<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 MARCH 31, 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 April 30, 1997
----- -----------------------------
Common Stock, $3.33 1/3 par value 13,441,974 Shares
<PAGE> 2
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Earnings - Three months, six months,
and twelve months ended March 31, 1997 and 1996.................... 3
Consolidated Balance Sheets at March 31, 1997, 1996
and September 30, 1996............................................. 5
Consolidated Statements of Capitalization at March 31,
1997, 1996 and September 30, 1996.................................. 6
Consolidated Statements of Cash Flows - Six months and
twelve months ended March 31, 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
<TABLE>
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands except per share amounts)
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues: $199,879 $181,336 $336,885 $314,081
Operating expenses:
Recovered natural gas costs 117,092 98,337 190,577 168,667
Operations 28,159 29,369 53,866 53,282
Maintenance 2,370 2,878 5,309 5,237
Depreciation and amortization 7,350 6,385 14,150 12,900
Other taxes, principally property 3,696 3,521 7,011 6,690
- -----------------------------------------------------------------------------------------------
Total operating expenses 158,667 140,490 270,913 246,776
- -----------------------------------------------------------------------------------------------
Operating income 41,212 40,846 65,972 67,305
- -----------------------------------------------------------------------------------------------
Other income:
Income from investments 692 1,345 1,423 1,622
AFUDC and other 493 420 694 821
- -----------------------------------------------------------------------------------------------
Income before interest and taxes 42,397 42,611 68,089 69,748
- -----------------------------------------------------------------------------------------------
Interest income (71) (86) (225) (244)
Interest expense 4,517 4,459 8,876 8,527
Federal and state taxes on income 15,017 14,693 23,300 23,542
- -----------------------------------------------------------------------------------------------
Net income 22,934 23,545 36,138 37,923
Dividend requirements on preferred stock 72 75 144 149
- -----------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 22,862 $ 23,470 $ 35,994 $ 37,774
===============================================================================================
Average number of shares outstanding 13,442 13,397 13,440 13,380
===============================================================================================
EARNINGS PER SHARE $ 1.70 $ 1.75 $ 2.68 $ 2.82
===============================================================================================
DIVIDENDS DECLARED PER COMMON $HARE $ 0.385 $ 0.375 $ 0.77 $ 0.75
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
<TABLE>
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited, in thousands except per share amounts)
<CAPTION>
Twelve months ended
March 31,
1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Operating revenues: $451,615 $438,648
Operating expenses:
Recovered natural gas costs 248,746 236,950
Operations 96,867 93,808
Maintenance 10,466 9,344
Depreciation and amortization 27,562 25,962
Other taxes, principally property 13,062 12,071
- ---------------------------------------------------------------------
Total operating expenses 396,703 378,135
- ---------------------------------------------------------------------
Operating income 54,912 60,513
- ---------------------------------------------------------------------
Other income:
Income from investments 2,304 1,573
AFUDC and other 1,466 1,323
- ---------------------------------------------------------------------
Income before interest and taxes 58,682 63,409
- ---------------------------------------------------------------------
Interest income (427) (575)
Interest expense 17,112 17,341
Federal and state taxes on income 16,711 17,445
- ---------------------------------------------------------------------
Net income 25,286 29,198
Dividend requirements on preferred stock 289 298
- ---------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 24,997 $ 28,900
=====================================================================
Average number of shares outstanding 13,426 13,365
=====================================================================
EARNINGS PER SHARE $ 1.86 $ 2.16
=====================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 1.54 $ 1.50
=====================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE> 5
<TABLE>
BAY STATE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, September 30,
1997 1996 1996
- -----------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C> <C>
ASSETS:
Plant, at cost $720,631 $674,366 $701,204
Accumulated depreciation & amortization 208,521 189,668 198,389
- -----------------------------------------------------------------------------------
Net plant 512,110 484,698 502,815
- -----------------------------------------------------------------------------------
Investments 20,228 15,355 17,601
Prepaid benefit plans 18,851 23,698 26,733
Other long-term assets 9,039 10,453 9,697
Current assets:
Cash and temporary cash investments 15,605 11,004 4,583
Accounts receivable, less allowances of
$5,824, $6,353 and $3,557 91,952 80,410 27,143
Unbilled revenues 9,989 9,957 3,709
Deferred gas costs 21,014 13,712 27,447
Inventories, at average cost 19,476 10,982 24,699
Other 5,478 6,845 6,059
- -----------------------------------------------------------------------------------
Total current assets 163,514 132,910 93,640
- -----------------------------------------------------------------------------------
Regulatory assets:
Income taxes 10,914 13,020 12,105
Other 32,259 18,362 21,662
- -----------------------------------------------------------------------------------
$766,915 $698,496 $684,253
===================================================================================
CAPITALIZATION & LIABILITIES:
Capitalization
Common stock equity $253,939 $248,831 $227,986
Preferred stock equity 5,010 5,047 5,009
Long-term debt, net 216,500 209,500 196,500
- -----------------------------------------------------------------------------------
Total capitalization 475,449 463,378 429,495
- -----------------------------------------------------------------------------------
Long-term liabilities:
Deferred taxes 81,574 75,123 80,854
Other long-term liabilities 16,539 15,502 16,650
- -----------------------------------------------------------------------------------
Total long-term liabilities 98,113 90,625 97,504
- -----------------------------------------------------------------------------------
Commitments and contingencies (note 2)
Current liabilities:
Short-term debt 69,500 41,000 64,650
Current maturities of long-term debt 18,000 -- 18,000
Accounts payable 52,654 40,629 31,858
Fuel purchase commitments 12,008 6,291 21,332
Refunds due customers 10,457 22,844 10,427
Deferred and accrued taxes 22,789 25,417 3,174
Other 7,945 8,312 7,813
- -----------------------------------------------------------------------------------
Total current liabilities 193,353 144,493 157,254
- -----------------------------------------------------------------------------------
$766,915 $698,496 $684,253
===================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
<PAGE> 6
<TABLE>
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands)
<CAPTION>
March 31, September 30,
1997 1996 1996
- ---------------------------------------------------------------------------------
(Unaudited) (Audited)
<S> <C> <C> <C> <C>
Common stock equity:
Common stock, $3.33 1/3 par value, authorized
36,000,000 shares; 13,441,974, 13,407,244
and 13,428,244 shares outstanding $ 44,812 $ 44,691 $ 44,761
Paid-in-capital 102,044 101,379 101,784
Retained earnings 107,083 102,761 81,441
- ---------------------------------------------------------------------------------
Total common stock equity 253,939 248,831 227,986
- ---------------------------------------------------------------------------------
Cumulative preferred stock:
Non-redeemable cumulative preferred stock 2,572 2,572 2,572
Redeemable cumulative preferred stock 2,438 2,475 2,437
- ---------------------------------------------------------------------------------
Total cumulative preferred stock 5,010 5,047 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 -- 18,000
- ---------------------------------------------------------------------------------
Long-term debt, net 216,500 209,500 196,500
- ---------------------------------------------------------------------------------
TOTAL CAPITALIZATION $475,449 $463,378 $429,495
=================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE> 7
<TABLE>
BAY STATE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<CAPTION>
Six months ended Twelve months ended
March 31, March 31,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $36,138 $37,923 $25,286 $29,198
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,150 12,900 27,562 25,962
Deferred income taxes 779 (348) 7,174 (2,993)
Investment income and AFUDC (1,817) (2,392) (3,659) (2,662)
Changes in operating assets and liabilities:
Accounts receivable (64,809) (58,166) (11,542) (8,987)
Unbilled revenues (6,280) (6,210) (32) (1,056)
Accounts payable 20,796 11,464 12,025 8,128
Taxes 20,747 20,298 (1,245) 8,435
Deferred gas costs and refunds due customers 6,463 (6,606) (19,689) (29,918)
Prepaid benefit plans 7,882 (2,228) 4,847 (2,937)
Other (13,261) (9,002) (14,893) (10,384)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 20,788 (2,367) 25,834 12,786
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant (23,576) (17,231) (52,586) (42,620)
Proceeds from sale of rental assets -- 20,667 -- 20,667
Other investments (855) (3,577) (1,932) (6,163)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (24,431) (141) (54,518) (28,116)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 311 1,220 786 1,454
Dividends on common stock (10,352) (10,038) (20,675) (20,050)
Dividends on preferred stock (144) (149) (289) (298)
Issuances of long-term debt 20,000 17,000 25,000 30,000
Retirements of preferred stock and long-term debt -- (6,602) (37) (13,672)
Short-term debt 4,850 9,500 28,500 23,050
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 14,665 10,931 33,285 20,484
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH
AND TEMPORARY CASH INVESTMENTS 11,022 8,423 4,601 5,154
Cash and temporary cash investments at beginning of perios 4,583 2,581 11,004 5,850
- -------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of period $15,605 $11,004 $15,605 $11,004
=============================================================================================================
Supplemental cash flow information:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 9,784 $ 8,724 $19,240 $17,102
=============================================================================================================
Income taxes $ 2,513 $ 4,472 $ 9,976 $10,480
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 7
<PAGE> 8
Notes to Consolidated Financial Statements
March 31, 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.
Because of the seasonal nature of the Company's business, the results of
operations for the three months and six months ended March 31, 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.
<TABLE>
INVESTMENTS. The following table summarizes the Company's current investments
(in thousands):
<CAPTION>
Ownership Investments at March 31,
percentages 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C> <C>
PNGTS 17.8% $9,701 $6,102
Wells LNG 100.0% 7,078 6,013
MASSPOWER 17.5% 3,415 3,143
Other -- 34 97
- ---------------------------------------------------------------------
Total $20,228 $15,355
- ---------------------------------------------------------------------
</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 April 1997, the
FERC issued a Draft Environmental Impact Statement for the southern-most
portion of PNGTS. This statement concludes that approval of the proposed project
would have limited environmental impact. It represents an important milestone in
the development of the PNGTS project and will help ensure that the construction
can be completed by November 1, 1998.
In September 1996, the FERC issued a "Notice of Intent" to the Company to
prepare a supplement to its January 1996 Draft Environmental Impact Statement to
consider alternate sites for Wells LNG. This supplement was issued January 30,
1997. The schedule for public comment, review, and issuance of the Final
Environmental Impact Statement is expected this summer. With this approval,
construction can begin during 1997 for completion by November 1999, as
currently contemplated by the Company.
Page 8
<PAGE> 9
Notes to Consolidated Financial Statements
March 31, 1997 and 1996
(Unaudited)
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.
MASSPOWER is a cogeneration facility which has been in operation since 1993. The
Company is seeking buyers for its 17.5% equity interest in MASSPOWER. The
Company only intends to sell its equity interest in MASSPOWER if the sale would
provide a fair value for this investment.
LONG-TERM OBLIGATIONS. The Company has long-term contracts for the purchase,
storage, and delivery of approximately half of the Company's gas supplies.
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 March 31, 1997 and 1996 were
$283,000 and $1,350,000, respectively. Exclusive of amounts accrued for future
expenditures, at March 31, 1997 and 1996, approximately $4.9 million and $4.6
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. 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 - RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
The ratio of earnings to fixed charges for the twelve months ended March 31,
1997, and for the years ended September 30 are set forth below.
<CAPTION>
Year ended September 30
March -----------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $25,286 $27,072 $23,128 $24,485 $22,807 $18,363
Adjustments:
Income taxes 16,711 16,953 14,575 15,642 13,726 11,250
Fixed charges (see below) 20,278 20,187 19,365 17,359 15,906 15,170
---------------------------------------------------------
Total adjusted earnings $62,275 $64,212 $57,068 $57,486 $52,439 $44,783
=========================================================
Fixed charges:
Total interest expense $17,583 $17,345 $17,300 $15,305 $13,610 $13,073
Interest component of rents 2,695 2,842 2,065 2,054 2,296 2,097
---------------------------------------------------------
Total fixed charges $20,278 $20,187 $19,365 $17,359 $15,906 $15,170
=========================================================
Ratio of earnings to fixed charges 3.07 3.18 2.95 3.31 3.30 2.95
=========================================================
</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 March 31, 1997
and 1996, and the related consolidated statements of earnings for the three
months, six months, and twelve months then ended and the related statements of
cash flows for the six 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
April 28, 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 March 31, 1997, operating revenues were $199.9
million, up from $181.3 million in the prior year, while earnings per share was
$1.70 versus $1.75 a year earlier. Earnings per share decreased primarily due to
weather, which was 8.7% warmer than the same period last year, and 5.1% warmer
than normal. The negative impact of warm weather on earnings was partially
offset by the addition of more than 6,600 customers within the past 12-month
period and a decline in operating expenses other than recovered natural gas
costs.
For the six months ended March 31, 1997 earnings per share were $2.68 down 5%
from $2.82 a year earlier. For the twelve-month period ended March 31, 1997,
earnings per share were $1.86 compared to $2.16 for the same period the year
before. The decrease in earnings for these periods is primarily the result of
weather which was 7.6% warmer than the prior year for the six-month period, and
7.9% warmer than the prior year for the twelve-month period.
Dividends declared per common share were $.385 for the three-month period ended
March 31, 1997, compared to $.375 for the same period last year. This quarterly
dividend represents an annualized dividend rate of $1.54 per common share, up
from the $1.50 annualized dividend last year. For the twelve-month period ended
March 31, 1997, dividends declared were $1.54, compared to $1.50 for the same
period in the prior year. On May 1, 1997, the quarterly common stock dividend
was increased 2.6% to .395 per share, indicating an annualized dividend of $1.58
per share.
Operating revenues
- ------------------
<TABLE>
Revenues and income before interest and taxes for the Company's three business
segments for the six months ended March 31, 1997 and 1996 were as follows:
<CAPTION>
Operating Income (loss) before
revenues interest and taxes
- --------------------------------------------------------------------------------
In thousands 1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Local Transportation $326,503 $305,105 $67,460 $65,603
Energy Products & Services 12,427 10,742 (1,051) 1,732
Energy Ventures 44,182 38,634 1,680 2,413
Intersegment eliminations (46,227) (40,400) -- --
- --------------------------------------------------------------------------------
Total $336,885 $314,081 $68,089 $69,748
- --------------------------------------------------------------------------------
</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
<TABLE>
The following table details the components of Local Transportation revenues for
the six months ended March 31, 1997 and 1996:
<CAPTION>
In thousands 1997 1996
------------------------------------------------------------------------
<S> <C> <C>
Transportation only customers $ 6,330 $ 3,651
Transportation for natural gas sales customers 118,228 121,872
------------------------------------------------------------------------
Transportation revenues 124,558 125,523
Natural gas sales 193,937 172,228
------------------------------------------------------------------------
Transportation and natural gas sales 318,495 297,751
Other 8,008 7,354
------------------------------------------------------------------------
Total Local Transportation revenues $326,503 $305,105
------------------------------------------------------------------------
</TABLE>
Primarily as the result of warmer weather, transportation revenues decreased for
the six months from the same period prior year. For the six-month period ended
March 31, 1997, the weather was 4.1% warmer than normal and 7.6% warmer than the
comparative period in 1996. Revenues were positively impacted in fiscal year
1997 by the addition of 6,600 customers.
For the six-month period ended March 31, 1997, revenues from natural gas sales
grew by 12.6%, 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 six-month period is primarily the result of
increased customer service revenues.
Energy Products & Services
<TABLE>
The following table details the components of Energy Products & Services
revenues for the six months ended March 31, 1997 and 1996:
<CAPTION>
In thousands 1997 1996
--------------------------------------------
<S> <C> <C>
Propane $ 7,760 $ 6,794
Water heater rentals 2,257 2,132
Appliance repair 1,777 1,763
insurance
Other 633 53
--------------------------------------------
Total $12,427 $10,742
--------------------------------------------
</TABLE>
Revenues from Energy Products & Services grew by 15.7% for the six-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 three major projects: MASSPOWER, an operating cogeneration facility; PNGTS;
and Wells LNG. Operating revenues and income within Energy Ventures are
primarily generated by the interstate pipeline, which had operating income of
$335,000 for the six months ended March 31, 1997 and $565,000 for the same
period prior year. For the twelve month periods ended March 31, 1997 the
pipeline had operating income of $168,000 and $1.2 million, respectively. The
decrease in operating income for the six- and twelve- month periods are
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.
Income from the investment in MASSPOWER was $531,000 and $406,000 for the six
months ended March 31, 1997 and 1996, respectively, and $794,000 and $244,000
for the twelve month periods ended March 31, 1997 and 1996, respectively. The
company is currently seeking a buyer for its 17.5% equity interest in MASSPOWER,
which has been a successful investment, but does not represent a future core
business.
Operating expenses
- ------------------
Total operating expenses, for the three- and six- month periods ended March 31,
1997 were $158.7 million and $270.9 million, compared to $140.5 million and
$246.8 million for the same periods, prior year. Operating expenses for the
twelve-month period ended March 31, 1997 were $396.7 million compared to $378.1
million for the prior twelve months. These increases in operating expenses are
primarily attributable to the increases in recovered natural gas costs.
Interest expense and dividend requirements on preferred stock
- -------------------------------------------------------------
Interest expense for the six-month period ended March 31, 1997 was $8.9 million,
compared to $8.5 million for the same period last year. For the twelve months
ended March 31, 1997, interest expense was $17.1 million, compared to $17.3
million for 1996. The decrease in interest expense for the twelve month period
is primarily the result of retirement of long-term debt during the twelve months
ended March 31, 1997.
Dividend requirements on preferred stock were relatively flat for the
comparative periods.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the gas distribution business creates large short-term
working capital requirements to finance customers accounts receivable and
deferred gas costs, as well as construction expenditures. Short-term funds are
obtained from the issuance of commercial paper, traditional bank lines of
credit, and demand loans under Fuel Purchase Agreements.
Total net short-term debt is up approximately $29 million from March 31, 1996
to March 31, 1997.
Cash flows from operating activities have increased over the twelve-month period
ending March 31, 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 $6.3 million for the six-month
period and $10.0 million for the twelve-month period ended March 31, 1997, as
compared to the year before. An accelerated Metscan installation program has
been on going during fiscal 1997, increasing the capital additions related to
these installations by approximately $4.3 million over the prior year six-month
period. The warmer weather during the first six months of fiscal 1997 also
contributed to the increase in capital expenditures by enabling the Company to
complete more capital additions during this period than in the prior year.
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 second
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
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1997.
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: May 13, 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 April 28, 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
May 13, 1997
Page 18
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