30, 1995................................. 5
Consolidated Statements of Cash Flows - Three months and
twelve months ended December 31, 1995 and 1994.................... 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........................................... 14
Item 2. Changes in Securities....................................... 14
Item 3. Defaults Upon Senior Securities............................. 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Item 5. Other Information........................................... 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
SIGNATURES........................................................... 16
</TABLE>
<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BAY STATE GAS COMPANY
Consolidated Statements of Earnings
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31, December 31,
1995 1994 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Local transportation $ 54,648 $ 47,437 $167,773 $162,559
Energy products and services:
Natural gas sales 70,425 66,599 239,096 260,468
Other energy products and services 7,652 5,253 24,688 20,222
- ------------------------------------------------------------------------------------------
Total energy products and services 78,077 71,852 263,784 280,690
- ------------------------------------------------------------------------------------------
Total operating revenues 132,725 119,289 431,557 443,249
- ------------------------------------------------------------------------------------------
Operating expenses:
Recovered natural gas costs 70,425 66,599 239,096 260,468
Operations 24,021 20,756 87,341 87,135
Maintenance 2,360 2,133 8,772 8,774
Depreciation and amortization 6,294 6,465 25,856 24,477
Other taxes, principally property taxes 3,167 2,717 11,810 11,456
- ------------------------------------------------------------------------------------------
Total operating expenses 106,267 98,670 372,875 392,310
- ------------------------------------------------------------------------------------------
Operating income 26,458 20,619 58,682 50,939
- ------------------------------------------------------------------------------------------
Other income (expense)
Income from investments in energy ventures 215 171 296 188
Interest income and other 592 324 1,895 1,932
Interest expense (4,037) (3,931) (17,125) (15,323)
- ------------------------------------------------------------------------------------------
Total other income (expense) (3,230) (3,436) (14,934) (13,203)
- ------------------------------------------------------------------------------------------
Income before income taxes 23,228 17,183 43,748 37,736
- ------------------------------------------------------------------------------------------
Federal and state taxes on income 8,850 6,706 16,719 14,572
- ------------------------------------------------------------------------------------------
Net income 14,378 10,477 27,029 23,164
Dividend requirements on preferred stock 74 76 297 308
- ------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK 14,304 10,401 26,732 22,856
- ------------------------------------------------------------------------------------------
Average number of common shares outstanding 13,363 13,330 13,350 13,184
- ------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ 1.07 $ 0.78 $ 2.00 $ 1.73
- ------------------------------------------------------------------------------------------
DIVIDENDS DECLARED PER COMMON SHARE $ 0.375 $ 0.365 $ 1.49 $ 1.45
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
BAY STATE GAS COMPANY
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1994 1995
- --------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS
Plant, at cost $668,506 $651,574 $683,347
Accumulated depreciation and amortization 184,017 170,380 184,942
- --------------------------------------------------------------------------------------------
Net plant 484,489 481,194 498,405
- --------------------------------------------------------------------------------------------
Investments in energy ventures (note 2) 11,346 6,133 9,768
Prepaid benefit plans 24,838 21,843 21,470
Other long term assets 9,322 10,507 8,898
Current assets:
Cash and temporary cash investments 5,182 4,220 2,759
Accounts receivable, less allowances of $5,182, $4,559
and $4,232 52,208 46,589 22,066
Unbilled revenues 12,145 9,953 3,747
Deferred gas costs 14,232 21,720 13,190
Inventories, at average cost 17,681 23,729 19,327
Other 6,241 5,624 5,797
- --------------------------------------------------------------------------------------------
Total current assets 107,689 111,835 66,886
- --------------------------------------------------------------------------------------------
Regulatory assets:
Income taxes 12,345 11,067 10,595
Other 15,627 12,302 14,333
- --------------------------------------------------------------------------------------------
$665,656 $654,881 $630,355
- --------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
Capitalization (see accompanying statements):
Common stock equity $229,572 $222,018 $219,873
Preferred stock equity 5,144 5,293 5,149
Long-term debt 214,500 193,000 199,000
- --------------------------------------------------------------------------------------------
Total capitalization 449,216 420,311 424,022
- --------------------------------------------------------------------------------------------
Long-term liabilities:
Deferred taxes 78,379 72,210 73,329
Other long-term liabilities 15,328 13,721 15,401
- --------------------------------------------------------------------------------------------
Total long-term liabilities 93,707 85,931 88,730
- --------------------------------------------------------------------------------------------
Commitments and contingencies (note 2)
Current liabilities:
Short-term debt 33,950 53,625 31,500
Accounts payable 43,796 36,302 28,704
Fuel purchase commitments 14,165 20,500 15,801
Refunds due customers 16,158 24,097 28,928
Deferred and accrued taxes 6,960 6,921 4,677
Other 7,704 7,194 7,993
- --------------------------------------------------------------------------------------------
Total current liabilities 122,733 148,639 117,603
- --------------------------------------------------------------------------------------------
$665,656 $654,881 $630,355
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE> 5
BAY STATE GAS COMPANY
Consolidated Statements of Capitalization
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1994 1995
- -------------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C> <C>
Common stock equity:
Common Stock, $3.33 1/3 par value, authorized 36,000,000
shares; 13,377,394, 13,337,794 and 13,353,394 shares
outstanding $ 44,558 $ 44,459 $ 44,511
Paid-in capital 100,695 100,083 100,339
Retained earnings 84,319 77,476 75,023
- -------------------------------------------------------------------------------------------
Total common stock equity 229,572 222,018 219,873
- -------------------------------------------------------------------------------------------
Cumulative preferred stock:
Non-redeemable cumulative preferred stock 2,572 2,572 2,572
Redeemable cumulative preferred stock 2,572 2,721 2,577
- -------------------------------------------------------------------------------------------
Total cumulative preferred stock 5,144 5,293 5,149
- -------------------------------------------------------------------------------------------
Long-term debt:
Revolving credit agreement 13,000 20,000 6,000
Notes 201,500 173,000 193,000
- -------------------------------------------------------------------------------------------
Total long-term debt 214,500 193,000 199,000
- -------------------------------------------------------------------------------------------
Total capitalization $449,216 $420,311 $424,022
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE> 6
BAY STATE GAS COMPANY
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31, December 31,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,378 $ 10,477 $ 27,029 $ 23,164
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,294 6,465 25,856 24,477
Deferred income taxes (284) 3,872 2,750 9,598
Dividends from investment in MASSPOWER -- -- 859 --
Changes in operating assets and liabilities:
Accounts receivable (30,142) (21,096) (5,619) 9,933
Unbilled revenues (8,398) (6,292) (2,192) 1,433
Accounts payable 15,092 9,008 7,494 (4,094)
Deferred and accrued taxes 5,867 273 2,180 (8,760)
Deferred gas costs and refunds due customers (13,812) (869) (451) 23,183
Prepayments and other (8,429) 3,066 (8,112) (5,286)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (19,434) 4,904 49,794 73,648
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant (excluding AFUDC) (10,710) (18,515) (45,924) (55,682)
Proceeds from sale of rental assets (see note 3) 20,667 -- 20,667 --
Investments in energy ventures (1,363) (175) (5,774) (589)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 8,594 (18,690) (31,031) (56,271)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 403 1,095 711 8,417
Dividends on common stock (5,011) (4,868) (19,891) (19,110)
Dividends on preferred stock (74) (76) (297) (308)
Issuance of long-term debt 17,000 2,000 30,000 17,000
Retirements of preferred stock and long-term debt (1,505) -- (8,649) (14,099)
Short-term debt 2,450 15,875 (19,675) (7,375)
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 13,263 14,026 (17,801) (15,475)
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS 2,423 240 962 1,902
Cash and temporary cash investments at beginning of
period 2,759 3,980 4,220 2,318
- ---------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 5,182 $ 4,220 $ 5,182 $ 4,220
- ---------------------------------------------------------------------------------------------------
Cash paid during the year for:
Interest (net of amount capitalized) $ 6,606 $ 4,972 $ 18,922 $ 13,009
- ---------------------------------------------------------------------------------------------------
Income taxes $ 3,003 $ 1,046 $ 10,677 $ 9,105
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE> 7
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(Unaudited)
NOTE 1 - ACCOUNTING POLICY
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles. In the opinion of management, the consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position, results of operations and
cash flows for all periods shown. Certain information in the prior period
financial statements has been reclassified to conform with the current period's
presentation. It is suggested that these financial statements and accompanying
notes be read in conjunction with the financial statements and the notes
included in the Company's annual report to shareholders for the year ended
September 30, 1995.
Because of the seasonal nature of the Company's business, the results of
operations for the three months ended December 31, 1995 and 1994 are not
necessarily indicative of the results for the full fiscal year.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
CAPACITY REQUIREMENTS. The Company currently transports natural gas imported
from Canada through a converted oil pipeline leased from the Portland Pipe Line
Corporation ("PPLC"). An agreement in principle has been reached with PPLC that
will extend the lease from March 31, 1997 to April 30, 1998. Long-term, two
projects to replace the pipeline capacity provided by the PPLC lease are being
pursued, a 2.0 million MMBtu liquefied natural gas ("LNG") storage facility in
Wells, Maine ("Wells LNG") and the Portland Natural Gas Transmission System
("PNGTS").
INVESTMENT RECOVERY. The following table summarizes the Company's current
investment in energy ventures:
<TABLE>
<CAPTION>
Ownership Investments at December 31,
percentages 1995 1994
-----------------------------------------------------------------
<S> <C> <C> <C>
MASSPOWER 17.5% 2,639 3,128
PNGTS 29.0% 4,165 2,622
Wells LNG 100.0% 4,418 349
KBC 33.3% 51 --
Other -- 73 34
-----------------------------------------------------------------
Total 11,346 6,133
-----------------------------------------------------------------
</TABLE>
PNGTS is an interstate pipeline that will extend 250 miles from the US-Canadian
border to the New Hampshire-Massachusetts border. In January 1996, PNGTS reached
an agreement in principle to sell 40% of the partnership to two new equity
partners, who will be shippers on the completed pipeline. This sale will reduce
the Company's ownership percentage to 18%. In March, 1996, PNGTS plans to file
an application with the Federal Energy Regulatory Commission ("FERC") for
approval to construct and operate the pipeline. The Company has filed the
precedent agreements for Wells LNG and PNGTS, the timing and receipt of the
required approvals cannot be predicted with certainty at this time. Such
agreements are subject to state regulatory review and approval processes in
Massachusetts, Maine, and New Hampshire. In January 1996, the FERC issued a
Draft Environmental Impact Statement which found that the Wells LNG project
could be built and operated safely without significant environmental impact.
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. Recovery of these expenditures is dependent upon, among
other things, successful completion of the projects and the terms of required
regulatory approvals. While the Company believes that these projects will be
successful, their completion is subject to a number of
Page 7
<PAGE> 8
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(Unaudited)
factors beyond the Company's control. Both of these projects are scheduled to be
completed and available for service in November 1998.
KBC Energy Services ("KBC") is a partnership with Connecticut Natural Gas
Corporation and Koch Gas Services Company, which markets natural gas supplies
and energy-related services on a non-regulated basis to commercial and
industrial end-users. MASSPOWER is a cogeneration facility which has been in
operation since 1993.
LONG-TERM OBLIGATIONS. The company has long-term contracts for the purchase,
storage, and delivery of gas supplies. Certain of these contracts contain
minimum purchase provisions which, in the opinion of management, are not in
excess of the Company's requirements.
ENVIRONMENTAL ISSUES. Like other companies in the natural gas industry, the
Company is a party to governmental actions associated with former gas
manufacturing sites. Management estimates that, exclusive of insurance
recoveries, if any, expenditures to remediate and monitor known environmental
sites will range from $3.9 million to $10.0 million. Accordingly, the Company
has accrued $3.9 million with an offsetting charge to a regulatory asset.
Environmental expenditures for the quarter ended December 31, 1995 and 1994 were
$614,000 and $169,000, respectively. Exclusive of amounts accrued for future
expenditures, at December 31, 1995 and 1994, approximately $3.4 million and $3.0
million, respectively, of environmental expenditures had been deferred for
future recovery from customers. Deferred costs are being recovered from
customers over seven to ten years.
REGULATORY MATTERS. On December 22, 1995, the Massachusetts Department of Public
Utilities approved the Company's overall revenue-neutral rate redesign, allowing
the implementation of rates that more closely reflect the actual costs
associated with serving different customers. New rates became effective January
1, 1996.
Significant regulatory assets arising from the rate-making process associated
with income taxes, employee benefits, and environmental response costs have been
recorded. Based on its assessments of decisions by regulatory authorities,
management believes that all regulatory assets will be settled at recorded
amounts through specific provisions of current and future rate orders.
LITIGATION. The Company is involved in various legal actions and claims arising
in the normal course of business. Management does not believe that the outcome
of any action or claim will have a material adverse effect upon the consolidated
financial position, results of operations, or liquidity of the Company.
NOTE 3 - SALE OF RENTAL ASSETS
On October 31, 1995, the Company sold certain equipment leased to its customers,
consisting of water heaters and conversion burners located in Massachusetts, for
$20.7 million. The Company then leased back those assets from the purchaser,
under an operating lease, which requires monthly lease payments of $282,000,
having a seven-year term, and with several earlier buy-out periods. The Company
then subleased the rental assets to a non-regulated subsidiary, Energy Asset
Funding ("EAF"). Under contract from EAF, the company continues to install,
service, bill, and collect revenue from rental customers. The gain on the
sale-leaseback transaction of $462,000 is being recognized over the term of the
lease.
Page 8
<PAGE> 9
NOTE 4 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the twelve months ended December 31,
1995, and for the years ended September 30 are set forth below.
<TABLE>
<CAPTION>
Year ended September 30
December ----------------------------------------------------
(Dollars in thousands) 1995 1995 1994 1993 1992 1991
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $27,029 $23,128 $24,485 $22,807 $18,363 $15,817
Adjustments:
Income taxes 16,719 14,575 15,642 13,726 11,250 8,733
Fixed charges (see below) 19,812 19,365 17,359 15,906 15,170 14,832
---------------------------------------------------------------
Total adjusted earnings $63,560 $57,068 $57,486 $52,439 $44,783 $39,382
===============================================================
Fixed charges:
Total interest expense $17,560 $17,300 $15,305 $13,610 $13,073 $12,253
Interest component of rents 2,252 2,065 2,054 2,296 2,097 2,579
---------------------------------------------------------------
Total fixed charges $19,812 $19,365 $17,359 $15,906 $15,170 $14,832
===============================================================
Ratio of earnings to fixed charges 3.21 2.95 3.31 3.30 2.95 2.66
===============================================================
</TABLE>
Page 9
<PAGE> 10
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, 1995
and 1994, 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, 1995, and the related
consolidated statements of earnings and cash flows for the year then ended (not
presented herein); and, in our report dated October 24, 1995, we expressed an
unqualified opinion on those consolidated financial statements.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 23, 1996
Page 10
<PAGE> 11
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, 1995, operating revenues were $132.7
million, up from $119.3 million in the prior year, while net income per average
common share was $1.07 versus $.78 a year earlier. Earnings per share improved
primarily due to a $7.2 million increase in local transportation revenues, which
resulted primarily from weather that was 18% colder than the year earlier.
Partially offsetting the positive effect of the weather for the three-month
period were increases in operating and maintenance expenses of 15%.
For the twelve-month period ended December 31, 1995, earnings per average common
share were $2.00 compared to $1.73 for the same period the year before. This
increase in earnings for this period was primarily the result of the addition of
6,100 new customers.
Dividends declared per common share were $.375 for the three-month period ended
December 31, 1995, compared to $.365 for the same period last year. This
quarterly dividend represents an annualized dividend rate of $1.50 per common
share, up from the $1.46 annualized dividend last year. For the twelve-month
period ended December 31, 1995, dividends declared were $1.49, compared to $1.45
for the same period in the prior year.
Local transportation revenues
The following table details the components of local transportation revenues:
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31, December 31,
In millions 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transportation only customers $ 1,451 $ 1,021 $ 4,740 $ 2,928
Transportation for natural gas sales customers 53,197 46,416 163,033 159,631
- ---------------------------------------------------------------------------------------
Total $54,648 $47,437 $167,773 $162,559
- ---------------------------------------------------------------------------------------
</TABLE>
Primarily as the result of colder weather and customer additions, local
transportation revenues increased for the three months 15.2% from one year ago.
For the three-month period ended December 31, 1995, the weather was 4% colder
than normal and 18% colder than the comparative period in 1994. For the twelve
months ended December 31, 1995, net revenues were positively impacted 3.2%
primarily due to the addition of 6,100 new customers.
Other energy products and services
For the three-month period ended December 31, 1995, natural gas sales revenues
grew by 5.7%, primarily due to the colder than normal weather. In the twelve
month period ended December 31, 1995, revenues from natural gas sales decreased
8.2% due to reductions in natural gas per unit prices during the early part of
1995. Revenues from other energy products and services grew by 46% and 22% for
the three- and twelve- month periods, respectively. This increase is primarily
the result of increased sales of retail propane (due to the colder than normal
weather), increases in equipment rental revenues, and increases in customer
service revenues. Equipment rental revenues rose primarily due to price
increases made in March 1995. Customer service revenues rose due to the
introduction of new services and price increases for existing products and
services.
Page 11
<PAGE> 12
Operating expenses
Total operating expenses, for the three months ended December 31, 1995 were
$106.3 million, compared to $98.7 million for the prior year. The increase is
primarily attributable to the increase in fuel costs and bad debts, resulting
from increased sales, increased customer service expenses and the new rental
asset lease expense (see note 3). The decrease in depreciation for the three
month period is the result of the sale and lease back of certain rental assets
(see note 3). Operating expenses for the twelve-month period ended December 31,
1995 were $372.8 million, compared to $392.3 million for the prior twelve
months. Operating expenses for the twelve-months were consistent with the prior
year, except for a reduction in natural gas costs caused primarily by a decline
in per unit prices in early 1995.
Income from investments in energy ventures
The following table details the components of income (loss) from investments in
energy ventures:
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31, December 31,
<S> <C> <C> <C> <C>
In thousands 1995 1994 1995 1994
- -------------------------------------------------------------------------------------
MASSPOWER $245 $171 $370 $188
KBC (30) -- (74) --
- -------------------------------------------------------------------------------------
Total $215 $171 $296 $188
- -------------------------------------------------------------------------------------
</TABLE>
Bay State has operating results from two investments in energy ventures:
MASSPOWER, a cogeneration facility, and KBC Energy Services ("KBC"), a
partnership with Connecticut Natural Gas Corporation and Koch Gas Services
Company, which markets natural gas supplies and energy-related services on a
non-regulated basis to commercial and industrial end-users.
Interest expense and dividend requirements on preferred stock
Interest expense for the three-month period ended December 31, 1995 was $4.0
million, compared to $3.9 million for the same period last year. For the twelve
months ended December 31, 1995, interest expense was $17.1 million, compared to
$15.3 million for 1994. The increase in interest expense for both periods was
primarily the result of an additional $21.5 million in long-term debt issued
during 1995, partially offset by lower short-term interest rates.
Dividend requirements on preferred stock were relatively flat for the
comparative periods.
Outlook: issues and risks
This report and other company reports and statements describe many of the
positive factors affecting the company's future business prospects. Investors
should also be aware of factors which could have a negative impact on these
prospects. These factors include, but are not limited to, weather which is
warmer or colder than normal, the regulatory environment, and interest rate
fluctuations.
Page 12
<PAGE> 13
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.
For the twelve-month periods, cash flows from operations and proceeds from the
sale of rental assets (see note 3) have enabled the Company to keep new debt
financing to a minimum. During the month of December, $10.0 million of 6.43%
medium term notes were issued. Total net short-term debt is down approximately
$20 million from December 31, 1994 to December 31, 1995. Cash flows from
operating activities have decreased over the three month- and twelve month-
periods ending December 31, 1995, primarily due to the result of increasing
accounts receivable balances, deferred gas costs, and increases in unbilled
revenues all related to the colder weather and higher revenues recorded during
the first quarter of fiscal 1996.
Primarily as a result of planned spending reductions, capital expenditures for
plant decreased by $7.8 million for the three-month period and $9.8 million for
the twelve-month period ended December 31, 1995, as compared to the year before.
As a result, total capital expenditures for fiscal 1996 are projected to be
somewhat less than the original forecast of $53 million.
Page 13
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no material legal proceedings instituted in the first
quarter of 1996, and there were no material developments during the
quarter in legal proceedings disclosed in previous filings.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
On December 7, 1995, 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 25, 1996, shareholders approved
the following items :
1. To elect the following director for a term of two years
expiring at the annual meeting of shareholders in 1998:
<TABLE>
<CAPTION>
Nominee Joel L. Singer
<S> <C>
Votes for: 11,398,473
Votes against or withheld: 222,579
Abstentions: None
Broker non-votes: None
</TABLE>
2. To elect the following four directors for terms of three years
expiring at the annual meeting of shareholders in 1999:
<TABLE>
<CAPTION>
Nominee Lawrence J. Finnegan Douglas W. Hawes
<S> <C> <C>
Votes for: 11,403,788 11,392,392
Votes against or withheld: 217,264 228,660
Abstentions: None None
Broker non-votes: None None
<CAPTION>
Nominee Daniel J. Murphy III Roger A. Young
<S> <C> <C>
Votes for: 11,402,170 11,398,903
Votes against or withheld: 228,882 222,149
Abstentions: None None
Broker non-votes: None None
</TABLE>
Page 14
<PAGE> 15
Directors with continuing terms of office are as follows: Walter C. Invancevic,
John H. Larson, Jack E. McGregor, George W. Sarney, Thomas W. Sherman, and
Charles H. Tenney II.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
15. Consent of KPMG Peat Marwick LLP re: Registration Statement
No. 33-57702
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1995.
Page 15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAY STATE GAS COMPANY
----------------------------------
(Registrant)
By: /s/Thomas W. Sherman
----------------------------------
Thomas W. Sherman
Executive Vice President and Chief
Financial and Accounting Officer
By: /s/Stephen J. Curran
----------------------------------
Stephen J. Curran
Controller
Date: February 8, 1996
Page 16
<PAGE> 1
EXHIBIT 15
The Board of Directors
Bay State Gas Company
Gentlemen:
Re: Registration Statement No. 33-57702
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated January 23, 1996 related to our review of
interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 8, 1996
Page 17
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