<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 March 31, 2000
---------------------------------------
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
-----------------------------------------------
(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.
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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 ("Company")
Consolidated Statements of Earnings
- -----------------------------------
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
----------------------
<S> <C> <C>
March 31, March 31,
2000 1999
-------- --------
OPERATING REVENUES $248,598 $258,234
Cost of gas sold 130,759 140,737
-------- --------
Operating Margin 117,839 117,497
OPERATING EXPENSES:
Operations 37,365 35,132
Maintenance 8,208 6,370
Depreciation and amortization 17,205 17,474
Income taxes 16,206 17,886
Taxes, other than income 8,816 8,386
-------- --------
Total Operating Expenses 87,800 85,248
-------- --------
OPERATING EARNINGS 30,039 32,249
OTHER EARNINGS, NET 119 309
-------- --------
EARNINGS BEFORE INTEREST EXPENSE 30,158 32,558
INTEREST EXPENSE:
Long-term debt 4,194 4,194
Other, including amortization
of debt expense 668 316
Less - Interest during construction (167) (4)
-------- --------
Total Interest Expense 4,695 4,506
-------- --------
NET EARNINGS 25,463 28,052
Preferred Stock Dividends 433 482
-------- --------
EARNINGS APPLICABLE TO COMMON STOCK $ 25,030 $ 27,570
======== ========
Common Stock Dividends $ 22,496 $ 20,336
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 3
Boston Gas Company
- ------------------
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
March 31, March 31, December 31,
2000 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $ 963,671 $ 914,017 $ 963,672
Construction work-in-progress 26,910 19,949 16,458
Less-Accumulated depreciation (410,593) (385,837) (393,991)
--------- --------- ---------
Net Plant 579,988 548,129 586,139
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents 373 14,996 172
Accounts receivable, less reserves
of $16,612 and $15,406 at
March 31, 2000 and 1999,
respectively, and $14,816 at
December 31, 1999 109,054 115,676 61,429
Accounts receivable - affiliates 2,986 -- 23,644
Accrued utility margin 16,053 10,716 20,067
Deferred gas costs 16,526 2,437 47,872
Natural gas and other inventories 17,822 25,073 45,172
Materials and supplies 3,752 3,478 3,399
Prepaid expenses 1,893 1,157 1,263
--------- --------- ---------
Total Current Assets 168,459 173,533 203,018
--------- --------- ---------
OTHER ASSETS:
Deferred postretirement benefits cost 71,420 77,228 72,760
Deferred charges and other assets 40,709 44,863 40,975
--------- --------- ---------
Total Other Assets 112,129 122,091 113,735
--------- --------- ---------
TOTAL ASSETS $ 860,576 $ 843,753 $ 902,892
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 4
Boston Gas Company
- ------------------
Consolidated Balance Sheets
- -----------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
March 31, March 31, 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 192,051 186,090 189,517
-------- -------- --------
Total Common Stockholder's Investment 286,702 280,741 284,168
Cumulative preferred stock, $1 par value,
(liquidation preference, $25 per share)
Authorized shares-1,200,000;
Outstanding shares-1,080,000 at
March 31, 2000, 1,200,000 at
March 31, 1999 and 1,080,000 at
December 31, 1999 26,462 29,368 26,454
Long-term obligations, less current portion 224,181 210,526 224,399
-------- -------- --------
Total Capitalization 537,345 520,635 535,021
GAS INVENTORY FINANCING 22,706 31,533 54,020
-------- -------- --------
Total Capitalization and Gas Inventory
Financing 560,051 552,168 589,041
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 856 575 950
Notes payable 34,700 -- 51,200
Accounts payable 28,791 43,381 47,969
Accounts payable-affiliates 1,227 1,412 --
Accrued taxes 3,923 4,283 1,255
Accrued income taxes 26,372 28,827 5,543
Accrued interest 8,514 8,425 4,354
Customer deposits 2,124 2,106 2,060
Refunds due customers 601 815 512
-------- -------- --------
Total Current Liabilities 107,108 89,824 113,843
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 75,997 77,244 78,921
Unamortized investment tax credits 4,029 4,871 4,240
Postretirement benefits obligation 76,489 80,215 77,310
Environmental Liability 18,000 18,750 18,000
Other 18,902 20,681 21,537
-------- -------- --------
Total reserves and deferred credits 193,417 201,761 200,008
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $860,576 $843,753 $902,892
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 5
Boston Gas Company
- ------------------
Consolidated Statements of Cash Flows
- -------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
For The Three Months Ended
----------------------------
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 25,463 $ 28,052
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 17,205 17,474
Deferred taxes (2,924) 1,263
Other changes in assets and liabilities:
Accounts receivable (47,625) (51,418)
Accounts receivable-affiliates 21,885 --
Accrued utility margin 4,014 3,431
Inventory 26,997 15,676
Deferred gas costs 31,346 51,855
Accounts payable (19,178) (4,193)
Accrued interest 4,160 4,011
Federal and state income taxes 20,829 18,545
Refunds due customers 89 675
Other 38 4,121
-------- --------
Cash provided by operating activities 82,299 89,492
-------- --------
Cash flows from investing activities:
Capital expenditures (10,472) (8,306)
Net cost of removal (891) (592)
-------- --------
Cash used for investing activities (11,363) (8,898)
-------- --------
Cash flows from financing activities:
Changes in notes payable, net (16,500) (28,900)
Changes in inventory financing (31,314) (16,766)
Cash dividends paid on common and preferred stock (22,929) (20,818)
Amortization of preferred stock issuance cost 8 8
-------- --------
Cash used for financing activities (70,735) (66,476)
-------- --------
Increase in cash and cash equivalents 201 14,118
Cash and cash equivalents at beginning of period 172 878
-------- --------
Cash and cash equivalents at end of period $ 373 $ 14,996
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 454 $ 826
======== ========
Income taxes $ (1,483) $ (1,712)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 6
BOSTON GAS COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 2000
--------------
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 1999 Annual Report filed on Form 10-K with the Securities and
Exchange Commission.
Merger
------
On November 4, 1999, Eastern Enterprises ("Eastern"), the parent company of
Boston Gas, signed a definitive agreement to be acquired by KeySpan
Corporation. Subject to receipt of satisfactory regulatory approvals, the
transaction is hoped to close in the early fall of 2000. The merger was
approved by Eastern's shareholders on April 26, 2000.
Seasonal Aspect
---------------
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.
<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 first quarter of 2000 were $25.0
million a decrease of $2.5 million, or 9.2% from the first quarter of 1999.
Operating revenues in the first quarter of 2000 decreased $9.6 million, or 4%
from 1999 principally due to lower gas cost ($13 million), the migration of
customers from sales to transportation service ($3 million) and warmer weather
($3 million). The revenue reduction associated with lower gas costs and the
migration of customers to transportation service 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. Partially offsetting this decrease was
increased revenue due to customer growth ($8 million) and higher non-core
throughput.
Operating margin approximated the prior year level as customer growth ($2.7
million) and higher non-core throughput ($.7 million) were offset by a
cumulative adjustment for prior years which increased gas costs by $2.8 million
and the impact of warmer weather. Weather for the first quarter of 2000 was
7.4% warmer than normal compared to 4.8% warmer in 1999.
Operations and maintenance expenses increased $4.1 million, or 9.6% principally
due to increased system maintenance costs caused by extremely cold temperatures
during the last two weeks of January, higher wages and employee benefits costs,
and the absence of a $1.2 million pension gain recognized in the first quarter
of 1999. Partially offsetting these increases was lower bad debt expense ($1.7
million) reflecting improved collection experience.
YEAR 2000 ISSUES
The Company continued to monitor its systems through the end of the first
quarter of 2000, including the quarter closing activity. No significant year
2000 errors or discrepancies were detected and no costs were incurred. The
Company will no longer report on Year 2000 issues.
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 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.
<PAGE>
FORM 10-Q
Page 8
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.
<PAGE>
FORM 10-Q
Page 9
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
There are no material pending legal proceedings involving the Company.
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 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
-----------------------------------------------
(Registrant)
Joseph F. Bodanza
-----------------------------------------------
J.F. Bodanza, Sr. Vice President and Treasurer
(Principal Financial and Accounting Officer)
Dated: April 28, 2000
-----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 579,988
<OTHER-PROPERTY-AND-INVEST> 2,547
<TOTAL-CURRENT-ASSETS> 168,459
<TOTAL-DEFERRED-CHARGES> 38,162
<OTHER-ASSETS> 71,420
<TOTAL-ASSETS> 860,576
<COMMON> 51,418
<CAPITAL-SURPLUS-PAID-IN> 43,233
<RETAINED-EARNINGS> 192,051
<TOTAL-COMMON-STOCKHOLDERS-EQ> 286,702
26,462
0
<LONG-TERM-DEBT-NET> 210,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 57,406
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 14,181
<LEASES-CURRENT> 856
<OTHER-ITEMS-CAPITAL-AND-LIAB> 264,969
<TOT-CAPITALIZATION-AND-LIAB> 860,576
<GROSS-OPERATING-REVENUE> 248,598
<INCOME-TAX-EXPENSE> 16,206
<OTHER-OPERATING-EXPENSES> 202,353
<TOTAL-OPERATING-EXPENSES> 218,559
<OPERATING-INCOME-LOSS> 30,039
<OTHER-INCOME-NET> 119
<INCOME-BEFORE-INTEREST-EXPEN> 30,158
<TOTAL-INTEREST-EXPENSE> 4,695
<NET-INCOME> 25,463
433
<EARNINGS-AVAILABLE-FOR-COMM> 25,030
<COMMON-STOCK-DIVIDENDS> 22,496
<TOTAL-INTEREST-ON-BONDS> 4,194
<CASH-FLOW-OPERATIONS> 82,299
<EPS-BASIC> 49.52
<EPS-DILUTED> 49.52
</TABLE>
