<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 June 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
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Commission File Number 2-23416
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BOSTON GAS COMPANY
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(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
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(Address of principal executive offices)
(Zip Code)
617-742-8400
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(Registrant's telephone number, including area code)
NONE
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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.
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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 Six Months Ended
-------------------------- ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES $136,520 $129,616 $479,861 $423,857
Cost of gas sold 77,211 70,844 298,378 253,175
-------- -------- -------- --------
Operating Margin 59,309 58,772 181,483 170,682
OPERATING EXPENSES:
Other operating expenses 37,295 37,057 87,043 82,259
Maintenance 5,292 5,063 12,951 11,765
Depreciation and amortization 8,881 8,405 26,883 23,853
Income taxes 1,502 1,359 17,933 16,611
-------- -------- -------- --------
Total Operating Expenses 52,970 51,884 144,810 134,488
-------- -------- -------- --------
OPERATING EARNINGS 6,339 6,888 36,673 36,194
OTHER EARNINGS, NET 262 257 335 296
-------- -------- -------- --------
EARNINGS BEFORE INTEREST EXPENSE 6,601 7,145 37,008 36,490
INTEREST EXPENSE:
Long-term debt 4,193 4,526 8,385 9,133
Other, including amortization
of debt expense 168 518 908 1,622
Less - Interest during construction (83) (58) (111) (103)
-------- -------- -------- --------
Total Interest Expense 4,278 4,986 9,182 10,652
-------- -------- -------- --------
NET EARNINGS 2,323 2,159 27,826 25,838
Preferred Stock Dividends 481 481 963 963
-------- -------- -------- --------
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $ 1,842 $ 1,678 $ 26,863 $ 24,875
-------- -------- -------- --------
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)
June 30, June 30, December 31,
1996 1995 1995
------------ ------------ --------------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $761,593 $707,358 $761,607
Construction work-in-progress 20,104 20,060 486
Less-Accumulated depreciation 279,744 243,565 254,448
-------- -------- --------
Total Net Plant 501,953 483,853 507,645
-------- -------- --------
CURRENT ASSETS:
Cash and cash equivalents 18,077 16,722 5,841
Accounts receivable, less reserves
of $19,360 and $17,242 at
June 30, 1996 and 1995,
respectively, and $15,324 at
December 31, 1995 76,830 67,167 74,519
Deferred gas costs 5,449 27,000 71,940
Natural gas and other inventories 29,704 32,795 35,136
Materials and supplies 4,829 5,400 4,770
Prepaid expenses 4,455 4,748 3,259
Income taxes - - 368
-------- -------- --------
Total Current Assets 139,344 153,832 195,833
-------- -------- --------
OTHER ASSETS:
Deferred postretirement benefits cost 91,148 95,484 93,829
Deferred charges and other assets 31,109 27,302 32,180
-------- -------- --------
Total Other Assets 122,257 122,786 126,009
-------- -------- --------
TOTAL ASSETS $763,554 $760,471 $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)
June 30, June 30, December 31,
1996 1995 1995
--------- --------- -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S INVESTMENT
CAPITALIZATION:
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 136,073 123,615 119,546
-------- -------- --------
Total Common Stockholder's Investment 230,724 218,266 214,197
Cumulative preferred stock, $1 par value,
1,200,000 shares authorized and outstanding 29,276 29,245 29,262
Long-term obligations, less current portion 211,978 215,939 212,772
-------- -------- --------
Total Capitalization 471,978 463,450 456,231
GAS INVENTORY FINANCING 23,754 31,978 45,600
-------- -------- --------
Total Capitalization and Gas Inventory
Financing 495,732 495,428 501,831
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 1,561 1,938 1,509
Notes payable - - 52,000
Accounts payable 50,941 36,422 53,490
Accrued taxes 3,867 3,219 1,011
Accrued income taxes 7,651 6,907 -
Accrued interest 4,279 3,748 3,959
Customer deposits 2,555 2,787 2,789
Refunds due customers 3,835 15,677 13,173
Pipeline transition costs 10,852 8,383 9,510
-------- -------- --------
Total Current Liabilities 85,541 79,081 137,441
-------- -------- --------
OTHER LIABILITIES:
Deferred income taxes 68,707 66,800 72,001
Unamortized investment tax credits 7,302 8,235 7,767
Postretirement benefits obligation 85,618 89,732 86,589
Other 20,654 21,195 23,858
-------- -------- --------
Total Other Liabilities 182,281 185,962 190,215
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S INVESTMENT $763,554 $760,471 $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 Six Months Ended
------------------------
June 30, June 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $27,826 $25,838
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 26,883 23,853
Deferred taxes (3,294) 223
Other changes in assets and liabilities:
Accounts receivable (2,311) 4,241
Inventory 5,373 13,712
Deferred gas costs 66,491 39,865
Accounts payable (2,549) (6,231)
Accrued interest 320 224
Federal and state income taxes 8,019 8,314
Refunds due customers (9,338) (3,042)
Other 2,343 24,726
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Net cash provided by operating activities 119,763 131,723
------- -------
Cash flows from investing activities:
Capital expenditures (20,852) (21,884)
Net cost of removal (1,545) (2,513)
------- -------
Net cash used for investing activities (22,397) (24,397)
------- -------
Cash flows from financing activities:
Changes in short-term debt, net (52,000) (62,530)
Changes in inventory financing (21,846) (21,600)
Proceeds from issuance of long-term debt - -
Changes in preferred stock 14 16
Cash dividends paid on common and preferred stock (11,298) (10,321)
------- -------
Net cash used for financing activities (85,130) (94,435)
------- -------
Increase in cash and cash equivalents 12,236 12,891
Cash and cash equivalents at beginning of period 5,841 3,831
------- -------
Cash and cash equivalents at end of period $18,077 $16,722
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 9,082 $ 9,934
Income taxes $13,361 $ 8,234
</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
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JUNE 30, 1996
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1. ACCOUNTING POLICIES AND OTHER INFORMATION
-----------------------------------------
General
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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 Equivalents
-------------------------
For the purposes of the consolidated statements of cash flows, 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.
<PAGE>
FORM 10-Q
Page 7
BOSTON GAS COMPANY AND SUBSIDIARY
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
------------------------------------------
JUNE 30, 1996
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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 $90,000,000 for the exclusive
purpose of funding its inventory of gas supplies or for backing commercial
paper issued for the same purpose. At June 30, 1996 and 1995, the Registrant
had $23,754,000 and $31,978,000, 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 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS:
--------------
RESULTS OF OPERATIONS
Net earnings applicable to common stock for the second quarter of 1996
were $.2 million above the same quarter of 1995. This increase primarily
reflects the benefits of higher average customer usage, the absence of
second quarter 1995 reengineering and restructuring costs and lower
interest expense. Increases in non-labor related operating expenses were
partially offsetting.
Net earnings applicable to common stock for the first six months of 1996
were $26.9 million, an increase of $2.0 million or 8% as compared to the
first six months of 1995. Colder weather (6.1%) and increased demand
($5.0 million) more than offset an environmental recovery recognized in
1995. Also contributing 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
increased depreciation and property tax expense related to investments
in system infrastructure, higher non-labor spending and a lower level of
capitalized expense. Increased wages and weather-related overtime were
offset by savings associated with the Registrant's reengineering
project.
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 projection 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 9
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 June 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 10
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: July 29, 1996
--------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 501,953
<OTHER-PROPERTY-AND-INVEST> 2,547
<TOTAL-CURRENT-ASSETS> 139,344
<TOTAL-DEFERRED-CHARGES> 28,562
<OTHER-ASSETS> 91,148
<TOTAL-ASSETS> 763,554
<COMMON> 51,418
<CAPITAL-SURPLUS-PAID-IN> 43,233
<RETAINED-EARNINGS> 136,073
<TOTAL-COMMON-STOCKHOLDERS-EQ> 230,724
29,276
0
<LONG-TERM-DEBT-NET> 208,439
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 23,754
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 3,539
<LEASES-CURRENT> 1,561
<OTHER-ITEMS-CAPITAL-AND-LIAB> 266,261
<TOT-CAPITALIZATION-AND-LIAB> 763,554
<GROSS-OPERATING-REVENUE> 479,861
<INCOME-TAX-EXPENSE> 17,933
<OTHER-OPERATING-EXPENSES> 87,043
<TOTAL-OPERATING-EXPENSES> 144,810
<OPERATING-INCOME-LOSS> 36,673
<OTHER-INCOME-NET> 335
<INCOME-BEFORE-INTEREST-EXPEN> 37,008
<TOTAL-INTEREST-EXPENSE> 9,182
<NET-INCOME> 27,826
963
<EARNINGS-AVAILABLE-FOR-COMM> 26,863
<COMMON-STOCK-DIVIDENDS> 10,335
<TOTAL-INTEREST-ON-BONDS> 8,385
<CASH-FLOW-OPERATIONS> 119,763
<EPS-PRIMARY> 52.24
<EPS-DILUTED> 52.24
</TABLE>
