<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, 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
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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 ___
---
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
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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 Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES $93,459 $96,958 $342,057 $355,191
Cost of gas sold 39,672 44,498 170,431 185,236
------- ------- -------- --------
Operating Margin 53,787 52,460 171,626 169,955
OPERATING EXPENSES:
Operations 34,318 31,121 71,683 66,253
Maintenance 6,424 5,901 14,632 12,271
Depreciation and amortization 10,296 10,997 27,501 28,471
Income taxes (2,541) (1,677) 13,665 16,209
Taxes, other than income 4,697 4,876 13,513 13,260
------- ------- -------- --------
Total Operating Expenses 53,194 51,218 140,994 136,464
------- ------- -------- --------
OPERATING EARNINGS 593 1,242 30,632 33,491
OTHER EARNINGS, NET 164 420 283 727
------- ------- -------- --------
EARNINGS BEFORE INTEREST EXPENSE 757 1,662 30,915 34,218
INTEREST EXPENSE:
Long-term debt 4,194 4,194 8,388 8,388
Other, including amortization
of debt expense 339 107 1,007 420
Less - Interest during construction (200) (282) (367) (285)
------- ------- -------- --------
Total Interest Expense 4,333 4,019 9,028 8,523
------- ------- -------- --------
NET EARNINGS (LOSS) (3,576) (2,357) 21,887 25,695
Preferred Stock Dividends 324 481 757 963
------- ------- -------- --------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $(3,900) $(2,838) $ 21,130 $ 24,732
======= ======= ======== ========
Common Stock Dividends $ - $ - $ 22,496 $ 20,336
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 3
Boston Gas Company
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Consolidated Balance Sheets
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<TABLE>
<CAPTION>
(In Thousands)
June 30, June 30, December 31,
2000 1999 1999
--------- ----------- ------------
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $ 966,062 $ 914,995 $ 963,672
Construction work-in-progress 38,814 30,529 16,458
Less-Accumulated depreciation (417,389) (395,838) (393,991)
--------- --------- ---------
Net Plant 587,487 549,686 586,139
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents 317 31,602 172
Accounts receivable, less reserves
of $17,164 and $14,552 at
June 30, 2000 and 1999,
respectively, and $14,816 at
December 31, 1999 66,356 69,751 61,429
Accounts receivable - affiliates 1,764 20 23,644
Accrued utility margin 3,015 2,272 20,067
Deferred gas costs 33,084 - 47,872
Natural gas and other inventories 41,378 31,237 45,172
Materials and supplies 4,291 3,491 3,399
Prepaid expenses 2,397 2,591 1,263
--------- --------- ---------
Total Current Assets 152,602 140,964 203,018
--------- --------- ---------
OTHER ASSETS:
Deferred postretirement benefits cost 69,972 75,888 72,760
Deferred charges and other assets 39,818 43,401 40,975
--------- --------- ---------
Total Other Assets 109,790 119,289 113,735
--------- --------- ---------
TOTAL ASSETS $ 849,879 $ 809,939 $ 902,892
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 4
Boston Gas Company
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Consolidated Balance Sheets
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<TABLE>
<CAPTION>
(In Thousands)
June 30, June 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 188,151 183,252 189,517
-------- -------- --------
Total Common Stockholder's Investment 282,802 277,903 284,168
Cumulative preferred stock, $1 par value,
(liquidation preference, $25 per share)
Authorized shares-1,200,000;
Outstanding shares
June 30, 2000 - 1,080,000, less treasury
shares of 205,300
June 30, 1999 - 1,200,000
December 31, 1999 - 1,080,000 21,438 29,377 26,454
Long-term obligations, less current portion 224,181 210,373 224,399
-------- -------- --------
Total Capitalization 528,421 517,653 535,021
GAS INVENTORY FINANCING 33,547 30,543 54,020
-------- -------- --------
Total Capitalization and Gas Inventory
Financing 561,968 548,196 589,041
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 703 590 950
Notes payable 20,300 - 51,200
Accounts payable 40,329 30,711 47,969
Accounts payable-affiliates 8,131 259 -
Accrued taxes 2,385 3,252 1,255
Accrued income taxes 15,637 17,856 5,543
Accrued interest 4,345 4,277 4,354
Customer deposits 2,014 2,038 2,060
Refundable gas costs - 5,853 -
Other 1,239 733 512
-------- -------- --------
Total Current Liabilities 95,083 65,569 113,843
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 76,553 73,853 78,921
Unamortized investment tax credits 3,819 4,661 4,240
Postretirement benefits obligation 75,150 79,590 77,310
Environmental Liability 18,000 18,750 18,000
Other 19,306 19,320 21,537
-------- -------- --------
Total reserves and deferred credits 192,828 196,174 200,008
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $849,879 $809,939 $902,892
======== ======== ========
</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
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Consolidated Statements of Cash Flows
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<TABLE>
<CAPTION>
(In Thousands)
For The Six Months Ended
-------------------------
June 30, June 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 21,887 $ 25,695
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 27,501 28,471
Deferred taxes (2,368) (2,128)
Other changes in assets and liabilities:
Accounts receivable (4,927) (7,501)
Accounts receivable-affiliates 30,011 1,988
Accrued utility margin 17,052 11,875
Inventories 2,902 9,499
Deferred gas costs 14,788 60,145
Accounts payable (7,640) (18,016)
Accrued interest (9) (137)
Federal and state income taxes 10,094 7,574
Other 255 2,993
-------- --------
Cash provided by operating activities 109,546 120,458
-------- --------
Cash flows from investing activities:
Capital expenditures (27,331) (19,865)
Net cost of removal (2,428) (1,931)
-------- --------
Cash used for investing activities (29,759) (21,796)
-------- --------
Cash flows from financing activities:
Changes in notes payable, net (30,900) (28,900)
Changes in inventory financing (20,473) (17,756)
Cash dividends paid on common and preferred stock (23,253) (21,299)
Purchase of preferred treasury stock (5,108) -
Amortization of preferred stock issuance cost 92 17
-------- --------
Cash used for financing activities (79,642) (67,938)
-------- --------
Increase in cash and cash equivalents 145 30,724
Cash and cash equivalents at beginning of period 172 878
-------- --------
Cash and cash equivalents at end of period $ 317 $ 31,602
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 8,849 $ 9,362
======== ========
Income taxes $ 6,359 $ 11,121
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 6
BOSTON GAS COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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JUNE 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
------
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 approval from the Securities and
Exchange Commission, the transaction is expected to close in the 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.
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FORM 10-Q
Page 7
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
Second Quarter
The seasonal net loss for the second quarter of 2000 was $3.9 million compared
to $2.8 million for the same period in 1999.
Operating margin increased $1.3 million, or 3% from the second quarter of 1999
primarily due to customer growth ($1.0 million) and higher non-core throughput
($0.7 million).
Operations and maintenance expenses increased $3.7 million, or 10%, principally
due to increased infrastructure and maintenance costs and employee wage and
benefit increases.
Operating revenue in the second quarter decreased $3.5 million, or 4%, from the
same period in 1999 primarily due to lower non-firm sales.
Year-to-Date
Net earnings applicable to common stock for the first six months of 2000 were
$21.1 million, a decrease of $3.6 million, or 15%, from the first six months of
1999.
Operating revenues for the first six months of 2000 decreased $13.1 million, or
4%, from 1999 principally due to lower gas costs ($11.5 million), the migration
of customers from sales to transportation service ($4.2 million), lower non-firm
sales ($5.7 million) and the impact of warmer weather during the first quarter
($6.1 million). The reduction associated with lower gas cost 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 ($10.3 million) and higher non-core throughput.
Operating margin increased $1.7 million, or 1%, compared to 1999 as customer
growth ($3.7 million) and higher non-core throughput ($1.4 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 six months of 2000 was 1.5% warmer than normal
and 3% 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 5% warmer than first quarter of 1999.
Operations and maintenance expenses increased $7.8 million, or 10%, 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, the absence of a $1.2 million pension gain recognized in the
first quarter of 1999 and costs incurred related to the pending merger with
Keyspan Corporation (See Note 1 of Notes to Consolidated Financial Statements).
Partially offsetting these increases was lower bad debt expense ($1.7 million)
reflecting improved collection experience.
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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FORM 10-Q
Page 8
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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FORM 10-Q
Page 9
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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FORM 10-Q
Page 10
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: July 25, 2000
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