<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 JUNE 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
incorporation or organization) Identification No.)
300 Friberg Parkway, Westborough, Massachusetts 01581-5039 (508/836-7000)
(Address and telephone number of principal executive offices)
-----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
----- ----------------------------
Common Stock, $3.33 1/3 par value 13,481,474 Shares
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings - Three months, nine months,
and twelve months ended June 30, 1997 and 1996 ...................... 3
Consolidated Balance Sheets at June 30, 1997, 1996
and September 30, 1996 .............................................. 5
Consolidated Statements of Capitalization at June 30,
1997, 1996 and September 30, 1996 ................................... 6
Consolidated Statements of Cash Flows - Nine months and
twelve months ended June 30, 1997 and 1996 .......................... 7
Notes to Consolidated Financial Statements .......................... 8
Independent Auditors' Report ........................................ 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 16
Item 2. Changes in Securities ........................................ 16
Item 3. Defaults Upon Senior Securities .............................. 16
Item 4. Submission of Matters to a Vote of Security Holders .......... 16
Item 5. Other Information ............................................ 16
Item 6. Exhibits and Reports on Form 8-K ............................. 16
SIGNATURES ............................................................ 17
<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 Nine months ended
June 30, June 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues: $84,624 $67,737 $421,580 $381,818
Operating expenses:
Recovered natural gas costs 47,656 34,428 238,233 203,095
Operations 24,402 21,363 78,337 74,645
Maintenance 2,595 2,616 7,905 7,853
Depreciation and amortization 7,374 6,619 21,525 19,519
Other taxes, principally property 3,123 3,049 10,134 9,739
- -----------------------------------------------------------------------------------------------
Total operating expenses 85,150 68,075 356,134 314,851
- -----------------------------------------------------------------------------------------------
Operating income (loss) (526) (338) 65,446 66,967
- -----------------------------------------------------------------------------------------------
Other income:
Income from sale of MASSPOWER 13,283 -- 13,283 --
Income from investments 881 719 2,304 2,340
AFUDC and other 1,680 362 2,375 1,183
- -----------------------------------------------------------------------------------------------
Income before interest and taxes 15,318 743 83,408 70,490
- -----------------------------------------------------------------------------------------------
Interest income (31) (104) (256) (349)
Interest expense 4,990 4,412 13,867 12,939
Federal and state taxes on income 4,261 (706) 27,561 22,836
- -----------------------------------------------------------------------------------------------
Net income (loss) 6,098 (2,859) 42,236 35,064
Dividend requirements on preferred stock 72 73 216 222
- -----------------------------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 6,026 $(2,932) $ 42,020 $ 34,842
===============================================================================================
Average number of shares outstanding 13,450 13,409 13,443 13,390
===============================================================================================
EARNINGS (LOSS) PER SHARE $ 0.45 $ (0.22) $ 3.13 $ 2.60
===============================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.395 $ 0.385 $ 1.165 $ 1.135
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Twelve months ended
June 30,
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Operating revenues: $468,573 $430,691
Operating expenses:
Recovered natural gas costs 261,975 228,463
Operations 99,975 93,997
Maintenance 10,445 9,798
Depreciation and amortization 28,318 26,022
Other taxes, principally property 13,136 12,423
- ----------------------------------------------------------------------------
Total operating expenses 413,849 370,703
- ----------------------------------------------------------------------------
Operating income 54,724 59,988
- ----------------------------------------------------------------------------
Other income:
Income from sale of MASSPOWER 13,283 --
Income from investments 2,466 2,112
AFUDC and other 2,785 1,411
- ----------------------------------------------------------------------------
Income before interest and taxes 73,258 63,511
- ----------------------------------------------------------------------------
Interest income (354) (468)
Interest expense 17,690 17,177
Federal and state taxes on income 21,678 18,173
- ----------------------------------------------------------------------------
Net income 34,244 28,629
Dividend requirements on preferred stock 288 294
- ----------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 33,956 $ 28,335
============================================================================
Average number of shares outstanding 13,437 13,380
============================================================================
EARNINGS PER SHARE $ 2.53 $ 2.12
============================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 1.55 $ 1.51
============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE> 5
BAY STATE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996 1996
- -----------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS:
Plant, at cost $722,142 $686,297 $701,204
Accumulated depreciation & amortization 211,958 193,759 198,389
- -----------------------------------------------------------------------------------
Net plant 510,184 492,538 502,815
- -----------------------------------------------------------------------------------
Investments (note 2) 18,124 17,054 17,601
Prepaid benefit plans 18,361 24,467 26,733
Other long-term assets 8,731 10,448 9,697
Current assets:
Cash and temporary cash investments 4,962 4,230 4,583
Accounts receivable, less allowances of
$6,526, $5,379 and $3,557 51,258 40,914 27,143
Unbilled revenues 3,669 3,644 3,709
Deferred gas costs 22,282 18,450 27,447
Inventories, at average cost 25,320 20,416 24,699
Other 5,326 5,639 6,059
- -----------------------------------------------------------------------------------
Total current assets 112,817 93,293 93,640
- -----------------------------------------------------------------------------------
Regulatory assets:
Income taxes 10,866 11,948 12,105
Other 32,682 20,474 21,662
- -----------------------------------------------------------------------------------
$711,765 $670,222 $684,253
===================================================================================
CAPITALIZATION & LIABILITIES:
Capitalization
Common stock equity $255,467 $240,843 $227,986
Preferred stock equity 4,986 5,033 5,009
Long-term debt, net 234,500 209,500 196,500
- -----------------------------------------------------------------------------------
Total capitalization 494,953 455,376 429,495
- -----------------------------------------------------------------------------------
Long-term liabilities:
Deferred taxes 80,421 75,391 80,854
Other long-term liabilities 14,571 17,445 16,650
- -----------------------------------------------------------------------------------
Total long-term liabilities 94,992 92,836 97,504
- -----------------------------------------------------------------------------------
Commitments and contingencies (note 2)
Current liabilities:
Short-term debt 14,000 31,750 64,650
Current maturities of long-term debt -- -- 18,000
Accounts payable 37,403 33,435 31,858
Fuel purchase commitments 15,212 13,171 21,332
Refunds due customers 26,719 21,607 10,427
Deferred and accrued taxes 20,582 14,311 3,174
Other 7,904 7,736 7,813
- -----------------------------------------------------------------------------------
Total current liabilities 121,820 122,010 157,254
- -----------------------------------------------------------------------------------
$711,765 $670,222 $684,253
===================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE> 6
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996 1996
- --------------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C> <C>
Common stock equity:
Common stock, $3.33 1/3 par value, authorized
36,000,000 shares; 13,480,474, 13,412,244 and
13,428,244 shares outstanding $ 44,940 $ 44,707 $ 44,761
Paid-in-capital 102,727 101,467 101,784
Retained earnings 107,800 94,669 81,441
- ---------------------------------------------------------------------------------------
Total common stock equity 255,467 240,843 227,986
- ---------------------------------------------------------------------------------------
Cumulative preferred stock:
Non-redeemable cumulative preferred stock 2,572 2,572 2,572
Redeemable cumulative preferred stock 2,414 2,461 2,437
- ---------------------------------------------------------------------------------------
Total cumulative preferred stock 4,986 5,033 5,009
- ---------------------------------------------------------------------------------------
Long-term debt:
Revolving credit agreement 18,000 13,000 18,000
Notes 216,500 196,500 196,500
- ---------------------------------------------------------------------------------------
Total long-term debt 234,500 209,500 214,500
Less current maturities of long-term debt -- -- 18,000
- ---------------------------------------------------------------------------------------
Long-term debt, net 234,500 209,500 196,500
- ---------------------------------------------------------------------------------------
TOTAL CAPITALIZATION $494,953 $455,376 $429,495
=======================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE> 7
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine months ended Twelve months ended
June 30, June 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,236 $ 35,064 $ 34,244 $ 28,629
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 21,525 19,519 28,318 26,022
Deferred income taxes (495) 628 5,620 1,735
Gain from sale of MASSPOWER (7,829) -- (7,829) --
Investment income and AFUDC (2,239) (2,871) (7,196) (3,449)
Changes in operating assets and liabilities:
Accounts receivable (24,115) (18,670) (10,344) 3,386
Accounts payable 5,285 4,270 3,708 5,893
Taxes 13,255 9,556 1,309 1,148
Deferred gas costs and refunds due customers 21,457 (12,581) 1,280 (34,426)
Prepaid benefit plans 8,372 (2,997) 6,106 (4,555)
Other (19,471) (11,094) (15,517) (13,246)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 57,981 20,824 39,699 11,137
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant (38,422) (31,942) (52,583) (43,851)
Proceeds from sale of MASSPOWER 17,000 -- 17,000 --
Proceeds from sale of building 10,524 -- 10,524 --
Proceeds from sale of rental assets -- 20,667 -- 20,667
Other investments (1,276) (4,438) (1,492) (6,480)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (12,174) (15,713) (26,551) (29,664)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,122 1,324 1,493 1,371
Dividends on common stock (15,661) (15,198) (20,824) (20,204)
Dividends on preferred stock (216) (222) (288) (294)
Issuances of long-term debt 20,000 17,000 25,000 25,000
Retirements of preferred stock and long-term debt (23) (6,616) (47) (13,686)
Short-term debt (50,650) 250 (17,750) 25,800
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (45,428) (3,462) (12,416) 17,987
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND TEMPORARY CASH INVESTMENTS 379 1,649 732 (540)
Cash and temporary cash investments at
beginning of period 4,583 2,581 4,230 4,771
- ----------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $ 4,962 $ 4,230 $ 4,962 $ 4,231
==========================================================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 14,543 $ 13,453 $ 19,270 $ 17,265
==========================================================================================================
Income taxes $ 8,462 $ 10,926 $ 9,471 $ 12,197
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 7
<PAGE> 8
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(Unaudited)
NOTE 1 - ACCOUNTING POLICY
The accompanying consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not include
all information and footnotes required by generally accepted accounting
principles. In the opinion of management, the consolidated financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's financial position, results of operations and
cash flows for all periods shown. Certain information in the prior period
financial statements has been reclassified to conform with the current period's
presentation. It is suggested that these financial statements and accompanying
notes be read in conjunction with the financial statements and the notes
included in the Company's annual report to shareholders for the year ended
September 30, 1996 and the subsequent quarterly reports of December 31, 1996 and
March 31, 1997.
Because of the seasonal nature of the Company's business, the results of
operations for the three months and nine months ended June 30, 1997 and 1996 are
not necessarily indicative of the results for the full fiscal year.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
CAPACITY REQUIREMENTS. The Company currently transports natural gas imported
from Canada through a converted oil pipeline leased from the Portland Pipe Line
Corporation ("PPLC"). An agreement has been reached with PPLC that will extend
the lease to April 30, 1998. Long-term, two projects to replace the capacity
provided by the PPLC lease, and for additional capacity expansion are being
pursued, a 2.0 million MMBtu liquefied natural gas ("LNG") storage facility in
Wells, Maine ("Wells LNG"), and the Portland Natural Gas Transmission System
("PNGTS"). While the Company believes that PNGTS will be in service by November
1, 1998, in the event that it is not in service by that date, contingency plans
have been developed to ensure that the energy needs of the Company's service
territories in New Hampshire and Maine will be met for the 1998 - 1999 winter
heating season.
INVESTMENTS. The following table summarizes the Company's current
investments (in thousands):
<TABLE>
<CAPTION>
Ownership Investments at June 30,
percentages 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
PNGTS 17.8% $10,712 $7,266
Wells LNG 100.0% 7,378 6,739
MASSPOWER -- -- 2,961
Other -- 34 88
--------------------------------------------------------------------
Total $18,124 $17,054
--------------------------------------------------------------------
</TABLE>
PNGTS is an interstate pipeline that will extend 272 miles from the US-Canadian
border to the New Hampshire-Massachusetts border. The PNGTS project is scheduled
to be completed and available for service in November 1998. In July 1997, the
FERC issued a Final Environmental Impact Statement for the southern-most
portion of PNGTS which concludes that approval of the proposed project would
have limited environmental impact, and issued a Final Certificate for Public
Convenience and Necessity. In July 1997, the Site Evaluation Committee of the
State of New Hampshire unanimously approved the PNGTS project. Final FERC
approval, as well as approvals in Maine, Vermont and Massachusetts are expected
in future months. Additionally, approvals from the National Energy Board in
Canada are required for facilities north of the US border.
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
Page 8
<PAGE> 9
Notes to Consolidated Financial Statements
June 30, 1997 and 1996
(Unaudited)
operation. Pending final FERC approval by early fall 1997, construction may
begin for completion by November 1999, as currently contemplated by the Company.
Amounts invested to date in PNGTS and Wells LNG consist principally of the
Company's share of feasibility, engineering, legal, and other costs of
developing each project, and the carrying costs on these expenditures. Full
recovery of these investments is dependent upon the receipt of satisfactory
regulatory treatment.
While the completion of these projects is subject to a number of factors beyond
the Company's control, management believes that these projects, as well as
recovery of the investments, will be successful.
On June 30, 1997 Bay State Gas Company sold a subsidiary which owned the
Company's 17.5% equity investment in the MASSPOWER electric cogeneration
facility, located in Springfield, Massachusetts, to Energy Investors Fund Group
of Boston for $17.0 million.
Also in June, Bay State's affiliate, Bay State Energy Enterprises, sold its
one-third interest in KBC Energy Services to the two remaining partners,
Connecticut Natural Gas Corporation and an affiliate of Koch Gas Services.
Established in 1995, KBC Energy Services has been marketing nonregulated natural
gas and energy-related services to residential, commercial, and industrial
end-users, primarily in the Northeast.
LONG-TERM OBLIGATIONS. The Company has long-term contracts for the purchase,
storage, and delivery of approximately half of the Company's gas supplies.
Additionally, the Company has a long-term agreement for firm transportation on
the proposed PNGTS. Certain of these contracts contain minimum purchase
provisions which, in the opinion of management, are not in excess of the
Company's requirements.
ENVIRONMENTAL ISSUES. Like other companies in the natural gas industry, the
Company is a party to governmental actions associated with former gas
manufacturing sites. Management estimates that, exclusive of insurance
recoveries, if any, expenditures to remediate and monitor known environmental
sites will range from $4.9 million to $10.0 million. Accordingly, the Company
has accrued $4.9 million with an offsetting charge to a regulatory asset.
Environmental expenditures for the quarters ended June 30, 1997 and 1996 were
approximately $279,000 and $47,000, respectively. Exclusive of amounts accrued
for future expenditures, at June 30, 1997 and 1996, approximately $4.7 million
and $4.4 million, respectively, of environmental expenditures had been deferred
for future recovery from customers. Deferred environmental costs in
Massachusetts, Maine and New Hampshire are being recovered from customers over
five to ten 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. In July 1997 the
State of Maine's Public Utilities Commission approved a request to defer the
costs, net of deferred tax effects, incurred in carrying out a restructuring of
its operations in order to improve efficiency and reduce costs for Northern
Utilities ("Northern"), a subsidiary of the Bay State Gas Company. The
Commission requires Northern to amortize the deferred costs to its income
statement over a five-year period, beginning no later than July 1, 1997. 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.
Page 9
<PAGE> 10
NOTE 3 - SALE OF OFFICE BUILDING
On June 30, 1997 Bay State Gas Company executed a sale and leaseback of its
Westborough, Massachusetts headquarters building with Trinet Corporate Realty
Trust, Incorporated. Bay State sold the 88,000 square-foot building and ten
acres of land for $10.5 million. The Company then leased back the building,
under an operating lease, with a fifteen-year term and two five-year options to
extend.
NOTE 4 - RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the twelve months ended June 30,
1997, and for the years ended September 30 are set forth below.
<TABLE>
<CAPTION>
Year ended September 30
June -------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $34,244 $27,072 $23,128 $24,485 $22,807 $18,363
Adjustments:
Income taxes 21,678 16,953 14,575 15,642 13,726 11,250
Fixed charges (see below) 20,802 20,187 19,365 17,359 15,906 15,170
-------------------------------------------------------------------
Total adjusted earnings $76,724 $64,212 $57,068 $57,486 $52,439 $44,783
===================================================================
Fixed charges:
Total interest expense $17,983 $17,345 $17,300 $15,305 $13,610 $13,073
Interest component of rents 2,819 2,842 2,065 2,054 2,296 2,097
-------------------------------------------------------------------
Total fixed charges $20,802 $20,187 $19,365 $17,359 $15,906 $15,170
===================================================================
Ratio of earnings to fixed charges 3.69 3.18 2.95 3.31 3.30 2.95
===================================================================
</TABLE>
Page 10
<PAGE> 11
Independent Auditors' Review Report
- -----------------------------------
The Board of Directors
Bay State Gas Company:
We have reviewed the consolidated balance sheets and statements of
capitalization of Bay State Gas Company and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of earnings for the three months,
nine months, and twelve months then ended and the related statements of cash
flows for the nine months and twelve months then ended. These consolidated
financial statements are the responsibility of the Company's management.
We have conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of the interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet and statement of capitalization of Bay
State Gas Company and subsidiaries as of September 30, 1996, and the related
consolidated statements of earnings and cash flows for the year then ended (not
presented herein) and, in our report dated October 24, 1996, we expressed an
unqualified opinion on those consolidated financial statements.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
July 22, 1997
Page 11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial
- ----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
RESULTS OF OPERATIONS
Earnings and Dividends
- ----------------------
For the three months ended June 30, 1997, operating revenues were $84.6 million,
up from $67.7 million in the prior year, while earnings per share were $0.45
versus a loss of $0.22 a year earlier. Excluding the $0.58 per share gain from
the sale of the subsidiary that held the MASSPOWER investment, the company
experienced a loss of $0.13 per share. Earnings per share increased primarily
due to weather, which was 12.7% colder than the same period last year and 12.9%
colder than normal, and increased operating revenues.
For the nine months ended June 30, 1997 earnings per share, excluding the $0.58
per share gain from the MASSPOWER sale, were $2.55, down 2% from $2.60 a year
earlier. For the twelve-month period ended June 30, 1997, earnings per share,
excluding the $0.58 per share gain from the MASSPOWER sale, were $1.95 compared
to $2.12 for the same period the year before. The decrease in earnings for these
periods is primarily the result of weather which was 4.8% warmer than the prior
year for the nine-month period, and 5.7% warmer than the prior year for the
twelve-month period.
Dividends declared per common share were $.395 for the three-month period ended
June 30, 1997, compared to $.385 for the same period last year. This quarterly
dividend represents an annualized dividend rate of $1.58 per common share, up
from the $1.54 annualized dividend last year. For the twelve-month period ended
June 30, 1997, dividends declared were $1.55, compared to $1.51 for the same
period in the prior year.
Operating Revenues
- ------------------
Revenues and income before interest and taxes for the Company's three business
segments for the nine months ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Operating Income (loss) before
revenues interest and taxes
-------------------------------------------------------------------------------
In thousands 1997 1996 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Local Transportation $407,896 $369,155 $69,114 $65,303
Energy Products &
Services 16,829 14,198 (1,272) 2,045
Energy Ventures 61,935 58,461 15,566 3,142
Intersegment eliminations (65,080) (59,996) -- --
-------------------------------------------------------------------------------
Total $421,580 $381,818 $83,408 $70,490
-------------------------------------------------------------------------------
</TABLE>
Intersegment eliminations of revenues consist primarily of sales from an
interstate pipeline within the Energy Ventures business segment to the local
distribution companies within the Local Transportation business segment.
Page 12
<PAGE> 13
Local Transportation
The following table details the components of Local Transportation revenues for
the nine months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
In thousands 1997 1996
--------------------------------------------------------------------
<S> <C> <C>
Transportation only customers $ 8,621 $ 5,260
Transportation for natural gas sales customers 143,534 146,141
--------------------------------------------------------------------
Transportation revenues 152,155 151,401
Natural gas sales 243,546 208,024
--------------------------------------------------------------------
Transportation and natural gas sales 395,701 359,425
Other 12,195 9,730
--------------------------------------------------------------------
Total Local Transportation revenues $407,896 $369,155
--------------------------------------------------------------------
</TABLE>
Revenues were positively impacted in fiscal year 1997 by the addition of 6,600
customers.
For the nine-month period ended June 30, 1997, revenues from natural gas sales
grew by 17.1%, primarily due to higher recovered natural gas costs in the
current year.
Other revenues primarily consist of customer service revenues, merchandise
sales, conversion burner rentals, and liquefaction services. The increase in
other revenues for the comparable nine-month period is primarily the result of
increased customer service revenues.
Energy Products & Services
The following table details the components of Energy Products & Services
revenues for the nine months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
In thousands 1997 1996
----------------------------------------------------------
<S> <C> <C>
Propane $10,067 $8,754
Water heater rentals 3,696 3,223
Appliance repair insurance 2,147 2,144
Other 919 77
----------------------------------------------------------
Total $16,829 $14,198
----------------------------------------------------------
</TABLE>
Revenues from Energy Products & Services grew by 18.0% for the nine-month
period. This increase is primarily the result of propane revenues, which
increased due to higher sales volumes and higher propane fuel prices. Water
heater rental revenues and appliance repair insurance revenues are consistent
for the comparative periods. Increases in other revenues are due to the growth
of the energy advisory service business.
Page 13
<PAGE> 14
Energy Ventures
This business segment currently manages an interstate pipeline, and participates
in two major projects under development: PNGTS and Wells LNG. Operating revenues
and income within Energy Ventures are primarily generated by the interstate
pipeline, which had operating income of $419,000 for the nine months ended June
30, 1997 and $456,000 for the same period prior year. For the twelve month
periods ended June 30, 1997 and 1996, the pipeline had operating income of
$361,000 and $868,000, respectively. The decrease in operating income for the
twelve- month period is primarily the result of large increases in outside
services expenses due to rate case proceedings for this pipeline. These
proceedings should be completed during the summer of 1997.
Excluding the gain from the sale of the subsidiary that held the investment in
MASSPOWER, income from this investment was $1.4 million and $1.3 million for the
nine months ended June 30, 1997 and 1996, respectively, and $1.3 million and
$1.1 million for the twelve month periods ended June 30, 1997 and 1996,
respectively.
OPERATING EXPENSES
Total operating expenses, for the three- and nine- month periods ended June 30,
1997 were $85.2 million and $356.1 million, compared to $68.1 million and $314.9
million for the same periods, prior year. Operating expenses for the
twelve-month period ended June 30, 1997 were $413.8 million compared to $370.7
million for the prior twelve months. These increases in operating expenses are
primarily attributable to the increases in recovered natural gas costs and in
costs associated with developing the Energy Products & Services business.
INTEREST EXPENSE AND DIVIDEND REQUIREMENTS ON PREFERRED STOCK
Interest expense for the nine-month period ended June 30, 1997 was $13.9
million, compared to $12.9 million for the same period last year. For the twelve
months ended June 30, 1997, interest expense was $17.7 million, compared to
$17.2 million for 1996. The increase in interest expense for the nine- and
twelve- month periods is primarily the result of increased levels of long-term
debt.
Dividend requirements on preferred stock were relatively flat for the
comparative periods.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the gas distribution business creates large short-term
working capital requirements to finance customer accounts receivable and
deferred gas costs, as well as construction expenditures. Short-term funds are
obtained from the issuance of commercial paper, traditional bank lines of
credit, and demand loans under Fuel Purchase Agreements.
Total net short-term debt is down approximately $18 million from June 30, 1996
to June 30, 1997. This decrease in short-term debt is primarily due to the sale
of the Company's interest in MASSPOWER and the sale and lease-back of the
Company's office building in Westborough, Massachusetts, both of which occurred
in June, 1997.
Cash flows from operating activities have increased over the twelve-month period
ending June 30, 1997, primarily due to decreasing deferred gas costs related to
a change in the rate structure in the Massachusetts service territory resulting
in larger collections from customers during the winter seasons.
Capital expenditures for plant increased by $6.5 million for the nine-month
period and $8.7 million for the twelve-month period ended June 30, 1997, as
compared to the year before. An accelerated automated meter reading device
installation program has been ongoing during fiscal 1997, increasing the capital
additions related to these installations by approximately $4.8 million over the
prior year nine-month period.
Page 14
<PAGE> 15
FORWARD LOOKING INFORMATION
This report and other Company reports contain forward looking statements. The
Company cautions that, while it believes such statements to be reasonable and
makes them in good faith, they almost always vary from actual results, and the
differences between assumed facts or basis and actual results can be material,
depending upon the circumstances. Investors should be aware of important factors
that could have a material impact on future results. These factors include, but
are not limited to, the regulatory environment, customers' preferences,
unforeseen competition, and other uncertainties, all of which are difficult to
predict, and many of which are beyond the control of the Company.
Page 15
<PAGE> 16
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
- -------------------------
There were no material legal proceedings instituted in the third
quarter of fiscal 1997, and there were no material developments during
the quarter in legal proceedings disclosed in previous filings.
Item 2. Changes in Securities
- -----------------------------
None.
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
None.
Item 5. Other Information
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits:
15. Consent of KPMG Peat Marwick LLP re: Registration Statement
No. 33-57702
27. Financial Data Schedule
(b) Reports on Form 8-K
Reports on Form 8-K for the quarter ended June 30, 1997:
Date Filed Items Reported
---------- --------------
July 1, 1997 Item 5. Other Events
Item 7. Financial Statements and Exhibits
Page 16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BAY STATE GAS COMPANY
---------------------
(Registrant)
By: /s/ Thomas W. Sherman
------------------------------------
Thomas W. Sherman
Executive Vice President and Chief
Financial and Accounting Officer
By: /s/ Stephen J. Curran
------------------------------------
Stephen J. Curran
Controller
Date: August 12, 1997
Page 17
<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 July 22, 1997 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
August 12, 1997
Page 18
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