<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, 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
-------
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 ("Company")
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 1997 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES $57,874 $59,453 $510,155 $539,314
Cost of gas sold 20,847 24,720 293,799 323,098
------- ------- -------- --------
OPERATING MARGIN 37,027 34,733 216,356 216,216
OPERATING EXPENSES:
Other operating expenses 32,406 33,240 113,865 120,283
Maintenance 4,839 5,497 16,068 18,448
Depreciation and amortization 7,323 4,746 33,805 31,629
Income taxes (5,520) (4,992) 14,267 12,941
------- ------- -------- --------
Total Operating Expenses 39,048 38,491 178,005 183,301
------- ------- -------- --------
OPERATING EARNINGS (LOSS) (2,021) (3,758) 38,351 32,915
OTHER EARNINGS, NET 134 251 320 586
------- ------- -------- --------
EARNINGS (LOSS) BEFORE INTEREST EXPENSE (1,887) (3,507) 38,671 33,501
INTEREST EXPENSE:
Long-term debt 4,191 4,192 12,576 12,577
Other, including amortization
of debt expense 118 143 1,311 1,051
Less - Interest during construction (183) (163) (398) (274)
------- ------- -------- --------
Total Interest Expense 4,126 4,172 13,489 13,354
------- ------- -------- --------
NET EARNINGS (LOSS) (6,013) (7,679) 25,182 20,147
Preferred Stock Dividends 482 482 1,445 1,445
------- ------- -------- --------
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $(6,495) $(8,161) $ 23,737 $ 18,702
------- ------- -------- --------
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)
Sept. 30, Sept. 30, Dec. 31,
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $813,474 $760,015 $812,114
Construction work-in-progress 37,898 35,959 4,604
Less-Accumulated depreciation 320,537 282,583 290,492
-------- -------- --------
Total Net Plant 530,835 513,391 526,226
-------- -------- --------
CURRENT ASSETS:
Cash and cash equivalents 2,048 2,626 1,474
Accounts receivable, less reserves
of $16,136 and $17,408 at
September 30, 1997 and 1996,
respectively, and $15,963
December 31, 1996 33,390 32,185 76,832
Deferred gas costs 49,750 44,773 75,337
Natural gas and other inventories 49,458 48,728 49,287
Materials and supplies 4,347 4,602 3,809
Prepaid expenses 3,300 4,588 2,759
Income taxes - 7,099 10,411
-------- -------- --------
Total Current Assets 142,293 144,601 219,909
-------- -------- --------
OTHER ASSETS:
Deferred postretirement benefits cost 85,086 89,808 88,563
Deferred charges and other assets 27,485 34,180 42,346
-------- -------- --------
Total Other Assets 112,571 123,988 130,909
-------- -------- --------
TOTAL ASSETS $785,699 $781,980 $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)
Sept. 30, Sept. 30, Dec. 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 141,366 127,913 133,980
-------- -------- --------
Total Common Stockholder's Investment 236,017 222,564 228,631
Variable term cumulative preferred stock,
$1 par value, 1,200,000 shares authorized
and outstanding 29,318 29,284 29,293
Long-term obligations, less current portion 211,367 211,862 211,743
-------- -------- --------
Total Capitalization 476,702 463,710 469,667
Gas Inventory Financing 48,059 49,159 55,594
-------- -------- --------
Total Capitalization and Gas Inventory
Financing 524,761 512,869 525,261
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 494 1,017 1,029
Notes payable 5,600 13,700 57,000
Accounts payable 42,316 41,771 73,313
Accrued taxes 2,229 1,706 1,206
Accrued income taxes 9,594 - -
Accrued interest 8,530 8,503 4,339
Customer deposits 2,302 2,409 2,382
Refunds due customers 3,609 3,880 3,384
Pipeline transition costs - 9,225 16,494
-------- -------- --------
Total Current Liabilities 74,674 82,211 159,147
-------- -------- --------
OTHER LIABILITIES:
Deferred income taxes 74,704 71,350 76,277
Unamortized investment tax credits 6,157 7,069 6,836
Postretirement benefits obligation 83,657 85,255 84,827
Other 21,746 23,226 24,696
-------- -------- --------
Total Other Liabilities 186,264 186,900 192,636
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S INVESTMENT $785,699 $781,980 $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 Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 25,182 $ 20,147
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 33,805 31,629
Deferred taxes (1,573) (651)
Other changes in assets and liabilities:
Accounts receivable 43,442 42,334
Inventory (709) (13,424)
Deferred gas costs 25,587 27,167
Accounts payable (30,997) (11,719)
Accrued interest 4,191 4,544
Federal and state income taxes 20,005 (6,731)
Refunds due customers 225 (9,293)
Other 2,495 (1,246)
-------- --------
Net cash provided by operating activities 121,653 82,757
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (36,806) (36,750)
Net cost of removal (3,196) (2,723)
-------- --------
Net cash used for investing activities (40,002) (39,473)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt, net (51,400) (38,300)
Changes in inventory financing (7,535) 3,559
Changes in preferred stock 25 22
Cash dividends paid on common and preferred stock (22,167) (11,780)
-------- --------
Net cash used for financing activities (81,077) (46,499)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 574 (3,215)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,474 5,841
-------- --------
Cash and cash equivalents at end of period $ 2,048 $ 2,626
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 10,299 $ 9,673
Income taxes $ (3,481) $ 20,567
</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, 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
---------------------
The seasonal net loss of $6.5 million for the third quarter of 1997 was
$1.7 million or 20% lower than the same period in 1996. This
improvement reflects the impact of the rate increase, throughput growth
and reduced operating costs. In addition, the tax provision for the
third quarter includes a credit of $.9 million related to the
examination of prior years' tax returns. The positive effect of the
preceding was somewhat offset by a change in the inter-period
allocation of depreciation and property taxes as discussed below.
Net earnings applicable to common stock for the first nine months of
1997 were $23.7 million, an increase of $5.0 million or 27% as compared
to the first nine months of 1996. The increase reflects throughput
growth, the impact of the rate increase, a gain on the settlement of
pension obligations and reduced operating costs partially offset by the
negative impact of 3% warmer weather compared to the first nine months
of 1996 and higher depreciation expense reflecting continued investment
in system expansion and replacement.
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 increased third
quarter 1997 expenses as compared to 1996 by $3.1 million or $1.9
million after tax, offsetting expenses which were decreased by a like
amount for the first six months of 1997 as compared to 1996.
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 $54.9 million
compared to the original estimate of $51.3 million reflecting
additional system replacement work.
OTHER MATTERS
On May 16, 1997 the Company received a positive response 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. The first annual PBR rate
adjustment is expected to be effective November 1, 1997.
<PAGE>
FORM 10-Q
Page 8
OTHER MATTERS (CONTINUED)
On July 18, 1997, the Department issued a letter directing all ten
investor-owned 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 9
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 10
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 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 24, 1997
----------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 530,835
<OTHER-PROPERTY-AND-INVEST> 2,547
<TOTAL-CURRENT-ASSETS> 142,293
<TOTAL-DEFERRED-CHARGES> 24,938
<OTHER-ASSETS> 85,086
<TOTAL-ASSETS> 785,699
<COMMON> 51,418
<CAPITAL-SURPLUS-PAID-IN> 43,233
<RETAINED-EARNINGS> 141,366
<TOTAL-COMMON-STOCKHOLDERS-EQ> 236,017
29,318
0
<LONG-TERM-DEBT-NET> 209,506
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 5,600
<COMMERCIAL-PAPER-OBLIGATIONS> 48,059
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 1,861
<LEASES-CURRENT> 494
<OTHER-ITEMS-CAPITAL-AND-LIAB> 254,844
<TOT-CAPITALIZATION-AND-LIAB> 785,699
<GROSS-OPERATING-REVENUE> 510,155
<INCOME-TAX-EXPENSE> 14,267
<OTHER-OPERATING-EXPENSES> 113,865
<TOTAL-OPERATING-EXPENSES> 178,005
<OPERATING-INCOME-LOSS> 38,351
<OTHER-INCOME-NET> 320
<INCOME-BEFORE-INTEREST-EXPEN> 38,671
<TOTAL-INTEREST-EXPENSE> 13,489
<NET-INCOME> 25,182
1,445
<EARNINGS-AVAILABLE-FOR-COMM> 23,737
<COMMON-STOCK-DIVIDENDS> 16,351
<TOTAL-INTEREST-ON-BONDS> 12,576
<CASH-FLOW-OPERATIONS> 121,653
<EPS-PRIMARY> 46.16
<EPS-DILUTED> 46.16
</TABLE>
