<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------
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 2-23416
--------
BOSTON GAS COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1103580
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BEACON STREET, BOSTON, MASSACHUSETTS 02108
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
617-742-8400
--------------------------------------------------
(Registrant's telephone number, including area code)
NONE
---------------------------------------------------
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
--- ----
Common stock of Registrant at the date of this report was 514,184 shares, all
held by Eastern Enterprises.
<PAGE>
FORM 10-Q
Page 2
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Company or group of companies for which report is filed:
BOSTON GAS COMPANY AND SUBSIDIARY ("Registrant")
CONSOLIDATED STATEMENTS OF EARNINGS
- -----------------------------------
<TABLE>
<CAPTION> (In Thousands)
For The Three Months Ended For The Nine Months Ended
-----------------------------------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUES $59,453 $56,957 $539,314 $480,814
Cost of gas sold 24,720 23,100 323,098 276,275
------- ------- -------- --------
OPERATING MARGIN 34,733 33,857 216,216 204,539
OPERATING EXPENSES:
Other operating expenses 33,240 34,945 120,283 117,204
Maintenance 5,497 4,715 18,448 16,480
Depreciation and amortization 4,746 4,997 31,629 28,850
Income taxes (4,992) (6,068) 12,941 10,543
------- ------- -------- --------
Total Operating Expenses 38,491 38,589 183,301 173,07
------- ------- -------- --------
OPERATING EARNINGS (LOSS) (3,758) (4,732) 32,915 31,462
OTHER EARNINGS, NET 251 227 586 523
------- ------- -------- --------
EARNINGS (LOSS) BEFORE INTEREST EXPENSE (3,507) (4,505) 33,501 31,985
INTEREST EXPENSE:
Long-term debt 4,192 4,506 12,577 13,639
Other, including amortization
of debt expense 143 473 1,051 2,095
Less - Interest during construction (163) (133) (274) (236)
------- ------- -------- --------
Total Interest Expense 4,172 4,846 13,354 15,498
------- ------- -------- --------
NET EARNINGS (LOSS) (7,679) (9,351) 20,147 16,487
Preferred Stock Dividends 482 482 1,445 1,445
------- ------- -------- --------
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $(8,161) $(9,833) $ 18,702 $ 15,042
------- ------- -------- --------
COMMON STOCK DIVIDENDS $ - $ - $ 10,335 $ 9,358
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 3
BOSTON GAS COMPANY AND SUBSIDIARY
- ---------------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $760,015 $708,380 $761,607
Construction work-in-progress 35,959 35,201 486
Less-Accumulated depreciation 282,583 247,295 254,448
-------- -------- --------
Total Net Plant 513,391 496,286 507,645
-------- -------- --------
CURRENT ASSETS:
Cash and cash equivalents 2,626 1,142 5,841
Accounts receivable, less reserves
of $17,408 and $16,242 at
September 30, 1996 and 1995,
respectively, and $15,324 at
December 31, 1995 32,185 25,599 74,519
Deferred gas costs 44,773 64,632 71,940
Natural gas and other inventories 48,728 44,443 35,136
Materials and supplies 4,602 5,449 4,770
Prepaid expenses 4,588 4,430 3,259
Income taxes 7,099 2,554 368
-------- -------- --------
Total Current Assets 144,601 148,249 195,833
-------- -------- --------
OTHER ASSETS:
Deferred postretirement benefits cost 89,808 94,340 93,829
Deferred charges and other assets 34,180 26,648 32,180
-------- -------- --------
Total Other Assets 123,988 120,988 126,00
-------- -------- --------
TOTAL ASSETS $781,980 $765,523 $829,487
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 4
BOSTON GAS COMPANY AND SUBSIDIARY
- ---------------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
Sept. 30, Sept. 30, Dec. 31,
1996 1995 1995
--------- --------- --------
LIABILITIES AND STOCKHOLDER'S INVESTMENT
CAPITALIZATION:
<S> <C> <C> <C>
Stockholder's investment -
Common stock, $100 par value,
514,184 shares authorized and outstanding $ 51,418 $ 51,418 $ 51,418
Amounts in excess of par value 43,233 43,233 43,233
Retained earnings 127,913 113,783 119,546
-------- -------- --------
Total Common Stockholder's Investment 222,564 208,434 214,197
-------- -------- --------
Variable term cumulative preferred stock,
$1 par value, 1,200,000 shares authorized
and outstanding 29,284 29,254 29,262
Long-term obligations, less current portion 211,862 212,879 212,772
-------- -------- --------
Total Capitalization 463,710 450,567 456,231
-------- -------- --------
Gas Inventory Financing 49,159 43,982 45,600
-------- -------- --------
TOTAL CAPITALIZATION AND GAS INVENTORY
FINANCING 512,869 494,549 501,831
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 1,017 1,498 1,509
Notes payable 13,700 4,100 52,000
Accounts payable 41,771 39,708 53,490
Accrued taxes 1,706 1,599 1,011
Accrued interest 8,503 8,167 3,959
Customer deposits 2,409 2,717 2,789
Refunds due customers 3,880 15,864 13,173
Pipeline transition costs 9,225 8,536 9,510
-------- -------- --------
TOTAL CURRENT LIABILITIES 82,211 82,189 137,441
-------- -------- --------
OTHER LIABILITIES:
Deferred income taxes 71,350 66,926 72,001
Unamortized investment tax credits 7,069 8,001 7,767
Postretirement benefits obligation 85,255 89,443 86,589
Other 23,226 24,415 23,858
-------- -------- --------
Total Other Liabilities 186,900 188,785 190,215
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S INVESTMENT $781,980 $765,523 $829,487
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 5
<TABLE>
<CAPTION>
BOSTON GAS COMPANY AND SUBSIDIARY
- ----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
(In Thousands)
For The Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 20,147 $ 16,487
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 31,629 28,850
Deferred taxes (651) 349
Other changes in assets and liabilities:
Accounts receivable 42,334 45,809
Inventory (13,424) 2,015
Deferred gas costs 27,167 25,071
Accounts payable (11,719) (2,945)
Accrued interest 4,544 4,643
Federal and state income taxes (6,731) (1,147)
Refunds due customers (9,293) (2,855)
Other (1,246) 5,399
-------- --------
Net cash provided by operating activities 82,757 121,676
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (36,750) (38,453)
Net cost of removal (2,723) (4,227)
-------- --------
Net cash used for investing activities (39,473) (42,680)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt, net (38,300) (58,430)
Changes in inventory financing 3,559 (9,596)
Repayment of long-term debt - (2,880)
Changes in preferred stock 22 24
Cash dividends paid on common and preferred stock (11,780) (10,803)
-------- --------
Net cash used for financing activities (46,499) (81,685)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,215) (2,689)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,841 3,831
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,626 $ 1,142
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 9,673 $ 10,941
Income taxes $ 20,567 $ 11,546
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 6
BOSTON GAS COMPANY AND SUBSIDIARY
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SEPTEMBER 30, 1996
------------------
1. ACCOUNTING POLICIES AND OTHER INFORMATION
- -- -----------------------------------------
GENERAL
-------
It is the Registrant's opinion that the financial information contained
in this report reflects all normal, recurring adjustments necessary to
present 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 business. 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 1995 filed on
Form 10-K, are adequate to make the information presented not misleading.
CASH AND CASH EQUIVALENT
------------------------
For purposes of the consolidated statements of cash flow, the Registrant
considers highly liquid investment instruments purchased with a maturity of
three months or less to be cash equivalents.
SEASONAL ASPECT
---------------
The amount of natural gas sold by the Registrant for purposes of space
heating is directly related to the ambient air temperature. Consequently,
less gas is sold during the summer months than is sold during the winter
months. In order to more properly match depreciation and property tax
expense with gas sales revenues each month, the Registrant charges to
depreciation and property tax expense an amount equal to the percentage of
the annual volume of firm gas sales forecasted for the month, applied to
the estimated annual depreciation and property tax expense.
2. GAS INVENTORY FINANCING
-----------------------
The Registrant funds all of its inventory of gas supplies through external
sources. All costs related to this funding are recoverable from its
customers. The Registrant maintains a credit agreement with a group of
banks which provides for the borrowing of up to $70,000,000 for the
exclusive purpose of funding its inventory of gas supplies or for backing
commercial paper issued for the same purpose. At September 30, 1996 and
1995, the Registrant had $49,159,000 and $43,982,000, respectively, of
commercial paper outstanding for this purpose. Since the commercial paper
is supported by the credit agreement, these borrowings have been classified
as non-current in the accompanying consolidated balance sheets.
<PAGE>
FORM 10-Q
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS:
--------------
RESULTS OF OPERATIONS
---------------------
The seasonal net loss for the third quarter of 1996 was $1.7 million less
than the same quarter of 1995. This improvement primarily reflects the
absence of third quarter 1995 severance charges related to the
Registrant's reengineering program, increased demand, and lower interest
expense. Increases in non-labor related operating expenses were
partially offsetting.
Net earnings applicable to common stock for the first nine months of 1996
were $18.7 million, an increase of $3.7 million or 24% from 1995. Colder
weather and higher average customer usage ($5.3 million) and increased
sales to new customers ($2.1 million) more than offset an environmental
recovery ($.9 million) recognized in 1995. Weather for the first nine
months of 1996 was 3% colder than normal, in contrast to slightly warmer
than normal weather for the first nine months of 1995. Also contributing
to the improved level of earnings was reduced interest expense primarily
resulting from lower rates due to the refinancing of $60 million of
Debentures in the fourth quarter of 1995. Partially offsetting the
preceding were higher depreciation and property taxes related to system
infrastructure investments, higher non-labor spending, and a lower level
of capitalized expense. Increased wages and weather-related overtime
were offset by labor savings and productivity improvements associated
with the Registrant's reengineering program.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant believes that projected cash flow from operations, in
combination with currently available resources, is more than sufficient
to meet 1996 capital expenditure and working capital requirements, normal
debt repayments and dividend payments.
Capital expenditures for the year are projected to be in line with the
original estimate of $60 million.
On May 17, 1996, the Registrant filed a restructuring and performance-
based regulation ("PBR") proposal with the Massachusetts Department of
Public Utilities. As part of this proposal, the Registrant has requested
a revenue increase of approximately $30 million to become effective
December 1, 1996.
In the restructuring proposal, the Registrant has proposed to unbundle
its services through the opening of its distribution system to
competition.
Under the plan, all customers, on a phased basis, would be allowed a
choice among alternate gas suppliers. The Registrant has proposed to
cease the purchasing and reselling of gas (commonly referred to as the
"merchant function") by the year 2000 and to become a "distribution-only"
company. In general, PBR would set future rates according to a pre-
determined formula. Any savings or productivity gains achieved by the
Registrant in excess of target levels would increase operating earnings,
while any shortfalls would result in lower earnings. The Registrant has
proposed that the PBR plan last for five years.
<PAGE>
FORM 10-Q
Page 8
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
--------------------------
Other than the ordinary routine litigation involving the Registrant's
business, there are no material pending legal proceedings involving the
Registrant.
ITEM 2. CHANGES IN SECURITIES
------------------------------
At September 30, 1996, under the most restrictive provision limiting
dividend payments in the Registrant's financing indentures, there were no
restrictions on retained earnings available for dividends.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) List of Exhibits
None
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE>
FORM 10-Q
Page 9
SIGNATURES
----------
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 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 business of the Registrant. Except as otherwise
herein indicated, all accounting policies have been applied in a manner
consistent with prior periods. Such financial information is subject to
year-end adjustments and an annual audit by independent public accountants.
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.
Boston Gas Company
----------------------------------------
(Registrant)
/s/ Joseph F. Bodanza
----------------------------------------
J. F. Bodanza, Senior Vice President and
Treasurer (Principal Financial
and Accounting Officer)
Dated: October 29, 1996
----------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 513,391
<OTHER-PROPERTY-AND-INVEST> 2,547
<TOTAL-CURRENT-ASSETS> 144,601
<TOTAL-DEFERRED-CHARGES> 31,633
<OTHER-ASSETS> 89,808
<TOTAL-ASSETS> 781,980
<COMMON> 51,418
<CAPITAL-SURPLUS-PAID-IN> 43,233
<RETAINED-EARNINGS> 127,913
<TOTAL-COMMON-STOCKHOLDERS-EQ> 222,564
29,284
0
<LONG-TERM-DEBT-NET> 208,983
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 49,159
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 2,879
<LEASES-CURRENT> 1,017
<OTHER-ITEMS-CAPITAL-AND-LIAB> 268,094
<TOT-CAPITALIZATION-AND-LIAB> 781,980
<GROSS-OPERATING-REVENUE> 539,314
<INCOME-TAX-EXPENSE> 12,941
<OTHER-OPERATING-EXPENSES> 120,283
<TOTAL-OPERATING-EXPENSES> 183,301
<OPERATING-INCOME-LOSS> 32,915
<OTHER-INCOME-NET> 586
<INCOME-BEFORE-INTEREST-EXPEN> 33,501
<TOTAL-INTEREST-EXPENSE> 13,354
<NET-INCOME> 20,147
1,445
<EARNINGS-AVAILABLE-FOR-COMM> 18,702
<COMMON-STOCK-DIVIDENDS> 10,335
<TOTAL-INTEREST-ON-BONDS> 12,577
<CASH-FLOW-OPERATIONS> 82,755
<EPS-PRIMARY> 36.37
<EPS-DILUTED> 36.37
</TABLE>
