<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
--------------------------------
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
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COLONIAL GAS COMPANY
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(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
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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 100 shares, all held
by Eastern Enterprises.
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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>
Three Months One Month Two Months
Ended Ended Ended
September 30, September 30, August 31,
2000 1999 1999
-------- ------- -------
(Predecessor)
<S> <C> <C> <C>
OPERATING REVENUES $ 16,222 $ 4,446 $ 9,052
Cost of gas sold 8,982 2,285 4,846
-------- ------- -------
Operating Margin 7,240 2,161 4,206
-------- ------- -------
OPERATING EXPENSES:
Operations 6,486 1,959 5,493
Maintenance 783 366 1,088
Depreciation and amortization 1,746 1,127 2,521
Amortization of goodwill 1,506 502 -
Income taxes (5,630) (1,186) (3,858)
Taxes, other than income 776 411 808
Restructuring charge 7,000 - -
Merger related expenses - - 3,025
-------- ------- -------
Total Operating Expenses 12,667 3,179 9,077
-------- ------- -------
OPERATING (LOSS) (5,427) (1,018) (4,871)
OTHER EARNINGS (LOSS), NET (280) 29 85
-------- ------- -------
(LOSS) BEFORE INTEREST EXPENSE (5,707) (989) (4,786)
-------- ------- -------
INTEREST EXPENSE:
Long-term debt 2,133 711 1,423
Other, including amortization
of debt expense 2,411 577 248
Less - Interest during construction (22) (1) (57)
-------- ------- -------
Total Interest Expense 4,522 1,287 1,614
-------- ------- -------
NET (LOSS) $(10,229) $(2,276) $(6,400)
======== ======= =======
COMMON STOCK DIVIDENDS $ - $ - $ -
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 3
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>
Nine Months One Month Eight Months
Ended Ended Ended
September 30, September 30, August 31,
2000 1999 1999
-------- ------- --------
(Predecessor)
<S> <C> <C> <C>
OPERATING REVENUES $129,275 $ 4,446 $122,625
Cost of gas sold 62,298 2,285 64,750
-------- ------- --------
Operating Margin 66,977 2,161 57,875
-------- ------- --------
OPERATING EXPENSES:
Operations 19,900 1,959 20,832
Maintenance 2,645 366 3,939
Depreciation and amortization 10,515 1,127 10,086
Amortization of goodwill 4,518 502 -
Income taxes 4,143 (1,186) 3,619
Taxes, other than income 3,428 411 3,726
Restructuring charge 7,000 - -
Merger related expenses - - 3,821
-------- ------- --------
Total Operating Expenses 52,149 3,179 46,023
-------- ------- --------
OPERATING EARNINGS (LOSS) 14,828 (1,018) 11,852
OTHER EARNINGS (LOSS), NET 278 29 (24)
-------- ------- --------
EARNINGS (LOSS) BEFORE INTEREST EXPENSE 15,106 (989) 11,828
-------- ------- --------
INTEREST EXPENSE:
Long-term debt 6,400 711 5,688
Other, including amortization
of debt expense 6,862 577 1,814
Less - Interest during construction (57) (1) (194)
-------- ------- --------
Total Interest Expense 13,205 1,287 7,308
-------- ------- --------
NET EARNINGS (LOSS) $ 1,901 $(2,276) $ 4,520
======== ======= ========
COMMON STOCK DIVIDENDS $ 6,039 $ - $ 6,255
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 4
Colonial Gas Company
--------------------
Consolidated Balance Sheets
---------------------------
<TABLE>
<CAPTION>
(In Thousands)
September 30, September 30, December 31,
2000 1999 1999
------------ ------------ -----------
ASSETS
<S> <C> <C> <C>
GAS PLANT, at cost $ 387,423 $ 384,744 $ 390,447
Construction work-in-progress 10,756 2,894 2,914
Less-Accumulated depreciation (120,522) (106,290) (109,628)
--------- --------- ---------
Net plant 277,657 281,348 283,733
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents 204 (714) 389
Accounts receivable, less reserves
of $2,900 and $3,145 at
September 30, 2000 and 1999,
respectively, and $2,677 at
December 31, 1999 5,509 4,827 15,987
Accounts receivable - affiliates 13,181 1,406 -
Accrued utility margin 523 710 8,074
Deferred gas costs 21,149 2,189 13,803
Natural gas and other inventories 18,185 13,514 11,581
Materials and supplies 2,272 2,351 2,277
Current income taxes - 4,114 4,182
Prepaid expenses 389 597 330
--------- --------- ---------
Total Current Assets 61,412 28,994 56,623
--------- --------- ---------
OTHER ASSETS:
Excess of cost over fair value of
acquired net assets, less amortization 234,713 240,300 239,045
Deferred charges and other assets 4,821 4,675 4,646
--------- --------- ---------
Total Other Assets 239,534 244,975 243,691
--------- --------- ---------
TOTAL ASSETS $ 578,603 $ 555,317 $ 584,047
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5
Colonial Gas Company
--------------------
Consolidated Balance Sheets
---------------------------
<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, $1 par value-
Authorized and outstanding-100 shares
at September 30, 2000, September 30, 1999
and December 31, 1999 $ - $ - $ -
Amounts in excess of par value 225,667 225,667 225,667
Retained earnings (3,909) (2,276) 229
-------- -------- --------
Total common stockholder's investment 221,758 223,391 225,896
Long-term obligations, less current portion 120,620 121,022 121,021
-------- -------- --------
Total Capitalization 342,378 344,413 346,917
-------- -------- --------
ADVANCES FROM PARENT COMPANY 100,000 100,000 100,000
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 573 646 646
Notes payable 45,800 24,000 29,000
Gas inventory financing 15,020 10,870 15,009
Accounts payable 16,033 8,776 16,578
Accounts payable-affiliates - 2,981 17,916
Accrued income taxes 1,087 - -
Accrued interest 2,667 2,232 2,936
Customer deposits 632 616 644
Refunds due customers 3,361 5,570 5,331
Other 597 9,396 389
-------- -------- --------
Total Current Liabilities 85,770 65,087 88,449
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Deferred income taxes 34,271 27,337 32,276
Unamortized investment tax credits 2,656 2,876 2,811
Postretirement benefits obligation 5,436 6,504 5,136
Other 8,092 9,100 8,458
-------- -------- --------
Total Reserves and Deferred Credits 50,455 45,817 48,681
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $578,603 $555,317 $584,047
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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Page 6
Colonial Gas Company and Subsidiary
-----------------------------------
Consolidated Statements of Cash Flows
-------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
For The For The For The
Nine Months One Month Eight Months
Ended Ended Ended
------------- ------------- ------------
September 30, September 30, August 31,
2000 1999 1999
-------- -------- ---------
(Predecessor)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,901 $(2,276) $ 4,520
Adjustments to reconcile net earnings to
net cash 17,028 1,854 11,493
Other changes in assets and liabilities (19,344) (5,283) 37,520
-------- ------- --------
Net cash (used for) provided by operating activities (415) (5,705) 53,533
-------- ------- --------
Cash flows from investing activities:
Capital expenditures (10,067) (1,157) (12,715)
-------- ------- --------
Net cash used by investing activities (10,067) (1,157) (12,715)
-------- ------- --------
Cash flows from financing activities:
Dividends paid on common stock (6,039) - (6,255)
Issuance of common stock - - 1,399
Retirement of long-term debt, including premiums (475) - (102)
Change in notes payable 16,800 5,000 (33,000)
Change in gas inventory financing 11 - (3,255)
-------- ------- --------
Net cash provided by (used in) financing activities 10,297 5,000 (41,213)
-------- ------- --------
Net (decrease) in cash and cash equivalents (185) (1,862) (395)
Cash and cash equivalents at beginning of period 389 1,148 3,125
-------- ------- --------
Cash and cash equivalents at end of period $ 204 $ (714) $ 2,730
======== ======= ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 10,645 $ 59 $ 8,434
======== ======= ========
Income taxes $ (3,121) $ 1,950 $ 3,595
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
PAGE 7
COLONIAL 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
-----------------------------------------
General
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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 September 30, 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.
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FORM 10-Q
PAGE 8
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" ("SFAS No.71").
On November 8, 2000, Eastern was acquired by KeySpan Corporation. In
connection with this 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 $5.0 million in the fourth quarter of 2000.
Restructuring Charge
--------------------
During the third quarter of 2000, the Company recorded a restructuring
charge of $7.0 million related to its exit of the gas appliance rental and
service business. The charge includes $5.1 million to write down to fair
value the equipment used in the rental business and $1.2 million for
employee severance and termination benefits associated with the service
business. The remaining $0.7 million is associated with the disposal of
inventory and other related costs. The Company expects the restructuring
plan to be completed by the end of 2000. The restructuring charge is
reported as a component of operating expenses in the consolidated statement
of earnings.
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 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.
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:
---------------------
As discussed in Note 1 of Notes to the Consolidated Financial Statements,
the Company merged with and became a wholly-owned subsidiary of Eastern as
of August 31, 1999.
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FORM 10-Q
PAGE 9
Third Quarter
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The Company reported a net loss of $10.2 million for the quarter.
The seasonal net loss typically incurred during the third quarter was
impacted by the restructing charge of $7.0 million associated with the
Company's exit from the gas appliance rental and service business (See Note
1 of Notes to Consolidated Financial Statements). Additionally, the
Company's results reflect $1.5 million of goodwill amortization and
interest of $1.6 million on the $100 million advance from Eastern incurred
at the date of merger.
Year-to-Date
------------
Net earnings for the first nine months were $1.9 million. Year to date
earnings include the $7.0 million restructuring charge mentioned earlier,
amortization of goodwill of $4.5 million and interest of $4.6 million on
the advance from Eastern.
Operating margin for the first nine months benefited from customer
growth and the recovery from customers of costs written off at acquisition
due to the discontinuance of SFAS No. 71. Although weather to date was
normal, weather during the first quarter when the Company earns the
majority of its operating margin was warmer than normal.
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.
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FORM 10-Q
PAGE 10
PART II. OTHER INFORMATION
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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.
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FORM 10-Q
PAGE 11
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.
Colonial 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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