FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
Commission file number 1-10032
PROVIDENCE ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Rhode Island 05-0389170
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification
No.)
100 Weybosset Street, Providence, Rhode Island 02903
(Address of principal executive offices)
(Zip Code)
401-272-9191
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed
since last
report).
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 .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common stock, $1.00 par value, 5,602,156 shares outstanding
at
February 9, 1995.
PROVIDENCE ENERGY CORPORATION
FORM 10-Q
DECEMBER 31, 1994
PART I: FINANCIAL INFORMATION
PAGE
Item 1 - Financial Statements
Consolidated Statements of Income for the
three and twelve months ended
December 31, 1994 and 1993
I-1
Consolidated Balance Sheets as of
December 31, 1994, December 31, 1993 and
September 30, 1994
I-2
Consolidated Statements of Cash Flow for the
three months ended December 31, 1994 and 1993
I-3
Consolidated Statements of Capitalization as of
December 31, 1994, December 31, 1993 and
September 30, 1994
I-4
Notes to Consolidated Financial Statements
I-5
Item 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations
I-7
PART II: OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
II-1
Signature
II-2
PAGE i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED DECEMBER 31
(Unaudited)
THREE MONTHS TWELVE MONTHS
1994 1993 1994 1993
(thousands, except per share amounts)
Operating revenues $ 49,302 $ 62,957 $209,123 $210,839
Cost of gas sold 26,126 38,774 122,456 127,657
Operating margin 23,176 24,183 86,667 83,182
Operating expenses:
Other operation 10,019 10,530 41,884 41,200
Maintenance 882 784 3,926 3,586
Depreciation and amortization 2,600 2,381 9,834 9,168
Taxes -
State gross receipts 1,293 1,863 5,756 6,091
Local property and other 1,635 1,618 6,231 6,794
Federal income 1,725 1,901 4,284 3,382
Total operating expenses 18,154 19,077 71,915 70,221
Operating income 5,022 5,106 14,752 12,961
Other income, net 159 185 170 415
Income before interest expense 5,181 5,291 14,922 13,376
Interest expense:
Long-term debt 1,283 1,119 5,151 5,171
Other 451 318 1,545 1,425
Interest capitalized (34) (34) (152) (128)
1,700 1,403 6,544 6,468
Income before preferred stock
dividends of subsidiary 3,481 3,888 8,378 6,908
Preferred dividends of subsidiary (174) (174) (696) (696)
Net income applicable to
common stock $ 3,307 $ 3,714 $ 7,682 $ 6,212
======== ======== ======== ========
Net income per common share $ .59 $ .68 $ 1.38 $ 1.24
======== ======== ======== ========
Dividends paid per common share $ .27 $ .26 $ 1.07 $ 1.03
======== ======== ======== ========
Weighted average common shares
outstanding 5,591.4 5,497.8 5,557.5 4,999.3
======== ======== =================
PAGE I-1
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
December 31, December 31, September 30,
1994 1993 1994
ASSETS
Gas plant, at original cost $244,117 $225,793 $239,830
Less - Accumulated depreciation and
utility plant acquisition
adjustments 83,084 74,536 80,733
161,033 151,257 159,097
Nonutility property, net 2,012 2,096 2,033
Current assets:
Cash and temporary cash investments 3,446 4,805 1,145
Accounts receivable, less allowance of
$2,450 at 12/31/94, $2,250 at
12/31/93 and $3,008 at 9/30/94 29,849 31,246 17,892
Unbilled revenues 11,397 12,145 2,895
Deferred gas costs 5,803 18,625 15,819
Inventories, at average cost -
Liquefied natural gas, propane and
underground storage 10,893 9,921 11,255
Materials and supplies 1,545 1,859 1,679
Prepaid and refundable taxes 2,872 4,640 4,030
Prepayments 869 1,037 1,499
66,674 84,278 56,214
Deferred charges and other assets 16,220 17,662 15,967
Total assets $245,939 $255,293 $233,311
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
(See accompanying statement): $145,649 $144,538 $145,235
Current liabilities:
Notes payable 36,250 38,000 27,700
Current portion of long-term debt 2,091 2,071 2,085
Accounts payable 20,568 26,478 18,324
Accrued taxes 7,801 7,975 6,224
Accrued vacation 1,602 1,718 1,584
Customer deposits 3,622 3,217 3,580
Other 3,141 3,688 3,136
75,075 83,147 62,633
Deferred credits and reserves:
Accumulated deferred Federal
income taxes 16,019 19,034 15,785
Unamortized investment tax credits 2,812 2,970 2,851
Other 6,384 5,604 6,807
25,215 27,608 25,443
Total capitalization and liabilities $245,939 $255,293 $233,311
======== ======== ========
PAGE I-2
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31
(Unaudited)
1994 1993
(thousands)
Cash provided by (used for)
Operations:
Income after interest expense $ 3,481 $3,888
Items not requiring cash -
Depreciation and amortization 2,600 2,381
Deferred Federal income taxes 234 145
Amortization of investment tax credits (39) (40)
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (11,957) (14,008)
Unbilled revenues (8,502) (9,291)
Deferred gas costs 10,016 428
Inventories 496 1,464
Prepaid and refundable taxes 1,158 3,449
Prepayments 630 (127)
Accounts payable 2,244 5,260
Accrued taxes 1,577 681
Accrued vacation, customer deposits
and other 65 560
Net cash provided by (used for) operations 2,003 (5,210)
Investment Activities:
Expenditures for property, plant
and equipment (4,579) (4,336)
Deferred charges and other (612) (28)
Total (5,191) (4,364)
Financing Activities:
Issuance of common stock 339 439
Issuance of mortgage bonds - 16,000
Payments on long-term debt (1,720) (114)
Increase (decrease) in notes payable, net 8,550 (1,800)
Cash dividends on preferred stock (174) (174)
Cash dividends on common stock (1,506) (1,427)
Total 5,489 12,924
Increase in cash and cash equivalents 2,301 3,350
Cash and cash equivalents at beginning
of period 1,145 1,455
Cash and cash equivalents at end of period $ 3,446 $ 4,805
======= ========
Supplemental disclosure of cash-flow information:
Cash paid during period for-
Interest (net of amount capitalized) $ 1,221 $ 943
Income taxes (net of refunds) $ 200 $ (258)
PAGE I-3
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(Unaudited)
(Thousands)
December 31, December 31,
September 30,
1994 1993 1994
Common stock equity:
Common stock, $1 par
Authorized - 20,000 shares
Outstanding - 5,602 at 12/31/94,
5,493 at 12/31/93
and 5,581 at
9/30/94 $ 5,602 $ 5,493 $ 5,581
Amount paid in excess of par 53,360 52,014 53,042
Retained earnings 20,334 18,587 18,533
Total common stock equity 79,296 76,094 77,156
Cumulative preferred stock of subsidiary:
Providence Gas Company -
Redeemable 8.7% Series, $100 par
Authorized - 80 shares
Outstanding - 80 shares as of
12/31/94, 12/31/93 and 9/30/94 8,000 8,000 8,000
Long-term debt:
First mortgage bonds 59,400 61,000 61,000
Capital leases 1,044 1,515 1,164
Total long-term debt 60,444 62,515 62,164
Less: current portion 2,091 2,071 2,085
Long-term debt, net 58,353 60,444 60,079
Total capitalization $145,649 $ 144,538 $145,235
======== ========= =========
PAGE I-4
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Accounting Policies
It is the Registrant's opinion that the financial
information contained in this report reflects all normal,
recurring adjustments necessary to a fair statement of the
results for the periods reported; however, such results are
not necessarily indicative of results to be expected for the
year, due to the seasonal nature of the Registrant's
operations. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles have
been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange
Commission. However, the disclosures herein when read with
the annual report for 1994 filed on Form 10-K are adequate to
make the information presented not misleading.
Reclassifications
Certain prior period consolidated balance sheet amounts
have been reclassified for consistent presentation with the
current year.
Environmental Matters
Federal, state and local laws and regulations
establishing standards and requirements for protection of the
environment have increased in number and in scope within
recent years. The Registrant cannot predict the future
impact of such standards and requirements which are subject
to change and can take effect retroactively. The Registrant
continues to monitor the status of these laws and
regulations. Such monitoring involves the review of past and
current operations and properties. To the best of its
knowledge, subject to the following paragraph, the Registrant
believes it is in substantial compliance with such laws and
regulations. However, should future costs be incurred,
relating to the items mentioned below, the Registrant
anticipates recovery from third parties or through rates.
The Registrant is aware of four sites at which it may
incur costs for environmental investigation and clean-up.
Based on current available information, however, the amount
PAGE I-5
of costs, if any, related to these sites will not be material
to the operation of the Registrant or its financial position.
Management anticipates requesting rate relief for all
costs related to the environmental matters and believes that
the ultimate resolution of these matters will not have a
materially adverse effect on the Registrant's results of
operations and financial condition.
Gas Supply Restructuring
Federal Energy Regulatory Commission (FERC) Order 636
and other related orders (the Orders) have significantly
changed the structure and types of services offered by
pipeline transportation companies. The most significant
components of the restructuring occurred in November 1993.
In response to these changes, the Registrant has successfully
negotiated new pipeline transportation and gas storage
contracts.
At the same time, a number of contracts with gas
suppliers have been negotiated to complement the
transportation and storage contracts. The portfolio of
supply contracts is designed to be market responsive and is
diversified with respect to contract lengths, source
location, and other contract terms. On a periodic basis, the
Registrant reviews all of its contracts to ensure a diverse,
secure, flexible and economical supply portfolio is
maintained.
To meet the requirements of the Orders, the pipelines
have incurred significant costs, collectively known as
transition costs. The majority of these costs will be
reimbursed by the pipeline's customers including the
Registrant. Based upon current information, the Registrant
anticipates its transition costs to total between $16 million
and $19 million of which $8.3 million has been included in
the Cost of Gas Adjustment (CGA) clause and is currently
being collected from customers. The remaining minimum
obligation of $7.7 million has been recorded in the
accompanying consolidated balance sheet along with a
regulatory asset anticipating future recovery through the
CGA.
The Registrant's ultimate liability may differ from the
above estimates based on FERC settlements with the
Registrant's pipeline transportation suppliers. FERC has
approved settlements with two of its pipelines, which account
for the bulk of its transition costs. Negotiations are
continuing on the two additional pipelines, but recent
developments have considerably reduced the uncertainty
surrounding the two remaining pipelines. Therefore, the
Registrant believes that its current range for transition
costs is appropriate.
PAGE I-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
For the current quarter, the Registrant's current
operating revenues, operating margin and net income have
decreased over the comparable period presented, as shown in
the table below:
(thousands where applicable)
PERCENT
1994 1993 VARIANCE VARIANCE
Operating revenues $49,302 $62,957 $(13,655) (21.7)
======= ======= ======== =======
Operating margin $23,176 $24,183 $ (1,007) (4.2)
======= ======= ======== =======
Net income $ 3,307 $ 3,714 $ (407) (11.0)
======= ======= ======== =======
Factors having a direct impact on these results were:
During the latest quarter, the Registrant experienced
unseasonably warm weather resulting in temperatures averaging
18.5 percent warmer than last year. This loss of heating load
due to the warmer temperatures represents $2.5 million or 30
cents per share of common stock, net of tax. The adverse
impact of the warm weather was offset by approximately $1.0
million due to rate design changes that went into effect in
November 1993. This makes the first quarter results
incomparable to last year's first quarter results. This $1.0
million will reverse itself throughout the remainder of the
fiscal year.
Another factor having an impact on the quarterly results
was the change in The Providence Gas Company's (ProvGas) rate
design that occurred in the first quarter of fiscal 1994.
The Rhode Island Public Utilities Commission (RIPUC) approved
ProvGas' request for a declining block rate structure and an
increased customer charge. This new rate structure not only
allows ProvGas to recover fixed costs sooner but also protects
ProvGas and its customers from extreme changes in weather
conditions. Had ProvGas not had this type of rate structure,
the effect of the current warm spell on the Registrant's
operating margin would have been more severe.
PAGE I-7
The net increase in the average number of customers for
the latest period as compared to last year was approximately
1,400 or .8 percent. The modest increase was the result of
new housing construction and conversions from other energy
sources offset by shut-offs for non-payments and housing
vacancies due to a stagnant economy.
As a result of the warm temperatures experienced during
the latest quarter offset by a slight increase in customers,
residential sales, which provide the Registrant with its
greater source of operating margin, decreased 517 million
cubic feet (MMcf) or 14.9 percent.
Overall, other operating and maintenance expenses
decreased approximately $400,000 or 3.7 percent. The primary
reasons for the decrease are attributable to a lower
uncollectible revenue provision due to the decrease in
operating revenues, a reduction in labor and related costs
resulting from the restructuring initiative that occurred at
ProvGas in June 1994 and the impact of new technologies and
efficiency reviews as part of our continuous improvement
program. The restructuring savings, however, will be somewhat
mitigated once the Registrant's new positions have been
filled. Offsetting the above was an increase in maintenance
expense due to the timing of expenses associated with the
Registrant's joint sealing program.
Taxes for the current quarter versus last year decreased
approximately $700,000 or 13.5 percent. The decrease in
taxes, mainly Federal income and state gross receipts tax, was
the result of lower pretax income and lower operating
revenues, respectively.
Interest expense increased approximately $300,000 or 21.1
percent. An increase in short-term interest rates offset by a
slight decrease in weighted average short-term borrowings
caused short-term interest expense to increase. Furthermore,
long-term interest expense increased due to the issuance of
First Mortgage Bonds, Series Q.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant meets seasonal cash requirements and
finances its capital expenditures program on an interim basis
through short-term borrowings. For example, during the latest
quarter, the Registrant's accounts receivable and unbilled
revenue have increased $20.5 million. These fluctuations are
the result of higher monthly sales during the latest quarter
and a moratorium on residential shut-offs during the heating
PAGE I-8
season. Because of these increases, which negatively impact
cashflow, the Registrant must borrow to maintain an
appropriate level of liquidity. Management believes its
available financings are sufficient to meet these seasonal
needs.
The Registrant experienced a sharp increase in its net
cash provided by operations during the latest quarter as
compared to last year. The primary reason for the increase
was due to the collection of gas costs from an undercollection
that existed in 1994.
On October 3, 1991, the Massachusetts Department of
Public Utilities (MDPU) approved a settlement order reached
between the Massachusett's Attorney Generals Office and North
Attleboro Gas Company. Due to the magnitude of the award (32
percent), the MDPU ordered North Attleboro Gas to phase-in the
award over a five year period effective November 1, 1991. As
a result, North Attleboro phased-in an annual revenue increase
of $141,137 on November 1, 1994. The final revenue increase
of $94,445 will be phased-in on November 1, 1995.
In November 1993, ProvGas received proceeds of $16
million related to an issuance of First Mortgage Bonds, Series
Q (5.62%). The net proceeds received from the issuance were
used to pay down short-term debt. Short-term debt was earlier
used to call long-term debt bearing a higher interest rate.
The previous issuances called were First Mortgage Bonds,
Series L (8.85%) and the Series II Senior Debentures (8.50%).
This issuance is expected to generate annual interest savings
of approximately $300,000, net of tax.
The Registrant anticipates filing a rate case with the
RIPUC seeking a realignment of costs between different rate
classes and a general annual revenue increase.
The Registrant is currently reviewing its capitalization
structure with the intent of possibly changing appropriate
ratios.
Capital expenditures for the latest quarter were $4.6
million as compared to $4.3 million last year. The increase
in capital expenditures was for new and replacement mains,
services, meters and electronic meter reading equipment.
Anticipated capital expenditures for the next three years are
expected to total between $45 million to $55 million.
PAGE I-9
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6 (b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
PAGE II-1
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
It is the opinion of management that the financial information
contained in this report reflects all adjustments necessary to a
fair statement of results for the period reported, but such
results are not necessarily indicative of results to be expected
for the year due to the seasonal nature of the Registrant's gas
operations. All accounting policies and practices have been
applied in a manner consistent with prior periods.
SIGNATURE
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.
Providence Energy Corporation
(Registrant)
BY:/s/ Gary S. Gillheeney
GARY S. GILLHEENEY
Vice President, Financial
and Information Services,
Treasurer and Assistant
Secretary
Dated: February 9, 1995
PAGE II - 2
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
It is the opinion of management that the financial information
contained in this report reflects all adjustments necessary to a
fair statement of results for the period reported, but such
results are not necessarily indicative of results to be expected
for the year due to the seasonal nature of the Registrant's gas
operations. All accounting policies and practices have been
applied in a manner consistent with prior periods.
SIGNATURE
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.
Providence Energy Corporation
(Registrant)
BY:
GARY S. GILLHEENEY
Vice President, Financial
and Information Services,
Treasurer and Assistant
Secretary
Dated: February 9, 1995
PAGE II - 2
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 3446
<SECURITIES> 0
<RECEIVABLES> 41,246
<ALLOWANCES> 0
<INVENTORY> 12,438
<CURRENT-ASSETS> 9,544
<PP&E> 244,117
<DEPRECIATION> 83,084
<TOTAL-ASSETS> 245,939
<CURRENT-LIABILITIES> 75,075
<BONDS> 58,353
<COMMON> 79,296
0
8,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 245,939
<SALES> 49,302
<TOTAL-REVENUES> 49,302
<CGS> 26,126
<TOTAL-COSTS> 16,270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,700
<INCOME-PRETAX> 5,206
<INCOME-TAX> 1,725
<INCOME-CONTINUING> 3,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 174
<NET-INCOME> 3,307
<EPS-PRIMARY> .59
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