<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 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
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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 100 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:
COLONIAL 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
------- -------- -------- --------
(Predecessor) (Predecessor)
<S> <C> <C> <C> <C>
OPERATING REVENUES $26,718 $25,579 $113,053 $113,573
Cost of gas sold 11,663 11,361 53,316 59,904
------- ------- -------- --------
Operating Margin 15,055 14,218 59,737 53,669
------- ------- -------- --------
OPERATING EXPENSES:
Operations 6,351 7,909 13,293 15,339
Maintenance 811 1,538 1,861 2,851
Depreciation and amortization 2,610 3,783 8,394 7,565
Amortization of goodwill 1,506 - 3,012 -
Income taxes (38) (1,164) 9,773 7,477
Taxes, other than income 989 1,554 2,654 2,918
Merger related expenses - 410 - 796
------- ------- -------- --------
Total Operating Expenses 12,229 14,030 38,987 36,946
------- ------- -------- --------
OPERATING EARNINGS 2,826 188 20,750 16,723
OTHER EARNINGS (LOSS), NET 115 (47) 64 (109)
------- ------- -------- --------
EARNINGS BEFORE INTEREST EXPENSE 2,941 141 20,814 16,614
------- ------- -------- --------
INTEREST EXPENSE:
Long-term debt 2,133 2,133 4,266 4,266
Other, including amortization
of debt expense 2,392 899 4,452 1,566
Less - Interest during construction (19) (94) (34) (137)
------- ------- -------- --------
Total Interest Expense 4,506 2,938 8,684 5,695
------- ------- -------- --------
NET EARNINGS (LOSS) $(1,565) $(2,797) $ 12,130 $ 10,919
======= ======= ======== ========
COMMON STOCK DIVIDENDS $ - $ 3,177 $ 6,039 $ 6,255
======= ======= ======== ========
</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
---------------------------
(In Thousands)
June 30, June 30, December 31,
2000 1999 1999
---------- ---------- -----------
(Predecessor)
ASSETS
GAS PLANT, at cost $ 390,746 $ 389,164 $ 390,447
Construction work-in-progress 9,168 16,735 2,914
Less-Accumulated depreciation (118,365) (110,341) (109,628)
--------- --------- ---------
Net plant 281,549 295,558 283,733
--------- --------- ---------
NON-UTILITY PROPERTY-NET - 6,829 -
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents 207 2,491 389
Accounts receivable, less reserves
of $3,524 and $3,194 at
June 30, 2000 and 1999,
respectively, and $2,677 at
December 31, 1999 16,876 12,327 15,987
Accounts receivable - affiliates 3,933 - -
Accrued utility margin 548 560 8,074
Deferred gas costs 13,638 - 13,803
Natural gas and other inventories 8,682 9,571 11,581
Materials and supplies 2,401 2,788 2,277
Current income taxes - - 4,182
Prepaid expenses 225 6,207 330
--------- --------- ---------
Total Current Assets 46,510 33,944 56,623
--------- --------- ---------
OTHER ASSETS:
Excess of cost over fair value of
acquired net assets, less
amortization 236,073 - 239,045
Deferred charges and other assets 5,777 31,212 4,646
--------- --------- ---------
Total Other Assets 241,850 31,212 243,691
--------- --------- ---------
TOTAL ASSETS $ 569,909 $ 367,543 $ 584,047
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 4
Colonial Gas Company
--------------------
Consolidated Balance Sheets
---------------------------
<TABLE>
<CAPTION>
(In Thousands)
June 30, June 30, 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 June 30, 2000 and December 31, 1999 $ - $ - $ -
Common Stock, $3.33 par value-
Authorized shares-15,000,000 at
June 30, 1999;
Issued shares-8,951,000 at June 30, 1999 - 29,806 -
Amounts in excess of par value 225,667 64,341 225,667
Retained earnings 6,321 40,838 229
-------- -------- --------
Total common stockholder's investment 231,988 134,985 225,896
Long-term obligations, less current portion 121,021 121,021 121,021
-------- -------- --------
Total Capitalization 353,009 256,006 346,917
-------- -------- --------
ADVANCES FROM PARENT COMPANY 100,000 - 100,000
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations 646 661 646
Notes payable 30,300 8,500 29,000
Gas inventory financing 7,038 8,269 15,009
Accounts payable 14,486 11,370 16,578
Accounts payable-affiliates - - 17,916
Accrued income taxes 7,590 2,931 -
Accrued interest 3,064 2,787 2,936
Refundable gas costs - 4,484 -
Customer deposits 643 813 644
Refunds due customers 3,591 5,460 5,331
Other 671 4,613 389
-------- -------- --------
Total Current Liabilities 68,029 49,888 88,449
-------- -------- --------
RESERVES AND DEFERRED CREDITS:
Unfunded deferred income taxes - 7,961 -
Deferred income taxes 32,815 45,445 32,276
Unamortized investment tax credits 2,708 2,941 2,811
Postretirement benefits obligation 5,297 - 5,136
Other 8,051 5,302 8,458
-------- -------- --------
Total Reserves and Deferred Credits 48,871 61,649 48,681
-------- -------- --------
TOTAL CAPITALIZATION AND LIABILITIES $569,909 $367,543 $584,047
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 5
Colonial Gas Company
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Consolidated Statements of Cash Flows
-------------------------------------
(In Thousands)
For the Six Months Ended
------------------------
June 30, June 30,
2000 1999
---- ----
(Predecessor)
Cash flows from operating activities:
Net earnings $ 12,130 $ 10,919
Adjustments to reconcile net earnings to cash
cash provided by operating activities:
Depreciation and amortization 11,780 7,839
Deferred taxes 539 502
Other changes in assets and liabilities:
Accounts receivable (889) 914
Accrued utility margin 7,526 7,316
Accounts payable-affiliates (21,849) -
Inventories 2,775 3,259
Deferred gas costs 165 22,679
Accounts payable (2,092) (816)
Federal and state income taxes 11,772 2,931
Refunds due customers (1,740) (5)
Other (997) 7,672
-------- --------
Cash provided by operating activities 19,120 63,210
-------- --------
Cash flows from investing activities:
Capital expenditures (6,592) (9,540)
-------- --------
Cash flows from financing activities:
Cash dividends paid on common stock (6,039) (6,255)
Issuance of common stock - 1,398
Retirement of long-term debt, including premiums - (91)
Change in notes payable 1,300 (43,500)
Change in inventory financing (7,971) (5,856)
-------- --------
Cash used for financing activities (12,710) (54,304)
-------- --------
(Decrease) in cash and cash
equivalents (182) (634)
Cash and cash equivalents at beginning of period 389 3,125
-------- --------
Cash and cash equivalents at end of period $ 207 $ 2,491
======== ========
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest, net of amounts capitalized $ 6,975 $ 5,621
======== ========
Income taxes $ (2,537) $ 3,595
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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FORM 10-Q
Page 6
COLONIAL 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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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 June 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
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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 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 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 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
Second Quarter
The seasonal net loss for the second quarter was $1.6 million compared to a
net loss of $2.8 million for the same period in 1999.
Operating margin increased $0.8 million, or 6%, due to customer growth and
recovery from customers for costs written off at acquisition due to the
discontinuance of FAS No.71.
Operating expenses of $12.2 million were $1.8, or 13%, lower than the
second quarter of 1999. This decline was principally due to lower
depreciation expense of $1.2 million, based on a change in the quarterly
recognition of depreciation, and decreased operations and maintenance
expense of $2.3 million due to merger related synergies. Somewhat
offsetting these decreases was the amortization of goodwill of $1.5
million.
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FORM 10-Q
Page 8
Total interest expense increased $1.6 million due principally to interest
on Advances from Parent Company.
Year-to-Date
------------
Net earnings for the first six months of 2000 were $12.1 million, an
increase of $1.2 million, or 11% from the same period last year.
Operating margin for the first six months of 2000 was $59.7 million, an
increase of $6.1 million, or 11%, from the prior year. This increase was
due to growth in the customer base and recovery from customers for costs
written off at acquisition due to the discontinuance of FAS No.71.
Operating expenses of $39.0 million were $2.0 million, or 6%, above the
first six months of 1999. This increase was principally due to the
amortization of goodwill ($3.0 million), higher income taxes ($2.3 million)
and higher depreciation expense ($0.8 million). Somewhat offsetting the
preceding was a decrease in operations and maintenance expense of $3.0
million, or 17%, due to merger related synergies.
Total interest expense increased $3.0 million due primarily to interest on
Advances from Parent Company.
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 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
-----------------------------------------
(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 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.
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: July 25, 2000
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