<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, 1997
---------------------------------
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
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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
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(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 ("Company")
CONSOLIDATED STATEMENTS OF EARNINGS
- -----------------------------------
<TABLE>
<CAPTION>
(In Thousands)
For The Three Months The Six Months
Ended Ended
---------------------- --------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUES $139,743 $136,520 $452,281 $479,861
Cost of gas sold 75,493 77,211 272,952 298,378
-------- -------- -------- --------
OPERATING MARGIN 64,250 59,309 179,329 181,483
OPERATING EXPENSES:
Other operating expenses 37,929 37,295 81,459 87,043
Maintenance 4,901 5,292 11,229 12,951
Depreciation and amortization 10,051 8,881 26,482 26,883
Income taxes 2,660 1,502 19,787 17,933
-------- -------- -------- --------
Total Operating Expenses 55,541 52,970 138,957 144,810
-------- -------- -------- --------
OPERATING EARNINGS 8,709 6,339 40,372 36,673
OTHER EARNINGS, NET 95 262 186 335
-------- -------- -------- --------
EARNINGS BEFORE INTEREST EXPENSE 8,804 6,601 40,558 37,008
INTEREST EXPENSE:
Long-term debt 4,193 4,193 8,385 8,385
Other, including amortization
of debt expense 375 168 1,193 908
Less - Interest during construction (139) (83) (215) (111)
-------- -------- -------- --------
Total Interest Expense 4,429 4,278 9,363 9,182
-------- -------- -------- --------
NET EARNINGS 4,375 2,323 31,195 27,826
Preferred Stock Dividends 481 481 963 963
-------- -------- -------- --------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 3,894 $ 1,842 $ 30,232 $ 26,863
-------- -------- -------- --------
COMMON STOCK DIVIDENDS $ - $ - $ 16,351 $ 10,335
-------- -------- -------- --------
</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,
1997 1996 1996
----------- ----------- -------------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $811,422 $761,593 $812,114
Construction work-in-progress 26,083 20,104 4,604
Less-Accumulated depreciation 314,518 279,744 290,492
-------- -------- --------
Total Net Plant 522,987 501,953 526,226
-------- -------- --------
CURRENT ASSETS:
Cash and cash equivalents 646 18,077 1,474
Accounts receivable, less reserves
of $17,754 and $19,360 at
June 30, 1997 and 1996,
respectively, and $15,963 at
December 31, 1996 77,147 76,830 76,832
Deferred gas costs 17,048 5,449 75,337
Natural gas and other inventories 30,669 29,704 49,287
Materials and supplies 4,403 4,829 3,809
Prepaid expenses 3,052 4,455 2,759
Income taxes - - 10,411
-------- -------- --------
Total Current Assets 132,965 139,344 219,909
-------- -------- --------
OTHER ASSETS:
Deferred postretirement benefits cost 86,245 91,148 88,563
Deferred charges and other assets 27,560 31,109 42,346
-------- -------- --------
Total Other Assets 113,805 122,257 130,909
-------- -------- --------
TOTAL ASSETS $769,757 $763,554 $877,044
======== ======== ========
</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,
1997 1996 1996
--------- -------- -----------
<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 147,862 136,073 133,980
-------- -------- --------
Total Common Stockholder's Investment 242,513 230,724 228,631
Cumulative preferred stock, $1 par value,
1,200,000 shares authorized and outstanding 29,309 29,276 29,293
Long-term obligations, less current portion 211,496 211,978 211,743
-------- -------- --------
Total Capitalization 483,318 471,978 469,667
GAS INVENTORY FINANCING 29,990 23,754 55,594
-------- -------- --------
TOTAL CAPITALIZATION AND GAS INVENTORY
FINANCING 513,308 495,732 525,261
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 482 1,561 1,029
Notes payable 400 - 57,000
Accounts payable 40,006 50,941 73,313
Accrued taxes 3,399 3,867 1,206
Accrued income taxes 17,800 7,651 -
Accrued interest 4,299 4,279 4,339
Customer deposits 2,375 2,555 2,382
Refunds due customers 3,939 3,835 3,384
Pipeline transition costs - 10,852 16,494
-------- -------- --------
TOTAL CURRENT LIABILITIES 72,700 85,541 159,147
-------- -------- --------
OTHER LIABILITIES:
Deferred income taxes 73,915 68,707 76,277
Unamortized investment tax credits 6,384 7,302 6,836
Postretirement benefits obligation 84,102 85,618 84,827
Other 19,348 20,654 24,696
-------- -------- --------
Total Other Liabilities 183,749 182,281 192,636
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S INVESTMENT $769,757 $763,554 $877,044
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 5
BOSTON GAS COMPANY AND SUBSIDIARY
- -------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
For The Six Months Ended
--------------------------
June 30, June 30,
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 31,195 $ 27,826
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 26,482 26,883
Deferred taxes (2,362) (3,294)
Other changes in assets and liabilities:
Accounts receivable (315) (2,311)
Inventory 18,024 5,373
Deferred gas costs 58,289 66,491
Deferred post-retirement benefits 1,593 1,710
Accounts payable (33,307) (2,549)
Accrued interest (40) 320
Federal and state income taxes 28,211 8,019
Refunds due customers 555 (9,338)
Other (790) 633
--------- --------
Net cash provided by operating activities 127,535 119,763
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,566) (20,852)
Net cost of removal (1,924) (1,545)
--------- --------
Net cash used for investing activities (24,490) (22,397)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt, net (56,600) (52,000)
Changes in inventory financing (25,604) (21,846)
Changes in preferred stock 16 14
Cash dividends paid on common and preferred stock (21,685) (11,298)
--------- --------
Net cash used for financing activities (103,873) (85,130)
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS (828) 12,236
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,474 5,841
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 646 $ 18,077
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 9,851 $ 9,082
Income taxes $ (5,611) $ 13,361
</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
------------------------------------------
JUNE 30, 1997
-------------
1. ACCOUNTING POLICIES AND OTHER INFORMATION
-----------------------------------------
GENERAL
-------
It is the Company'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 Company'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 1996 filed on Form
10-K, are adequate to make the information presented not misleading.
SEASONAL ASPECT
---------------
The amount of the Company's natural gas firm throughput for purposes of
space heating is directly related to the ambient air temperature.
Consequently, there is less gas throughput during the summer months than
during the winter months. In order to more properly match depreciation and
property tax expense with margin each month, the Company charges to
depreciation and property tax expense an amount equal to the percentage of
the annual volume of firm gas throughput forecasted for the month, applied
to the estimated annual depreciation and property tax expense.
<PAGE>
FORM 10-Q
Page 7
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 1997
were $3.9 million, an increase of $2.1 million or more than double the
same period in 1996. This increase primarily reflects the impact of the
rate increase, strong throughput growth and weather that was 24% colder
than normal and 10% colder than last year. The positive effect of the
preceding on gross margins coupled with lower operating costs was
slightly offset by a change in the inter-period allocation of
depreciation and property taxes.
Net earnings applicable to common stock for the first six months of 1997
were $30.2 million, an increase of $3.4 million or 13% as compared to the
first six months of 1996. The negative impact of 3% warmer weather
compared to 1996 was more than offset by throughput growth, the rate
increase, a gain on the settlement of pension obligations, reduced
operating costs and a change in the inter-period allocation of
depreciation and property tax expense.
Effective January 1, 1997 the Company changed the inter-period allocation
of depreciation and property tax expense from a firm sales volume to a
firm throughput basis, reflecting the increasing importance of unbundled
transportation service. This change reduced year to date 1997 expenses
by $2.9 million or $1.8 million after tax. These expenses will be
increased by a like amount over the remainder of 1997, predominantly in
the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that projected cash flow from operations, in
combination with currently available resources, is more than sufficient
to meet 1997 capital expenditures and working capital requirements,
dividend payments and normal debt repayments.
Capital expenditures for the year are now projected to be $53.6 million
compared to the original estimate of $51.3 million.
OTHER MATTERS
On May 16, 1997 the Company received a positive decision from the
Massachusetts Department of Public Utilities (the "Department")
concerning its request for reconsideration, clarification and
recalculation of the Department's November 1996 rate order. The
Department granted an additional $1.9 million in revenues (a $6.3 million
increase was granted in the November 1996 Order) and reduced the
productivity factor portion of the Performance-Based Rate ("PBR") formula
established in its November 1996 Order by 50 basis points, from 2.00% to
1.50%. Compared to the Department's original decision, these changes add
approximately $3.5 million to revenue next year, increasing to about $8.0
million by 2002, the last year of the plan. On June 5, 1997, the Company
filed a notice of appeal of the Department's orders to the Massachusetts
supreme judicial court. The Company expects that the appeal will take
approximately one year, and that any relief granted by the court will be
prospective.
On July 18, 1997, the Department issued a letter directing all ten
investor-owned local gas distribution companies in Massachusetts to
undertake a collaborative process with other stakeholders to develop
common principles under which comprehensive gas service unbundling might
proceed. The Department deferred Phase II of the Company's unbundling
proceeding, which was to address residential unbundling and a permanent
capacity assignment method, subject to its assessment of the progress of
the collaborative discussions.
<PAGE>
FORM 10-Q
Page 8
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
--------------------------
On June 30, 1997 the capital lease for the LNG tanks in Lynn and Salem
Massachusetts between the Company's wholly owned subsidiary
Massachusetts LNG Incorporated ("Mass LNG") and Industrial National
Leasing Corporation expired. Upon the expiration of the lease, the
Company filed suit in state superior court seeking a declaratory order
that the lease entitles Mass LNG to purchase the tanks at a stipulated
loss value. Pending the court's decision or a negotiated outcome, the
parties have agreed that Mass LNG will continue to operate and
maintain the tanks.
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 Company'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 Company. 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 Company 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 28, 1997
--------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 522,987
<OTHER-PROPERTY-AND-INVEST> 2,547
<TOTAL-CURRENT-ASSETS> 132,965
<TOTAL-DEFERRED-CHARGES> 25,013
<OTHER-ASSETS> 86,245
<TOTAL-ASSETS> 769,757
<COMMON> 51,418
<CAPITAL-SURPLUS-PAID-IN> 43,233
<RETAINED-EARNINGS> 147,862
<TOTAL-COMMON-STOCKHOLDERS-EQ> 242,513
29,309
0
<LONG-TERM-DEBT-NET> 209,518
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 400
<COMMERCIAL-PAPER-OBLIGATIONS> 29,990
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 1,978
<LEASES-CURRENT> 482
<OTHER-ITEMS-CAPITAL-AND-LIAB> 255,567
<TOT-CAPITALIZATION-AND-LIAB> 769,757
<GROSS-OPERATING-REVENUE> 452,281
<INCOME-TAX-EXPENSE> 19,787
<OTHER-OPERATING-EXPENSES> 81,459
<TOTAL-OPERATING-EXPENSES> 138,957
<OPERATING-INCOME-LOSS> 40,372
<OTHER-INCOME-NET> 186
<INCOME-BEFORE-INTEREST-EXPEN> 40,558
<TOTAL-INTEREST-EXPENSE> 9,363
<NET-INCOME> 31,195
963
<EARNINGS-AVAILABLE-FOR-COMM> 30,232
<COMMON-STOCK-DIVIDENDS> 16,351
<TOTAL-INTEREST-ON-BONDS> 8,385
<CASH-FLOW-OPERATIONS> 127,535
<EPS-PRIMARY> 58.80
<EPS-DILUTED> 58.80
</TABLE>
