<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, 2000
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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
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1103580
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(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 ___
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Common stock of Registrant at the date of this report was 514,184 shares, all
held by Eastern Enterprises.
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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Company or group of companies for which report is filed:
BOSTON GAS COMPANY ("Company")
Consolidated Statements of Earnings
-----------------------------------
<TABLE>
<CAPTION>
(In Thousands)
For the For the
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 71,399 $62,164 $413,456 $417,355
Cost of gas sold 32,730 23,579 203,161 208,815
-------- ------- -------- --------
Operating Margin 38,669 38,585 210,295 208,540
OPERATING EXPENSES:
Operations 33,222 29,906 104,905 96,159
Maintenance 7,145 5,939 21,777 18,210
Depreciation and amortization 7,898 7,846 35,399 36,317
Income taxes (6,983) (4,872) 6,682 11,337
Taxes, other than income 3,781 3,314 17,294 16,574
-------- ------- -------- --------
Total Operating Expenses 45,063 42,133 186,057 178,597
-------- ------- -------- --------
OPERATING EARNINGS (LOSS) (6,394) (3,548) 24,238 29,943
OTHER EARNINGS, NET 388 1,178 671 1,905
-------- ------- -------- --------
EARNINGS (LOSS) BEFORE INTEREST EXPENSE (6,006) (2,370) 24,909 31,848
INTEREST EXPENSE:
Long-term debt 4,193 4,194 12,581 12,581
Other, including amortization
of debt expense 513 199 1,520 620
Less - Interest during construction (247) (333) (614) (618)
-------- ------- -------- --------
Total Interest Expense 4,459 4,060 13,487 12,583
-------- ------- -------- --------
NET EARNINGS (LOSS) (10,465) (6,430) 11,422 19,265
Preferred Stock Dividends 325 466 1,082 1,429
-------- ------- -------- --------
EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK $(10,790) $(6,896) $ 10,340 $ 17,836
======== ======= ======== ========
Common Stock Dividends $ - $ - $ 22,496 $ 20,336
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Boston Gas Company
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Consolidated Balance Sheets
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<TABLE>
<CAPTION>
(In Thousands)
September 30, September 30, December 31,
2000 1999 1999
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $ 975,214 $ 914,229 $ 963,672
Construction work-in-progress 46,245 44,604 16,458
Less-Accumulated depreciation (423,993) (387,265) (393,991)
--------- --------- ---------
Net Plant 597,466 571,568 586,139
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents 396 4,215 172
Accounts receivable, less reserves
of $12,782 and $12,959 at
September 30, 2000 and 1999,
respectively, and $14,816 at
December 31, 1999 42,630 38,716 61,429
Accounts receivable - affiliates 12 10,248 23,644
Accrued utility margin 2,546 3,099 20,067
Deferred gas costs 61,170 20,092 47,872
Natural gas and other inventories 66,042 45,733 45,172
Materials and supplies 4,277 4,251 3,399
Prepaid expenses 2,600 1,737 1,263
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Total Current Assets 179,673 128,091 203,018
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OTHER ASSETS:
Deferred postretirement benefits cost 68,579 74,548 72,760
Deferred charges and other assets 39,718 42,987 40,975
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Total Other Assets 108,297 117,535 113,735
--------- --------- ---------
TOTAL ASSETS $ 885,436 $ 817,194 $ 902,892
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Boston Gas Company
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Consolidated Balance Sheets
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<TABLE>
<CAPTION>
(In Thousands)
September 30, September 30, December 31,
2000 1999 1999
------------- ------------- ------------
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common 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 177,361 176,357 189,517
-------- -------- --------
Total Common Stockholder's Investment 272,012 271,008 284,168
Cumulative preferred stock, $1 par value,
(liquidation preference, $25 per share)
Authorized shares-1,200,000;
Outstanding shares
September 30, 2000 - 682,700
September 30, 1999 - 1,080,000
December 31, 1999 - 1,080,000 16,737 26,447 26,454
Long-term obligations, less current portion 224,017 224,890 224,399
-------- -------- --------
Total Capitalization 512,766 522,345 535,021
GAS INVENTORY FINANCING 59,634 42,238 54,020
-------- -------- --------
Total Capitalization and Gas Inventory
Financing 572,400 564,583 589,041
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CURRENT LIABILITIES:
Current portion of long-term obligations 545 605 950
Notes payable 45,100 -- 51,200
Accounts payable 42,639 37,775 47,969
Accounts payable-affiliates 13,764 810 --
Accrued taxes 510 1,659 1,255
Accrued income taxes 5,576 2,334 5,543
Accrued interest 8,578 8,511 4,354
Customer deposits 1,957 1,993 2,060
Other 1,596 723 512
-------- -------- --------
Total Current Liabilities 120,265 54,410 113,843
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 77,748 75,594 78,921
Unamortized investment tax credits 3,608 4,450 4,240
Postretirement benefits obligation 74,286 78,795 77,310
Environmental Liability 18,000 18,750 18,000
Other 19,129 20,612 21,537
-------- -------- --------
Total reserves and deferred credits 192,771 198,201 200,008
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $885,436 $817,194 $902,892
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Boston Gas Company
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Consolidated Statements of Cash Flows
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<TABLE>
<CAPTION>
(In Thousands)
For The Nine Months Ended
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September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,422 $ 19,265
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 35,399 36,317
Deferred taxes (1,173) (387)
Other changes in assets and liabilities:
Accounts receivable 18,799 23,534
Accounts receivable-affiliates 37,396 (7,430)
Accrued utility margin 17,521 11,048
Inventories (21,748) (5,757)
Deferred gas costs (13,298) 34,200
Accounts payable (5,330) (11,211)
Accrued interest 4,224 4,097
Federal and state income taxes 33 (7,948)
Other (1,072) 4,453
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Cash provided by operating activities 82,173 100,181
-------- --------
Cash flows from investing activities:
Capital expenditures (44,410) (33,943)
Net cost of removal (3,758) (3,262)
-------- --------
Cash used for investing activities (48,168) (37,205)
-------- --------
Cash flows from financing activities:
Changes in notes payable, net (6,100) (28,900)
Changes in inventory financing 5,614 (6,061)
Cash dividends paid on common and preferred stock (23,578) (21,765)
Purchase of preferred treasury stock (9,933) (3,000)
Amortization of preferred stock issuance cost 216 87
-------- --------
Cash used for financing activities (33,781) (59,639)
-------- --------
Increase in cash and cash equivalents 224 3,337
Cash and cash equivalents at beginning of period 172 878
-------- --------
Cash and cash equivalents at end of period $ 396 $ 4,215
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 9,859 $ 9,322
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Income taxes $ 8,735 $ 20,252
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</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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BOSTON GAS COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SEPTEMBER 30, 2000
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1. ACCOUNTING POLICIES AND OTHER INFORMATION
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General
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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 1999 Annual Report filed on Form 10-K with the Securities and
Exchange Commission.
Merger
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On November 8, 2000, Eastern Enterprises ("Eastern"), the parent company of
Boston Gas, was acquired by KeySpan Corporation. In connection with the
merger the Company anticipates that separation payments to officers,
payment of vested stock options and other compensation related matters will
result in a pretax charge of approximately $10.0 million in the fourth
quarter of 2000.
Seasonal Aspect
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The amount of the Company's natural gas firm throughput for purposes of
space heating is directly related to temperature conditions. 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 throughput 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.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS:
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RESULTS OF OPERATIONS
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Third Quarter
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The seasonal net loss for the third quarter was $10.8 million as compared to
$6.9 million for the same period in 1999. The increase in the net loss was
primarily due to higher operations and maintenance expense.
Operating revenue in the third quarter increased $9.2 million, or 15%,
principally due to higher gas costs.
Operating margin for the third quarter was in line with the same period last
year.
Operations and maintenance expenses increased $4.5 million, or 13%, principally
due to infrastructure maintenance costs, marketing program costs and wage and
benefit costs.
Year-to-Date
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Net earnings applicable to common stock for the first nine months of 2000 were
$10.3 million, a decrease of $7.5 million, or 42%, from the first nine months of
1999.
Operating revenues for the first nine months of 2000 decreased $3.9 million from
1999 principally due to lower non-firm sales ($7.3 million), the migration of
customers from sales to transportation service ($4.2 million) and the impact of
first quarter warmer weather ($6.1 million). Partially offsetting this decrease
was increased revenue due to customer growth ($11.2 million) and higher gas
costs. Changes in revenue associated with gas costs and the migration of
customers to transportation service have 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.
Operating margin increased $1.8 million compared to 1999 as customer growth
($4.2 million) and higher non-core throughput ($1.5 million) were partially
offset by a cumulative adjustment for prior years which increased gas costs by
$2.8 million and below normal first quarter weather ($1.4 million). Although
weather for the first nine months of 2000 was normal and 5% colder than the
comparable period in 1999, throughput and gross margin in the first quarter were
significantly reduced by weather that was 7% warmer than normal and 2% warmer
than the first quarter of 1999.
Operations and maintenance expenses increased $12.3 million, or 11%, principally
due to increased distribution system maintenance costs, in part, caused by
extremely cold temperatures during the last two weeks of January, higher wage
and benefit costs, increased costs for marketing programs and costs incurred
associated with the merger with Keyspan Corporation (See Note 1 of Notes to
Consolidated Financial Statements).
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.
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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 impact of any merger-related
activities, the ability to successfully integrate natural gas distribution
operations, temperatures above or below normal, 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 2000 capital
expenditures and working capital requirements, dividend payments and normal debt
repayments.
The Company expects capital expenditures for 2000 to be approximately $67
million. Capital expenditures will be largely for improvements to the
distribution system, for system expansion to meet customer demand and for
productivity improvements.
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PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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There are no material pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) List of Exhibits
None.
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
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SIGNATURES
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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 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
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(Registrant)
Joseph F. Bodanza
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J.F. Bodanza, Sr. Vice President and Treasurer
(Principal Financial and Accounting Officer)
Dated: November 14, 2000
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