<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 0-10007
-------
COLONIAL GAS COMPANY
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3480443
--------------------------------- --------------------
(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 100 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:
COLONIAL GAS COMPANY ("Company")
Consolidated Statements of Earnings
- -----------------------------------
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
March 31, March 31,
2000 1999
------------ --------------
(Predecessor)
<S> <C> <C>
OPERATING REVENUES $86,335 $87,994
Cost of gas sold 41,653 48,543
------- -------
Operating Margin 44,682 39,451
------- -------
OPERATING EXPENSES:
Operations 6,942 7,430
Maintenance 1,050 1,313
Depreciation and amortization 5,784 3,782
Amortization of goodwill 1,506 -
Income taxes 9,811 8,641
Taxes, other than income 1,665 1,364
Merger related expenses - 386
------- -------
Total Operating Expenses 26,758 22,916
------- -------
OPERATING EARNINGS 17,924 16,535
OTHER EARNINGS (LOSS), NET (51) (62)
------- -------
EARNINGS BEFORE INTEREST EXPENSE 17,873 16,473
------- -------
INTEREST EXPENSE:
Long-term debt 2,133 2,133
Other, including amortization
of debt expense 2,060 667
Less - Interest during construction (15) (43)
------- -------
Total Interest Expense 4,178 2,757
------- -------
NET EARNINGS $13,695 $13,716
======= =======
COMMON STOCK DIVIDENDS $ 6,039 $ 3,078
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 3
Colonial Gas Company
- --------------------
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
March 31, March 31, December 31,
2000 1999 1999
-------------- ----------- ------------
(Predecessor)
<S> <C> <C> <C>
ASSETS
GAS PLANT, at cost $ 390,447 $ 389,049 $ 390,447
Construction work-in-progress 6,080 11,821 2,914
Less-Accumulated depreciation (115,593) (106,371) (109,628)
--------- --------- ---------
Net plant 280,934 294,499 283,733
--------- --------- ---------
NON-UTILITY PROPERTY-NET - 6,981 -
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents 220 5,779 389
Accounts receivable, less reserves
of $3,149 and $3,157 at
March 31, 2000 and 1999,
respectively, and $2,677 at
December 31, 1999 31,918 32,283 15,987
Accrued utility margin 5,502 5,123 8,074
Deferred gas costs 6,607 - 13,803
Natural gas and other inventories 4,197 6,321 11,581
Materials and supplies 2,359 2,650 2,277
Current income taxes - - 4,182
Prepaid expenses 171 6,451 330
--------- --------- ---------
Total Current Assets 50,974 58,607 56,623
--------- --------- ---------
OTHER ASSETS:
Excess of cost over fair value of
acquired net assets, less amortization 237,624 - 239,045
Deferred charges and other assets 5,018 31,385 4,646
--------- --------- ---------
Total Other Assets 242,642 31,385 243,691
--------- --------- ---------
TOTAL ASSETS $ 574,550 $ 391,472 $ 584,047
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 4
Colonial Gas Company
- --------------------
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
March 31, March 31, December 31,
2000 1999 1999
-------------- ------------ ---------------
(Predecessor)
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholder's investment-
Common stock, $1 par value-
Authorized and outstanding-100 shares
at March 31, 2000 and December 31, 1999 $ - $ - $ -
Common Stock, $3.33 par value-
Authorized shares-15,000,000 at
March 31, 1999;
Issued shares-8,949,000 at March 31, 1999 - 29,800 -
Amounts in excess of par value 225,667 64,284 225,667
Retained earnings 7,885 46,812 229
-------- -------- --------
Total common stockholder's investment 233,552 140,896 225,896
Long-term obligations, less current portion 121,021 120,963 121,021
-------- -------- --------
Total Capitalization 354,573 261,859 346,917
-------- -------- --------
ADVANCES FROM PARENT COMPANY 100,000 - 100,000
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 646 679 646
Notes payable 24,000 31,000 29,000
Gas inventory financing 5,001 7,722 15,009
Accounts payable 15,459 10,559 16,578
Accounts payable-affiliates 2,055 - 17,916
Accrued income taxes 10,755 7,161 -
Accrued interest 2,314 2,102 2,936
Refundable gas costs - 2,772 -
Customer deposits 631 823 644
Refunds due customers 4,057 7 5,331
Dividend payable-parent company 6,039 - -
Other 659 5,615 389
-------- -------- --------
Total Current Liabilities 71,616 68,440 88,449
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Unfunded deferred income taxes - 8,155 -
Deferred income taxes 31,935 44,748 32,276
Unamortized investment tax credits 2,759 3,006 2,811
Postretirement benefits obligation 5,209 - 5,136
Other 8,458 5,264 8,458
-------- -------- --------
Total Reserves and Deferred Credits 48,361 61,173 48,681
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $574,550 $391,472 $584,047
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 5
Colonial Gas Company
- --------------------
Consolidated Statements of Cash Flows
- -------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
For the Three Months Ended
--------------------------
March 31 March 31
2000 1999
---- ----
(Predecessor)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 13,695 $ 13,716
Adjustments to reconcile net earnings to cash
cash provided by operating activities:
Depreciation and amortization 7,500 3,917
Deferred taxes (341) -
Other changes in assets and liabilities:
Accounts receivable (15,931) (19,042)
Accrued utility margin 2,572 2,753
Accounts payable-affiliates (15,861) -
Inventories 7,302 6,647
Deferred gas costs 7,196 20,967
Accounts payable (1,119) (1,627)
Federal and state income taxes 14,937 7,161
Refunds due customers (1,274) 5
Other (777) 2,015
-------- --------
Cash provided by operating activities 17,899 36,512
-------- --------
Cash flows from investing activities:
Capital expenditures (3,060) (4,669)
-------- --------
Cash flows from financing activities:
Cash dividends paid on common stock - (3,078)
Issuance of common stock - 1,335
Retirement of long-term debt, including premiums - (43)
Change in notes payable (5,000) (21,000)
Change in inventory financing (10,008) (6,403)
-------- --------
Cash used for financing activities (15,008) (29,189)
-------- --------
Increase (decrease) in cash and cash
equivalents (169) 2,654
Cash and cash equivalents at beginning of period 389 3,125
-------- --------
Cash and cash equivalents at end of period $ 220 $ 5,779
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 4,766 $ 3,957
======== ========
Income taxes $ (4,785) $ 265
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 6
COLONIAL GAS COMPANY
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 2000
--------------
1. ACCOUNTING POLICIES AND OTHER INFORMATION
-----------------------------------------
General
-------
The Company is a wholly-owned subsidiary of Eastern Enterprises
("Eastern"). The consolidated financial statements include the accounts of
the Company and its affiliate, Massachusetts Fuel Inventory Trust, and, for
periods prior to August 31, 1999 ("Predecessor Financial Statements"), the
operations of Colonial Gas Company, its affiliate, Massachusetts Fuel
Inventory Trust, and a wholly-owned subsidiary, Transgas Inc. The
Predecessor Financial Statements have been prepared using the historical
cost of the Company's assets and have not been adjusted to reflect the
merger with Eastern. However, certain accounts for the prior periods have
been reclassified to conform to the presentation as of March 31, 2000. As
of the merger, Transgas ceased to be a subsidiary of Colonial Gas Company.
All material intercompany balances and transactions between the Company and
its subsidiary have been eliminated in consolidation.
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.
Mergers
-------
On August 31, 1999, the Company completed a merger with Eastern in a
transaction with an enterprise value of approximately $474 million. In
effecting the transaction, Eastern paid $150 million in cash, net of cash
acquired and including transaction costs, issued approximately 4.2 million
shares of common stock valued at $186 million and assumed $138 million of
debt. The Colonial merger was accounted for using the purchase method of
accounting for business combinations.
<PAGE>
FORM 10-Q
Page 7
In connection with the approval of the merger, the Massachusetts Department
of Telecommunications and Energy (the "Department") approved a rate plan
resulting in a ten year freeze of base rates at current levels. As part of
the approved rate plan, the Company will be charged by Boston Gas for
incremental costs incurred by Boston Gas on behalf of the Company. Due to
the length of the base rate freeze, the Company was required to discontinue
its application of Statement of Financial Accounting Standards No. 71
"Accounting for the Effects of Certain Types of Regulation".
On November 4, 1999, Eastern Enterprises ("Eastern"), the parent company of
Colonial 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 addition, under its seasonal rate structure, the rates
charged customers during November through April are higher than those
charged during May through October. 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.
Reclassifications
-----------------
Certain prior quarter financial statement amounts have been reclassified
for consistent presentation with the current year.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
----------------------------------------------------------------------
RESULTS OF OPERATIONS:
----------------------
RESULTS OF OPERATIONS
Net earnings for the first quarter of 2000 were $13.7 million, which
represents no change from the first quarter of 1999. Weather was slightly
colder than the prior year, although 2% warmer than normal.
Operating margin for the first quarter of 2000 was $44.7 million, an
increase of $5.2 million from the first quarter of 1999. This increase was
due to several factors: slightly colder weather, growth in the customer
base, recoveries from customers for expenses written off at acquisition due
to discontinuance of FAS No. 71, and increased credits to gas costs due to
unbundling.
<PAGE>
FORM 10-Q
Page 8
Operating expenses of $26.8 million were $3.8 million above 1999. This
increase was principally due to increased depreciation of $2.0 million,
based on a change in the quarterly recognition of depreciation,
amortization of goodwill of $1.5 million and higher income taxes of $1.2
million. Offsetting these increases was a decrease in operations and
maintenance expense of $.8 million due to merger related synergies.
Total interest expense increased $1.4 million due principally to interest
on Advances from Parent Company.
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.
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 $23
million.
<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) Reports on Form 8-K
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.
Colonial 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> 280,934
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 50,974
<TOTAL-DEFERRED-CHARGES> 5,018
<OTHER-ASSETS> 237,624
<TOTAL-ASSETS> 574,550
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 225,667
<RETAINED-EARNINGS> 7,885
<TOTAL-COMMON-STOCKHOLDERS-EQ> 233,552
0
0
<LONG-TERM-DEBT-NET> 120,000
<SHORT-TERM-NOTES> 29,001
<LONG-TERM-NOTES-PAYABLE> 100,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 1,021
<LEASES-CURRENT> 646
<OTHER-ITEMS-CAPITAL-AND-LIAB> 90,330
<TOT-CAPITALIZATION-AND-LIAB> 574,550
<GROSS-OPERATING-REVENUE> 86,335
<INCOME-TAX-EXPENSE> 1,665
<OTHER-OPERATING-EXPENSES> 66,746
<TOTAL-OPERATING-EXPENSES> 68,411
<OPERATING-INCOME-LOSS> 17,924
<OTHER-INCOME-NET> (51)
<INCOME-BEFORE-INTEREST-EXPEN> 17,873
<TOTAL-INTEREST-EXPENSE> 4,178
<NET-INCOME> 13,695
0
<EARNINGS-AVAILABLE-FOR-COMM> 13,695
<COMMON-STOCK-DIVIDENDS> 6,039
<TOTAL-INTEREST-ON-BONDS> 2,133
<CASH-FLOW-OPERATIONS> 17,899
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
