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 June 30, 1995
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 0-1160
THE PROVIDENCE GAS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0203650
(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) 272-5040
Registrant's telephone number, including area code
(Former name,former address and former fiscal year,if changed since
last report)
Indicate by checkmark 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:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1.00 par value; 1,243,598 shares outstanding at
August 14, 1995.
THE PROVIDENCE GAS COMPANY
FORM 10-Q
JUNE 30, 1995
PART I: FINANCIAL INFORMATION PAGE
Item 1: Financial Statements
Consolidated Statements of Income for the
three, nine and twelve months ended
June 30, 1995 and 1994 I-1
Consolidated Balance Sheets as of June 30, 1995,
June 30, 1994 and September 30, 1994 I-2
Consolidated Statements of Cash Flows
for the nine months ended June 30, 1995
and 1994 I-3
Consolidated Statements of Capitalization
as of June 30, 1995, June 30, 1994
and September 30, 1994 I-4
Notes to Consolidated Financial Statements I-5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations I-7
PART II: OTHER INFORMATION
Item 6: Reports on Form 8-K II-1
Signature II-2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
THREE MONTHS
1995 1994
(Thousands, except per share amounts)
Operating revenues $ 37,397 $ 41,917
Cost of gas sold 20,821 25,612
Operating margin 16,576 16,305
Operating expenses:
Other operation 9,733 10,171
Maintenance 1,121 978
Depreciation and
amortization 2,485 2,324
Taxes -
State gross earnings 1,044 1,166
Local property and
other 1,684 1,670
Federal income (358) (556)
Total operating
expenses 15,709 15,753
Operating income 867 552
Other income, net 303 118
Income
before interest
expense 1,170 670
Interest expense:
Long-term debt 1,268 1,277
Other 576 334
Interest capitalized (28) (26)
1,816 1,585
Net income (loss) (646) (915)
Dividends on preferred
stock (174) (174)
Net income (loss) applicable
to common stock $ (820) $ (1,089)
======== ========
Earnings (loss) per
common share $ (.66) $ (.88)
======== ========
Dividends paid per
common share $ .92 $ .92
======== ========
Weighted average common shares
outstanding 1,243.6 1,243.6
======== ========
PAGE I-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
NINE MONTHS
1995 1994
(Thousands, except per share amounts)
Operating revenues $150,080 $185,785
Cost of gas sold 82,462 114,262
Operating margin 67,618 71,523
Operating expenses:
Other operation 30,280 33,602
Maintenance 3,119 2,900
Depreciation and
amortization 7,455 6,971
Taxes -
State gross earnings 4,149 5,360
Local property and
other 4,990 5,005
Federal income 4,414 4,432
Total operating
expenses 54,407 58,270
Operating income 13,211 13,253
Other income, net 621 559
Income
before interest
expense 13,832 13,812
Interest expense:
Long-term debt 3,819 3,687
Other 1,664 966
Interest capitalized (75) (79)
5,408 4,574
Net income 8,424 9,238
Dividends on preferred
stock (522) (522)
Net income applicable
to common stock $ 7,902 $ 8,716
======== ========
Earnings per
common share $ 6.35 $ 7.01
======== ========
Dividends paid per
common share $ 2.76 $ 2.70
======== ========
Weighted average common shares
outstanding 1,243.6 1,243.6
======== ========
PAGE I-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
TWELVE MONTHS
1995 1994
(Thousands, except per share amounts)
Operating revenues $183,438 $218,745
Cost of gas sold 101,515 136,581
Operating margin 81,923 82,164
Operating expenses:
Other operation 38,186 42,849
Maintenance 3,954 3,804
Depreciation and
amortization 9,829 9,183
Taxes -
State gross earnings 5,115 6,327
Local property and
other 6,072 6,489
Federal income 4,351 2,501
Total operating
expenses 67,507 71,153
Operating income 14,416 11,011
Other income, net 471 576
Income
before interest
expense 14,887 11,587
Interest expense:
Long-term debt 5,119 4,967
Other 1,940 1,204
Interest capitalized (104) (101)
6,955 6,070
Net income 7,932 5,517
Dividends on preferred
stock (696) (696)
Net income applicable
to common stock $ 7,236 $ 4,821
======== ========
Earnings per
common share $ 5.82 $ 3.88
======== ========
Dividends paid per
common share $ 3.68 $ 3.59
======== ========
Weighted average common shares
outstanding 1,243.6 1,243.6
======== ========
PAGE I-1
THE PROVIDENCE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
June 30, June 30, September 30,
1995 1994 1994
ASSETS
Gas plant, at original cost $243,322 $223,964 $230,926
Less - Accumulated depreciation and
utility plant acquisition adjustments 86,112 77,658 79,447
157,210 146,306 151,479
Current assets:
Cash and temporary cash investments 708 1,265 844
Accounts receivable and unbilled revenue, less
allowance of $3,515 at 6/30/95, $4,915 at
6/30/94 and $2,923 at 9/30/94 24,107 30,598 20,541
Deferred gas costs -- 9,570 15,349
Inventories, at average cost -
Liquefied natural gas, propane and under-
ground storage 7,129 8,373 11,123
Materials and supplies 1,410 2,443 1,590
Prepaid and refundable taxes 5,692 4,198 3,507
Prepayments 697 583 1,458
39,743 57,030 54,412
Deferred charges and other assets 15,565 14,207 15,286
Total assets $212,518 $217,543 $221,177
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization: $140,618 $138,342 $137,919
Current liabilities:
Notes payable 7,700 15,200 24,700
Current portion of long-term debt 1,875 2,080 2,085
Accounts payable 15,759 20,844 18,039
Accrued taxes 8,494 7,205 6,057
Accrued vacation 1,870 1,987 1,543
Customer deposits 3,775 3,485 3,520
Refundable gas costs 5,384 -- --
Other 2,544 3,182 2,779
47,401 53,983 58,723
Deferred credits and reserves:
Accumulated deferred Federal income taxes 15,931 14,577 15,065
Unamortized investment tax credits 2,708 2,865 2,826
Other 5,860 7,776 6,644
24,499 25,218 24,535
Total capitalization and liabilities $212,518 $217,543 $221,177
======== ======== ========
Page I-2
<PAGE>
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30
(Unaudited)
1995 1994
(Thousands)
Cash provided by (used for)
Operations:
Net income $ 8,424 $ 9,238
Items not requiring cash-
Depreciation and amortization 7,437 6,953
Deferred Federal income taxes 866 594
Amortization of investment tax credits (118) (119)
Change in assets and liabilities
which provided (used) cash:
Accounts receivable (3,566) (10,871)
Refundable gas costs 20,733 10,499
Inventories 4,174 2,310
Prepaid and refundable taxes (2,185) 952
Prepayments 761 254
Accounts payable (2,280) (1,319)
Accrued taxes 2,437 1,832
Accrued vacation, customer deposits
& other 347 1,140
Net cash provided by operations 37,030 21,463
Investment Activities:
Expenditures for property, plant and
equipment (12,423) (11,241)
Deferred charges and other (1,880) 272
Total (14,303) (10,969)
Financing Activities:
Issuance of mortgage bonds -- 16,000
Payments on long-term debt (1,908) (347)
(Decrease) in notes payable (17,000) (21,600)
Cash dividends on preferred stock (522) (522)
Cash dividends on common stock (3,433) (3,357)
Total (22,863) (9,826)
Increase in cash & temporary cash
investments (136) 668
Cash and cash equivalents at beginning
of year 844 597
Cash and cash equivalents at end of period $ 708 $ 1,265
======== ========
Supplemental disclosures of cash flow information:
Cash paid year-to-date -
Interest (net of amount capitalized) $ 2,829 $ 4,089
Income taxes (net of refunds) $ 1,410 $ 2,300
PAGE I-3
<PAGE>
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS)
(Unaudited)
June 30, June 30, September 30,
1995 1994 1994
Common stock equity:
Common stock, $1 par
Authorized - 2,500 shares
Outstanding - 1,244 at 6/30/95, 6/30/94
and 9/30/94 $ 1,244 $ 1,244 $ 1,244
Amount paid in excess of par 37,812 36,372 37,883
Retained earnings 35,183 32,524 30,714
Total common stock equity 74,239 70,140 69,841
Cumulative preferred stock:
Redeemable 8.70% Series, $100 par
Authorized - 80 shares
Outstanding - 80 shares at 6/30/95,
6/30/94 and 9/30/94 8,000 8,000 8,000
Long-term debt:
First mortgage bonds 59,400 61,000 61,000
Capital leases 854 1,282 1,163
Total long-term debt 60,254 62,282 62,163
Less: current portion 1,875 2,080 2,085
Long-term debt, net 58,379 60,202 60,078
Total capitalization $ 140,618 $ 138,342 $ 137,919
========= ========= =========
PAGE I-4
<PAGE>
THE PROVIDENCE GAS COMPANY
Notes to Consolidated Financial Statements
Accounting Policies
It is the Registrant's opinion that the consolidated financial
information contained in this report reflects all normal, recurring
adjustments necessary to provide 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 the consolidated 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.
Reclassification
Certain amounts included in prior year balance sheets have been
reclassified for consistent presentation with the current period.
Environmental Matters
Federal, state and local laws and regulations establishing standards and
requirements for the 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 activities and current operations. 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, related to the items mentioned below, the
Registrant anticipates recovery from third parties or through rates.
The Registrant is aware of three sites at which it may incur costs for
environmental investigation and possible clean-up. The Registrant has been
designated as a "potentially responsible party" ("PRP") under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("CERCLA") at
two sites at Plympton, Massachusetts on which waste material is alleged to
have been deposited by disposal contractors employed in the past either directly
or indirectly by the Registrant and other PRP's. With respect to one of the
Plympton sites, the Registrant expects to join with other PRP's in entering
into an Administrative Consent Order ("ACO") with the Massachusetts Department
of Environmental Protection. Under the proposed ACO, the costs to be borne by
the Registrant, pursuant to the ACO, are not anticipated to be material to the
financial condition of the Registrant.
As of June 30, 1995, the Registrant had spent approximately $400,000 in
connection with the investigation and clean-up of the third site, located in
Providence, RI.
Management anticipates requesting rate relief for all costs related to
the environmental matters for these three sites and therefore believes that
the ultimate resolution of these matters will not have a materially adverse
affect on the financial condition of the Registrant.
PAGE I-5
FERC Order 636
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 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 clause (CGA) and is currently being collected from customers.
The remaining minimum obligation of $7.7 million has been recorded in
the accompanying consolidated balance sheets 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 CONDITION
AND RESULTS OF OPERATIONS
The Registrant's current operating revenues have decreased over the
comparable fiscal periods last year. Operating margin increased in the
current quarter, but fell in comparison to the current nine and twelve
month periods. Net income increased both in the current quarter and the
twelve month period, yet decreased compared to the equivalent nine month
period last year.
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED JUNE ENDED JUNE ENDED JUNE
1995 1994 1995 1994 1995 1994
(000's)
Operating revenues $37,397 $41,917 $150,080 $185,785 $183,438 $218,745
================ ================= =================
Operating margin $16,576 $16,305 $ 67,618 $ 71,523 $ 81,923 $ 82,164
================ ================= =================
Net income (loss)
applicable to $ (820) $(1,089)$ 7,902 $ 8,716 $ 7,236 $ 4,821
common stock ================ ================= =================
Operating Revenues and Operating Margin
In all periods, the significant decrease in operating revenues is
directly attributed to weather and to a lower cost of gas adjustment
factor.
In the nine month period, the Registrant has experienced unseasonably
warm weather resulting in temperatures averaging 15.0 percent warmer
than last year. This represents a $5.1 million loss in margin from
heating load. The loss of margin due to this year's warmer weather
versus last year's colder weather equates to a loss of about 60 cents
per share, net of tax. On a normalized basis, weather for the nine
months ended averaged 10.7 percent warmer equating to a loss of about
45 cents per share, net of tax.
The warmer than normal weather would have affected earnings more
dramatically in prior years. However, a new rate structure effective
October 15, 1993, implementing a declining block rate structure, a
seasonal gas cost accounting method and an increased customer charge has
reduced the Registrant's margin sensitivity to weather by approximately
40 to 50 percent.
The net average number of customers for the twelve month period has
increased approximately 1.0 percent. New housing construction and
customer conversions from other energy sources have attributed to this
increase, but offset by shut-offs for non-payments and housing vacancies
due to a stagnant economy.
Operating and Maintenance Expenses
Operating and maintenance expenses have remained relatively flat in
the quarter, but decreased $3.1 million or 8.5 percent for the nine
month period and $4.5 million or 9.7 percent for the twelve months
ended. These decreases are due to a lower uncollectible revenue
provision resulting from the decrease in operating revenue and the
PAGE I-7
stabilization of the Registrant's collection of accounts receivable.
The remainder of the decrease is primarily attributable to a reduction
in labor and related expenses. The restructuring initiative that
occurred in June, 1994, and the impact of efficiency reviews as part of
the continuous improvement programs (CIP), have also contributed to the
reduction in labor expenses. However, the Registrant has recently
filled many of the staff positions vacated as a result of the
restructuring. These additional labor and related expenses combined
with normal expenses planned for the fourth quarter of the fiscal year
are anticipated to offset a portion of the decrease in operating and
maintenance expenses experienced in the nine months ended.
Taxes
Taxes for the quarter and twelve month period remained relatively
flat, while decreasing $1.2 million or 8.4 percent in the current nine
month period. This was mainly due to a reduction in Federal income
taxes as a result of lower pretax income and a reduction in the state
gross earnings tax as a result of lower operating revenues from warmer
than normal weather.
Interest Expense
Interest expense increased $231,000 or 14.6 percent, $834,000 or
18.2 percent and $885,000 or 14.6 percent in the three, nine and twelve
month periods, respectively. 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. The Registrant's long-
term interest expense for the nine and twelve month periods has
increased slightly as a result of the Series Q First Mortgage Bond
issuance in November, 1993.
Future Outlook
In August 1995, the Registrant and Catex Vitol Gas formed a
strategic business alliance to jointly market natural gas and other
energy services. This agreement is the first such business alliance for
both companies. Catex Vitol will contribute its experience in gas
acquisition and transportation and its expertise in financial energy
services. With this alliance, the Registrant's customers will have
greater access to energy products and services.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant meets seasonal cash requirements and finances its
capital expenditures program on an interim basis through short-term
borrowings. The Registrant's short term borrowing requirements have
decreased in the current period as compared to last year primarily as a
result of the lower accounts receivable balance at June 30, 1995. This
decrease is the result of the warmer than normal weather and increased
collection efforts. As a result, the Registrant has lowered its current
need to borrow from financial institutions.
PAGE I-8
The Registrant experienced an increase in its net cash provided by
operations during the latest nine months as compared to last year. The
primary reason for the increase was due to the collection of gas costs
from the undercollection that existed in 1994. The increase in cash has
also allowed the Registrant to decrease its line of credit borrowings.
Capital expenditures for the latest fiscal year-to-date period were
$12.4 million as compared to $11.2 million last year. The increase in
capital expenditures was for electronic meter reading equipment
associated with the Registrant's Automated Meter Reading initiative.
Total anticipated capital expenditures for the next three years are
expected to total between $50 million to $60 million.
In February 1995, the Registrant filed for rate relief requesting
an approximate 8 percent general rate increase. If the requested rate
relief is granted in its entirety, the Registrant's annual operating
revenues are expected to increase by $14.9 million under normal weather
conditions. However, there is no assurance that all or any portion of
the requested relief will be granted. A decision from the Rhode Island
Public Utilities Commission on the rate request is not expected until
November 1995. The major issues contributing to the rate request are an
increase in depreciation due to capital spending, an increase in working
capital needs and an increase in capital expenditures.
In November 1993, the Registrant 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 used earlier 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%).
The Registrant is currently contemplating an issuance of debt
within the next six months.
PAGE I-9
<PAGE>
PART II: OTHER INFORMATION
Reports on Form 8-K
Item 6(b)
No reports on Form 8-K were filed during the quarter for which this
report is filed.
PAGE II-1
<PAGE>
THE PROVIDENCE GAS COMPANY
It is the opinion of management that the financial infor-
mation contained in this report reflects all adjustments neces-
sary 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 Company'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.
The Providence Gas Company
(Registrant)
BY:
GARY S. GILLHEENEY
Vice President, Financial
and Information Services,
Treasurer and Assistant Secretary
Date: August 14, 1995
PAGE II - 2
THE PROVIDENCE GAS COMPANY
It is the opinion of management that the financial infor-
mation contained in this report reflects all adjustments neces-
sary 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
Company'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.
The Providence Gas Company
(Registrant)
BY:/s/ Gary S. Gillheeney
GARY S. GILLHEENEY
Vice President, Financial
and Information Services,
Treasurer and Assistant Secretary
Date: August 14, 1995
PAGE II - 2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 708
<SECURITIES> 0
<RECEIVABLES> 24,107
<ALLOWANCES> 3,515
<INVENTORY> 8,539
<CURRENT-ASSETS> 39,743
<PP&E> 243,322
<DEPRECIATION> 86,112
<TOTAL-ASSETS> 212,518
<CURRENT-LIABILITIES> 47,401
<BONDS> 59,400
<COMMON> 74,239
0
8,000
<OTHER-SE> 2,729
<TOTAL-LIABILITY-AND-EQUITY> 212,518
<SALES> 150,080
<TOTAL-REVENUES> 150,080
<CGS> 82,462
<TOTAL-COSTS> 82,462
<OTHER-EXPENSES> 54,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,408
<INCOME-PRETAX> 12,838
<INCOME-TAX> 4,414
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,902
<EPS-PRIMARY> 6.35
<EPS-DILUTED> 0
</TABLE>
