<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, 1998
---------------------------------
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
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(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.
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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 ("Company")
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,
1998 1997 1998 1997
------- ------- ------ -------
<S> <C> <C> <C> <C>
OPERATING REVENUES $126,975 $139,743 $407,236 $452,281
Cost of gas sold 66,265 75,493 230,943 272,952
-------- -------- -------- --------
OPERATING MARGIN 60,710 64,250 176,293 179,329
OPERATING EXPENSES:
Other operating expenses 32,500 37,929 73,169 81,459
Maintenance 4,771 4,901 10,824 11,229
Depreciation and amortization 10,519 10,051 27,759 26,482
Income taxes 3,325 2,660 21,644 19,787
-------- -------- -------- --------
Total Operating Expenses 51,115 55,541 133,396 138,957
-------- -------- -------- --------
OPERATING EARNINGS 9,595 8,709 42,897 40,372
OTHER EARNINGS, NET 184 95 276 186
-------- -------- -------- --------
EARNINGS BEFORE INTEREST EXPENSE 9,779 8,804 43,173 40,558
INTEREST EXPENSE:
Long-term debt 4,192 4,193 8,384 8,385
Other, including amortization
of debt expense 264 375 840 1,193
Less - Interest during construction (97) (139) (136) (215)
-------- -------- -------- --------
Total Interest Expense 4,359 4,429 9,088 9,363
-------- -------- -------- --------
NET EARNINGS 5,420 4,375 34,085 31,195
Preferred Stock Dividends 481 481 963 963
-------- -------- -------- --------
NET EARNINGS APPLICABLE TO COMMON STOCK $ 4,939 $ 3,894 $ 33,122 $ 30,232
-------- -------- -------- --------
COMMON STOCK DIVIDENDS $ - $ - $ 12,649 $ 16,351
-------- -------- -------- --------
</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,
1998 1997 1997
---------- ---------- ------------
ASSETS
<S> <C> <C> <C>
GAS PLANT, at cost $866,273 $811,422 $866,784
Construction work-in-progress 24,813 26,083 2,715
Less-Accumulated depreciation 354,761 314,518 329,918
-------- -------- --------
Total Net Plant 536,325 522,987 539,581
-------- -------- --------
CURRENT ASSETS:
Cash and cash equivalents 9,549 646 307
Accounts receivable, less reserves
of $16,840 and $17,754 at
June 30, 1998 and 1997,
respectively, and $15,783 at
December 31, 1997 77,971 77,147 89,859
Deferred gas costs 24,979 17,048 66,595
Natural gas and other inventories 29,285 30,669 44,590
Materials and supplies 3,096 4,403 3,316
Prepaid expenses 2,466 3,052 1,777
-------- -------- --------
Total Current Assets 147,346 132,965 206,444
-------- -------- --------
OTHER ASSETS:
Deferred postretirement benefits cost 81,247 86,245 83,926
Deferred charges and other assets 47,255 27,560 48,206
-------- -------- --------
Total Other Assets 128,502 113,805 132,132
-------- -------- --------
TOTAL ASSETS $812,173 $769,757 $878,157
======== ======== ========
</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,
1998 1997 1997
-------- -------- -----------
<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 172,785 147,862 152,312
-------- -------- --------
Total Common Stockholder's Investment 267,436 242,513 246,963
Cumulative preferred stock, $1 par value,
1,200,000 shares authorized and outstanding 29,343 29,309 29,326
Long-term obligations, less current portion 210,962 211,496 211,236
-------- -------- --------
Total Capitalization 507,741 483,318 487,525
GAS INVENTORY FINANCING 29,185 29,990 55,502
-------- -------- --------
Total Capitalization and Gas Inventory
Financing 536,926 513,308 543,027
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 533 482 507
Notes payable - 400 39,700
Accounts payable 40,425 40,006 61,931
Accrued taxes 2,855 3,399 1,392
Accrued income taxes 22,425 17,800 11,174
Accrued interest 4,340 4,299 4,372
Customer deposits 2,220 2,375 2,360
Refunds due customers 1,095 3,939 3,136
-------- -------- --------
Total Current Liabilities 73,893 72,700 124,572
-------- -------- --------
OTHER LIABILITIES:
Deferred income taxes 76,505 73,915 79,128
Unamortized investment tax credits 5,506 6,384 5,931
Postretirement benefits obligation 82,095 84,102 83,274
Other 37,248 19,348 42,225
-------- -------- --------
Total Other Liabilities 201,354 183,749 210,558
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S INVESTMENT $812,173 $769,757 $878,157
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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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,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 34,085 $ 31,195
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 27,759 26,482
Deferred taxes (2,623) (2,362)
Other changes in assets and liabilities:
Accounts receivable 11,888 (315)
Inventory 15,525 18,024
Deferred gas costs 41,616 58,289
Deferred post-retirement benefits 1,500 1,593
Accounts payable (21,506) (33,307)
Accrued interest (32) (40)
Federal and state income taxes 11,251 28,211
Refunds due customers (2,041) 555
Other (3,394) (790)
-------- ---------
Net cash provided by operating activities 114,028 127,535
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,854) (22,566)
Net cost of removal (2,320) (1,924)
-------- ---------
Net cash used for investing activities (25,174) (24,490)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term debt, net (39,700) (56,600)
Changes in inventory financing (26,317) (25,604)
Changes in preferred stock 17 16
Cash dividends paid on common and preferred stock (13,612) (21,685)
-------- ---------
Net cash used for financing activities (79,612) (103,873)
-------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 9,242 (828)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 307 1,474
-------- ---------
Cash and cash equivalents at end of period $ 9,549 $ 646
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 9,558 $ 9,851
Income taxes $ 13,456 ($5,611)
</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, 1998
-------------
1. ACCOUNTING POLICIES AND OTHER INFORMATION
-----------------------------------------
General
-------
It is the Company's opinion that the financial information contained in
this report reflects all adjustments necessary to present a fair statement
of results for the periods reported. All of these adjustments are of a
normal recurring nature. Results for the periods are not necessarily
indicative of results to be expected for the year, due to the seasonal
nature of the Company's operations. All accounting policies have been
applied in a manner consistent with prior periods. Such financial
information is subject to year-end adjustments and annual audit by
independent public accountants.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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. Therefore
these interim financial statements should be read in conjunction with the
Company's 1997 Annual Report filed on Form 10-K with the Securities and
Exchange Commission.
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
SECOND QUARTER
Net earnings applicable to common stock for the second quarter of
1998 were $4.9 million, an increase of $1.0 million or 27% from the same
period in 1997 primarily due to lower operating costs ($3.4 million) and
throughput growth ($.6 million), partially offset by warmer weather ($2.9
million). Weather for the second quarter of 1998 was 3% warmer than normal
in contrast to 24% colder than normal weather in the previous period. The
lower operating costs principally reflect ongoing cost control measures.
Revenues for the second quarter of 1998 declined $12.7 million
from the second quarter of 1997 primarily due to warmer weather ($15.4
million) and the migration of customers from sales to transportation
service ($4.1 million), partially offset by throughput growth and the pass
through of higher gas costs.
YEAR-TO-DATE
Net earnings applicable to common stock for the first six months
of 1998 were $33.1 million, an increase of $2.9 million or 10% as compared
to the first six months of 1997. Lower operating costs ($5.3 million),
throughput growth ($1.6 million) and higher average rates were partially
offset by warmer weather($4.6 million). Weather was 9% warmer than normal
in 1998, compared to near normal weather in 1997. The decrease in operating
costs primarily reflects weather-related reductions and continued cost
control measures.
Lower revenues for the first six months of 1998 ($45.1 million)
reflect warmer weather ($25.1 million), lower gas costs ($23.1 million) and
the migration of customers from sales to transportation service ($16.0
million), somewhat offset by throughput growth. The revenue decrease
associated with lower gas costs and customer migration has no impact on
earnings as the Company earns all of its margins on the local distribution
of gas and none on the sale of the commodity itself.
FORWARD-LOOKING INFORMATION
This report and other company reports and statements issued or
made from time to time contain certain "forward-looking statements"
concerning projected future financial performance, expected plans or future
operations. The Company cautions that actual results and developments may
differ materially from such projections or expectations.
Investors should be aware of important factors that could cause
actual results to differ materially from the forward-looking projections or
expectations. These factors include, but are not limited to: the effect of
strategic initiatives on earnings and cash flow, temperatures above or
below normal in the company's service area, changes in economic conditions,
including interest rates, regulatory and court decisions and developments
with respect to previously-disclosed environmental liabilities. Most of
these factors are difficult to predict accurately and are generally beyond
the control of the company.
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 1998 capital expenditures and working capital requirements, dividend
payments and normal debt repayments.
<PAGE>
FORM 10-Q
Page 8
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
--------------------------
On July 1, 1998, the Superior Court issued an order granting Industrial
National Leasing Corporation's motion for partial summary judgment, finding
that Mass LNG'S purchase rights under the lease were limited to a purchase
at fair market value. Mass LNG intends to appeal this decision.
Other than the Massachusetts LNG, Inc. litigation and routine litigation
involving the Company's business, there are no material pending legal
proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
(a) The annual meeting of stockholders of the Company was held on June 22,
1998.
(b) On June 22, 1998, 514,184 shares of Company's common stock, being all
its capital stock outstanding, voted in favor of electing the
following Directors to serve until the next annual meeting of the
stockholders and until their successors are elected and qualified:
J. F. Bodanza
R. R. Clayton
A. J. DiGiovanni
W. J. Flaherty
J. A. Ives
C. R. Messer
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 24, 1998
--------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 536,325
<OTHER-PROPERTY-AND-INVEST> 2,547
<TOTAL-CURRENT-ASSETS> 147,346
<TOTAL-DEFERRED-CHARGES> 44,708
<OTHER-ASSETS> 81,247
<TOTAL-ASSETS> 812,173
<COMMON> 51,418
<CAPITAL-SURPLUS-PAID-IN> 43,233
<RETAINED-EARNINGS> 172,785
<TOTAL-COMMON-STOCKHOLDERS-EQ> 267,436
29,343
0
<LONG-TERM-DEBT-NET> 209,467
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 29,185
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 1,495
<LEASES-CURRENT> 533
<OTHER-ITEMS-CAPITAL-AND-LIAB> 274,714
<TOT-CAPITALIZATION-AND-LIAB> 812,173
<GROSS-OPERATING-REVENUE> 407,236
<INCOME-TAX-EXPENSE> 21,644
<OTHER-OPERATING-EXPENSES> 73,169
<TOTAL-OPERATING-EXPENSES> 133,369
<OPERATING-INCOME-LOSS> 42,897
<OTHER-INCOME-NET> 276
<INCOME-BEFORE-INTEREST-EXPEN> 43,173
<TOTAL-INTEREST-EXPENSE> 9,088
<NET-INCOME> 34,085
963
<EARNINGS-AVAILABLE-FOR-COMM> 33,122
<COMMON-STOCK-DIVIDENDS> 12,649
<TOTAL-INTEREST-ON-BONDS> 8,384
<CASH-FLOW-OPERATIONS> 114,028
<EPS-PRIMARY> 64.42
<EPS-DILUTED> 64.42
</TABLE>
