UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For the quarterly period ended June 30, 1998
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OR
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|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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For the transition period from to
COMMISSION FILE NUMBER 0-10007
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COLONIAL GAS COMPANY
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(Exact name of registrant as specified in its charter)
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Massachusetts 04-1558100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
40 Market Street, Lowell, Massachusetts 01852
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 322-3000
Former name, former address and former fiscal year, if changed since last
report: Not applicable
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 |_|
The number of shares of the registrant's common stock, $3.33 par value,
outstanding as of July 1, 1998 was 8,766,178.
<PAGE>
COLONIAL GAS COMPANY
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income -
Three Months Ended June 30, 1998 and 1997
Six Months Ended June 30, 1998 and 1997
Consolidated Condensed Balance Sheets -
June 30, 1998, December 31, 1997 and
June 30, 1997
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997
Notes to Consolidated Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30,
1998 1997
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Operating Revenues $25,684 $26,927
Cost of gas sold 13,662 16,317
---------- -----------
Operating Margin 12,022 10,610
---------- -----------
Operating Expenses:
Operations 6,958 7,115
Maintenance 1,136 1,114
Depreciation and Amortization 3,229 2,973
Taxes, other than income 1,494 1,394
---------- -----------
Total Operating Expenses 12,817 12,596
---------- -----------
Income Taxes (Credit) (1,051) (1,430)
---------- -----------
Utility Operating Loss 256 (556)
Other Operating Income (Loss):
Energy Trucking revenues 617 451
Energy Trucking expenses, including
income taxes and interest 825 673
---------- -----------
Energy Trucking loss (208) (222)
Other, net of income taxes 107 57
---------- -----------
Total Other Operating Loss (101) (165)
Non-Operating Income, Net 260 152
---------- -----------
Income (Loss) Before Interest and Debt 415 (569)
Expense
Interest and Debt Expense 2,186 1,932
---------- -----------
Net Loss $(1,771) $ (2,501)
========== ===========
Average Common Shares Outstanding 8,740 8,576
========== ===========
========== ===========
Loss per Average Common Share $ (0.20) $ (0.29)
========== ===========
========== ===========
Dividends Paid per Common Share $ .345 $ .335
========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
(UNAUDITED)
Six Months Ended
June 30,
1998 1997
(In Thousands Except
Per Share Amounts)
<S> <C> <C>
Operating Revenues $103,507 $109,988
Cost of gas sold 54,579 60,034
---------- -----------
Operating Margin 48,928 49,954
---------- -----------
Operating Expenses:
Operations 13,608 14,553
Maintenance 2,204 2,260
Depreciation and Amortization 6,413 5,946
Taxes, other than income 2,748 2,775
---------- -----------
Total Operating Expenses 24,973 25,534
---------- -----------
Income Taxes 7,624 8,002
---------- -----------
Utility Operating Income 16,331 16,418
Other Operating Income (Loss):
Energy Trucking revenues 1,023 1,790
Energy Trucking expenses, including
income taxes and interest 1,186 1,931
---------- -----------
Energy Trucking net loss (163) (141)
Other, net of income taxes 158 106
---------- -----------
Total Other Operating Income (Loss) (5) (35)
Non-Operating Income, Net
436 246
---------- -----------
Income Before Interest and Debt Expense 16,762 16,629
Interest and Debt Expense 4,321 3,837
---------- -----------
Net Income $12,441 $ 12,792
========== ===========
========== ===========
Average Common Shares Outstanding 8,722 8,554
========== ===========
========== ===========
Income per Average Common Share $ 1.43 $ 1.50
========== ===========
========== ===========
Dividends Paid per Common Share $ 0.68 $ 0.66
========== ===========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
<TABLE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<CAPTION>
June 30, December 31 June 30,
1998 1997 1997
----------- ------------ ----------
(Unaudited) (Unaudited)
(In Thousands)
<S> <C> <C> <C>
Utility Property:
At original cost $ 379,866 $ 362,742 $ 345,572
Accumulated depreciation (94,832) (88,210) (88,447)
--------- --------- ---------
Net utility property 285,034 274,532 257,125
Non-Utility Property - Net 7,423 7,312 6,873
--------- --------- ---------
Net property 292,458 281,844 263,998
--------- --------- ---------
Capital Leases - Net 1,740 2,630 2,392
--------- --------- ---------
Current Assets:
Cash and cash equivalents 1,218 259 100
Accounts receivable 15,940 21,788 16,629
Allowance for doubtful (3,420) (3,203) (3,429)
accounts
Accrued utility revenues 821 7,417 739
Unbilled gas costs 8,125 19,266 8,902
Fuel and other inventories 12,144 12,959 10,321
Prepayments and other current 6,994 9,481 5,946
assets
--------- --------- ---------
Total current assets 41,822 67,967 39,208
--------- --------- ---------
Deferred Charges and Other
Assets:
Unrecovered deferred income
taxes 8,626 9,014 9,386
Unrecovered Demand Side
Management - costs 8,058 8,273 8,242
Unrecovered environmental
expenses - incurred 3,349 3,833 3,397
Unrecovered environmental
expenses - accrued 607 707 900
Unrecovered transition costs 2,800 2,800 4,500
- accrued
Other 12,898 11,923 11,697
--------- --------- ---------
Total deferred charges
and other assets 36,338 36,550 38,122
========= ========= =========
Total Assets $ 372,358 $ 388,991 $ 343,720
========= ========= =========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
<TABLE>
<CAPTION>
June 30, December 31 June 30,
1998 1997 1997
----------- ------------ ----------
(Unaudited) (Unaudited)
(In
Thousands)
<S> <C> <C> <C>
Capitalization:
Common equity:
Common Stock - part value $ 3.33 per share
Authorized - 15,000 shares
Issued and outstanding - 8,766
8,688 and 8,602 $29,191 $ 28,931 $28,643
Premium on common stock 59,177 57,277 55,669
Retained earnings 42,433 35,924 38,464
----------- ------------ ----------
Total Common equity 130,801 122,132 122,776
Long-term debt 110,015 100,102 100,185
----------- ------------ ----------
Total capitalization 240,816 222,234 222,961
----------- ------------ ----------
Capital Lease Obligations 276 1,617 1,471
----------- ------------ ----------
Current Liabilities:
Current maturities of
long-term debt 171 10,164 15,158
Current capital lease
obligations 1,464 1,013 921
Notes payable 37,000 49,400 12,700
Gas inventory purchase
obligations 8,084 14,895 6,477
Accounts payable 8,997 15,674 7,615
Other 12,070 11,362 15,504
----------- ------------ ----------
Total current 67,786 102,508 58,375
liabilities ----------- ------------ ----------
Deferred Credits and Reserves:
Deferred income taxes-funded 43,364 41,443 37,794
Deferred income taxes-unfunded 8,626 9,014 9,386
Accrued environmental expenses 607 707 900
Accrued transition costs 2,800 2,800 4,500
Other 8,083 8,668 8,333
----------- ------------ ----------
Total deferred credits and 63,480 62,632 60,913
reserves =========== ============ ==========
Total Capitalization and $372,358 $388,991 $343,720
Liabilities =========== ============ ==========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
<TABLE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1998 1997
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $12,441 $12,792
Adjustments to reconcile net income
to net cash 8,166 7,601
Changes in current assets and
liabilities 21,703 24,176
---------- ----------
Net cash provided by operating 42,310 44,569
activities ---------- ----------
Cash Flows From Investing Activities:
Capital expenditures (16,962) (12,285)
Non-utility capital expenditures (369) (1,158)
Change in deferred accounts 209 (1,233)
---------- ----------
Net cash used in investing (17,122) (14,676)
activities ---------- ----------
Cash Flows From Financing Activities:
Dividends paid on Common Stock (5,932) (5,647)
Issuance of Common Stock 2,160 1,725
Issuance of long-term debt, net of
issuance costs (1,570) 14,925
Retirement of long-term debt 323 (75)
Change in notes payable (12,400) (37,700)
Change in gas inventory purchase (6,811) (6,562)
obligations
---------- ----------
Net cash used in financing (24,229) (33,334)
activities ---------- ----------
Net (decrease) increase in cash and cash
equivalents 958 (3,441)
Cash and cash equivalents at beginning
of period 259 3,541
---------- ----------
Cash and cash equivalents at end of $1,218 $100
period ========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest - net of amount
capitalized $5,358 $4,645
========== ==========
========== ==========
Income and franchise taxes $3,608 $3,809
========== ==========
</TABLE>
(See accompanying notes to consolidated condensed financial statements)
<PAGE>
COLONIAL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of June 30, 1998 and 1997 and results of operations for the three and six
month periods ended June 30, 1998 and 1997 and cash flows for the six month
period ended June 30, 1998 and 1997.
2. Due to the significant impact of gas used for space heating during the
heating season (November-April) and the Company's seasonal rate structure,
the results of operations for the three month and six month periods ending
June 30, 1998 and 1997 are not necessarily indicative of the results to be
expected for the full year.
3. During the six months ended June 30, 1998, the Company issued 38,000 shares
of Common Stock, $3.33 par value, under a Dividend Reinvestment and Common
Stock Purchase Plan and under an Employee Savings Plan. As a result, Common
Stock, $3.33 par value, increased $128,000 and Premium on Common Stock
increased $915,000.
4. Contingencies
Reference is made to Note I/Contingencies of the Notes to Consolidated
Financial Statements contained within the Company's 1997 Annual Report to
Stockholders.
5. Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Three Months Ended June 30, 1998 and June 30, 1997
The Company's net loss for the three months ended June 30, 1998 was
$1,771,000, or $0.20 per share, which is a 29%, or $730,000, improvement from
the loss of $2,501,000, or $0.29 per share, reported for the same period last
year. The Company typically incurs losses for the second and third quarters
while reporting profits for the first and fourth quarters. This is due to
significantly higher natural gas sales throughout the colder months to meet
customers' heating needs. Approximately 90% of the Company's residential
customers are heating accounts. As described below, earnings for the three month
period ended June 30, 1998 were significantly impacted by a $1,121,000, or $0.08
per share, increase in operating margin due to a billing refinement.
Effective in the second quarter of 1998, with the implementation of an
improved customer billing system, bills sent during May for gas consumed in
April were refined to reflect the Company's higher winter rates. Seasonal rate
changes occur on May 1 and November 1 of each year. Previously, May bills were
calculated based on lower summer rates, even for gas consumed in April. The
billing refinement will have the opposite impact in the fourth quarter of 1998
- -- November bills for October usage will now reflect the Company's lower summer
rates instead of the higher winter rates -- and therefore, is expected to have
minimal effect on calendar year earnings. Without the effect of the billing
refinement, the Company would have reported an increase in operating margin of
$291,000, or 2.7%, for the three month period. Also significantly impacting
operating margin for the three month period ending June 30, 1998 was weather
which was 12% warmer than normal and 23% warmer than last year. Firm gas sold
for the three months ended June 30 decreased to 2,956 MMcf in 1998 from 3,317
MMcf in 1997.
Total operating expenses increased by $221,000, or 1.8%, compared to the
corresponding prior year period, primarily due to a $256,000 increase in
depreciation and amortization expense resulting from an increase in utility
assets.
Revenues for Transgas Inc., the Company's energy trucking subsidiary,
increased $166,000, or 37%, primarily due a 79% increase in hauls of LNG.
Partially offsetting this increase in revenue was a $152,000, or 23%, increase
in energy trucking expenses, resulting in a $14,000, or 6.3%, improvement in
earnings. Other income increased $50,000, or 50%, primarily as a result of
increased earnings from the sale of natural gas related home and water heating
equipment.
Interest and debt expense increased $254,000, or 13%, primarily due to a
$202,000 increase in short term debt interest expense.
Six Months Ended June 30, 1998 and 1997
Net income for the six months ended June 30, 1998 was $12,441,000, or $1.43
per share, compared to $12,792,000, or $1.50 per share, for the same period in
1997. This $351,000, or 2.7%, decrease resulted primarily from weather which was
13% warmer than normal and 13% warmer than last year.
As a result of the warm winter weather, operating margin for the six month
period ended June 30, 1998 decreased $1,026,000, or 2.1%, compared to the six
month period ended June 30, 1997. Operating margin for the period was also
significantly impacted by the billing refinement described in "Results of
Operations - Three Months Ended June 30, 1998 and 1997". The billing refinement
resulted in an increase to operating margin for the six month period of
$1,121,000, or $0.08 per share. Without the effect of the billing refinement,
the Company would have reported a decrease in operating margin of $2,147,000, or
4.3%, for the six month period.
Total operating expenses decreased by $561,000, or 2.2%. Operations and
maintenance expenses decreased by $1,001,000, or 6.0%, primarily due to
reductions in bad debt expense and lower insurance expense. Partially offsetting
these reductions was a $467,000, or 7.9%, increase in depreciation and
amortization expense resulting from an increase in utility assets.
Income taxes decreased $378,000, or 4.7%, due to a lower level of pre-tax
income.
Energy trucking revenues fell $767,000, or 43%, primarily due to a decrease in
hauls of LNG resulting from the warmer than normal weather during the winter of
1997-98. The decrease in energy trucking revenue was partially offset by a
$745,000, or 39%, decrease in energy trucking expenses. As a result, earnings
from Transgas Inc. decreased by $22,000, or 16%. Other income increased $52,000,
or 50%, primarily as a result of increased earnings from the sale of natural gas
related home and water heating equipment.
Interest and debt expense increased $484,000, or 13%, primarily due to a
$229,000 increase in short-term debt expense resulting from higher short-term
debt balances, and a $165,000 decrease in regulatory interest income.
Liquidity and Capital Resources
On April 1, 1998, the Company purchased its corporate headquarters building
located at 40 Market Street in Lowell, Massachusetts for $1,325,000. The
purchase terminated the 20-year lease between the Company and the building's
previous owner which had been entered into in 1982.
On April 2, 1998, the Company called $20,000,000 of 8.05% First Mortgage Bonds
(Series CG) one year prior to their maturity, at a price of 102.02%.
On April 7, 1998, the Company issued $20,000,000 of 30-year First Mortgage Bonds
under its Medium Term Note Program (Series B), with an effective rate of 6.68%.
The Bonds are redeemable at the option of the holder in April 2008.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the registrant was held on April 15, 1998
and May 7, 1998. At the Annual Meeting the shareholders voted to:
1. Re-elect all four Class II Director nominees:
John P. Harrington, with 7,294,775 shares voting for and 90,024
shares voting against or withholding authority;
John F. Reilly, Jr., with 7,277,804 shares voting for and 106,995
shares voting against or withholding authority;
Margaret M. Stapleton, with 7,286,808 shares voting for and 97,991
shares voting against or withholding authority;
F.L. Putnam, Jr., with 7,281,114 shares voting for and 103,685
shares voting against or withholding authority;
2. Approve the Company's Executive Performance and Equity Incentive Plan,
which provides the Board of Directors the flexibility to grant cash and
restricted stock bonuses to key members of senior management, with
6,655,915 shares voting for and 728,884 shares voting against or
withholding authority.
3. Approve a proposal to adopt a holding company structure for the Company
with 5,844,890 shares voting for and 1,696,552 shares voting against or
withholding authority.
Item 5. Other Information
On July 14, 1998, the Company filed, and is currently awaiting a decision
on a petition with the Massachusetts Department of Telecommunications and Energy
(DTE) for approval to form a holding company which will be called Colonial
Energy. Subject to DTE approval, Colonial plans to have the holding company
structure in place by the end of 1998. As part of the restructuring, Colonial
Gas expects to transfer ownership of its energy trucking subsidiary, Transgas
Inc., to the holding company -- making both Colonial Gas Company and Transgas
Inc. wholly-owned subsidiaries of Colonial Energy.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
SIGNATURES
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.
COLONIAL GAS COMPANY
(Registrant)
Date: August 7, 1998 s/F.L. Putnam, III
F.L. Putnam, III
President and Chief Executive Officer
Date: August 7, 1998 s/Nickolas Stavropoulos
Nickolas Stavropoulos
Executive Vice President - Finance,
Marketing and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<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> 285,034
<OTHER-PROPERTY-AND-INVEST> 9,163
<TOTAL-CURRENT-ASSETS> 41,822
<TOTAL-DEFERRED-CHARGES> 23,440
<OTHER-ASSETS> 12,898
<TOTAL-ASSETS> 372,358
<COMMON> 29,191
<CAPITAL-SURPLUS-PAID-IN> 59,177
<RETAINED-EARNINGS> 42,433
<TOTAL-COMMON-STOCKHOLDERS-EQ> 130,801
0
0
<LONG-TERM-DEBT-NET> 110,015
<SHORT-TERM-NOTES> 45,084
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 171
0
<CAPITAL-LEASE-OBLIGATIONS> 276
<LEASES-CURRENT> 1,464
<OTHER-ITEMS-CAPITAL-AND-LIAB> 84,547
<TOT-CAPITALIZATION-AND-LIAB> 372,358
<GROSS-OPERATING-REVENUE> 103,507
<INCOME-TAX-EXPENSE> 7,624
<OTHER-OPERATING-EXPENSES> 79,552
<TOTAL-OPERATING-EXPENSES> 87,176
<OPERATING-INCOME-LOSS> 16,331
<OTHER-INCOME-NET> 431
<INCOME-BEFORE-INTEREST-EXPEN> 16,762
<TOTAL-INTEREST-EXPENSE> 4,321
<NET-INCOME> 12,441
0
<EARNINGS-AVAILABLE-FOR-COMM> 12,441
<COMMON-STOCK-DIVIDENDS> 5,932
<TOTAL-INTEREST-ON-BONDS> 4,047
<CASH-FLOW-OPERATIONS> 42,310
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
</TABLE>
