-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MaLIoIReBBm9mTrTN2HehuFG6+JOVfHmPjdf9QusSY9HS39LHITJD4PZOE06/sUY TShSJfZbKAGq2nVtnV1KlA== 0000927016-99-002006.txt : 19990517 0000927016-99-002006.hdr.sgml : 19990517 ACCESSION NUMBER: 0000927016-99-002006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL GAS CO CENTRAL INDEX KEY: 0000060653 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 041558100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13351 FILM NUMBER: 99622719 BUSINESS ADDRESS: STREET 1: 40 MARKET ST CITY: LOWELL STATE: MA ZIP: 01852 BUSINESS PHONE: 5084583171 FORMER COMPANY: FORMER CONFORMED NAME: LOWELL GAS CO DATE OF NAME CHANGE: 19811124 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------------------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended MARCH 31, 1999 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 04-1558100 ------------- ---------- (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 April 30, 1999 was 8,949,981. COLONIAL GAS COMPANY -------------------- INDEX ----- PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Income - Three Months Ended March 31, 1999 and 1998 3 Twelve Months Ended March 31, 1999 and 1998 4 Consolidated Condensed Balance Sheets - March 31, 1999, December 31, 1998 and March 31, 1998 5-6 Consolidated Condensed Statements of Cash Flows - Three Months Ended March 31, 1999 and 1998 7 Twelve Months Ended March 31, 1999 and 1998 8 Notes to Consolidated Condensed Financial Statements 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 10-13 PART II - OTHER INFORMATION Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements COLONIAL GAS COMPANY AND SUBSIDIARIES ------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF INCOME ------------------------------------------- (UNAUDITED) -----------
Three Months Ended March 31, --------------------- 1999 1998 --------- ---------- (In Thousands Except Per Share Amounts) Operating Revenues $87,994 $77,822 Cost of gas sold 46,713 40,917 ------- ------- Operating Margin 41,281 36,905 ------- ------- Operating Expenses: Operations 7,427 6,650 Maintenance 1,313 1,067 Depreciation and Amortization 3,783 3,184 Taxes, other than income 1,364 1,254 ------- ------- Total Operating Expenses 13,887 12,155 ------- ------- Income Taxes 9,788 8,675 ------- ------- Utility Operating Income 17,606 16,075 Other Operating Income: Energy Trucking revenues 1,061 406 Energy Trucking expenses, including income taxes and interest 1,137 361 ------- ------- Energy Trucking net (loss) income (76) 45 Other, net of income taxes (44) 51 ------- ------- Total Other Operating (Loss) Income (120) 96 Non-Operating Income, Net 87 176 Merger Costs, Net (227) - ------- ------- Income Before Interest and Debt Expense 17,346 16,347 Interest and Debt Expense 2,230 2,135 ------- ------- Net Income $15,116 $14,212 ======= ======= Average Common Shares Outstanding 8,922 8,703 ======= ======= Income per Average Common Share $ 1.69 $ 1.63 ======= ======= Dividends Paid per Common Share $ .345 $ .335 ======= =======
(See accompanying notes to consolidated condensed financial statements) 3 COLONIAL GAS COMPANY AND SUBSIDIARIES ------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF INCOME ------------------------------------------- (UNAUDITED) -----------
Twelve Months Ended March 31, --------------------- 1999 1998 --------- -------- (In Thousands Except Per Share Amounts) Operating Revenues $178,151 $181,901 Cost of gas sold 93,923 99,655 -------- -------- Operating Margin 84,228 82,246 -------- -------- Operating Expenses: Operations 28,569 29,257 Maintenance 5,040 4,425 Depreciation and Amortization 14,034 12,260 Taxes, other than income 5,266 5,132 -------- -------- Total Operating Expenses 52,909 51,074 -------- -------- Income Taxes 8,930 9,216 -------- -------- Utility Operating Income 22,389 21,956 Other Operating Income: Energy Trucking revenues 4,378 4,596 Energy Trucking expenses, including income taxes and interest 4,466 4,305 -------- -------- Energy Trucking net (loss) income (88) 291 Other, net of income taxes 223 317 -------- -------- Total Other Operating Income 135 608 Non-Operating Income, Net 851 659 Merger Costs, Net (1,353) - -------- -------- Income Before Interest and Debt Expense 22,022 23,223 Interest and Debt Expense 8,829 8,264 -------- -------- Net Income $ 13,193 $ 14,959 ======== ======== Average Common Shares Outstanding 8,835 8,640 ======== ======== Income per Average Common Share $ 1.49 $ 1.73 ======== ======== Dividends Paid per Common Share $ 1.38 $ 1.34 ======== ========
(See accompanying notes to consolidated condensed financial statements) 4 COLONIAL GAS COMPANY AND SUBSIDIARIES ------------------------------------- CONSOLIDATED CONDENSED BALANCE SHEETS ------------------------------------- ASSETS ------
March 31, December 31, March 31, 1999 1998 1998 ----------- ------------- ----------- (Unaudited) (Unaudited) (In Thousands) Utility Property: At original cost $ 398,360 $ 394,222 $370,317 Accumulated depreciation (105,444) (102,009) (91,523) --------- --------- -------- Net utility property 292,916 292,213 278,794 Non-Utility Property - Net 6,981 7,129 7,567 --------- --------- -------- Net property 299,897 299,342 286,361 --------- --------- -------- Capital Leases - Net 1,583 1,583 2,614 --------- --------- -------- Current Assets: Cash and cash equivalents 5,779 3,125 3,092 Accounts receivable 33,930 14,591 29,991 Allowance for doubtful accounts (1,647) (1,350) (3,561) Accrued utility revenues 5,123 7,876 5,447 Unbilled gas costs (372) 18,195 8,118 Fuel and other inventories 8,971 12,712 10,122 Prepayments and other current assets 6,451 12,419 6,791 --------- --------- -------- Total current assets 58,235 67,568 60,000 --------- --------- -------- Deferred Charges and Other Assets: Unrecovered deferred income taxes 8,155 8,349 8,820 Unrecovered demand side management costs 6,646 6,661 8,122 Unrecovered environmental expenses - incurred 2,724 3,633 4,135 Unrecovered environmental expenses - accrued 200 200 707 Unrecovered transition costs - accrued 700 700 2,800 Other 12,960 12,968 12,202 --------- --------- -------- Total deferred charges and other assets 31,385 32,511 36,786 --------- --------- -------- Total Assets $ 391,100 $ 401,004 $385,761 ========= ========= ========
(See accompanying notes to consolidated condensed financial statements) 5 COLONIAL GAS COMPANY AND SUBSIDIARIES ------------------------------------- CONSOLIDATED CONDENSED BALANCE SHEETS ------------------------------------- LIABILITIES AND CAPITALIZATION ------------------------------
March 31, December 31, March 31, 1999 1998 1998 ----------- ------------ ----------- (Unaudited) (Unaudited) (In Thousands) Capitalization: Common equity: Common Stock - par value $3.33 per share Authorized - 15,000 shares Issued and outstanding - 8,949, 8,910 and 8,728 shares $ 29,800 $ 29,669 $ 29,063 Premium on common stock 64,284 63,080 58,262 Retained earnings 48,212 36,173 47,219 ---------- ------------ ---------- Total Common equity 142,296 128,922 134,544 Long-term debt 120,000 120,000 90,059 ---------- ------------ ---------- Total capitalization 262,296 248,922 224,603 ---------- ------------ ---------- Capital Lease Obligations 963 963 1,528 ---------- ------------ ---------- Current Liabilities: Current maturities of long-term debt 59 102 20,167 Current capital lease obligations 620 620 1,086 Notes payable 31,000 52,000 38,500 Gas inventory purchase obligations 7,722 14,125 9,088 Accounts payable 10,559 12,186 10,482 Other 16,708 10,550 17,268 ---------- ------------ ---------- Total current liabilities 66,668 89,583 96,591 ---------- ------------ ---------- Deferred Credits and Reserves: Deferred income taxes-funded 44,748 44,555 42,626 Deferred income taxes-unfunded 8,155 8,349 8,820 Accrued environmental expenses 200 200 707 Accrued transition costs 700 700 2,800 Other 7,370 7,732 8,086 ---------- ------------ ---------- Total deferred credits and reserves 61,173 61,536 63,039 ---------- ------------ ---------- Total Capitalization and Liabilities $ 391,100 $ 401,004 $ 385,761 ========== ============ ==========
(See accompanying notes to consolidated condensed financial statements) 6 COLONIAL GAS COMPANY AND SUBSIDIARIES ------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) -----------
Three Months Ended March 31, -------------------- 1999 1998 --------- --------- (In Thousands) Cash Flows From Operating Activities: Net income $ 15,116 $ 14,212 Adjustments to reconcile net income to net cash (1,622) 3,719 Changes in current assets and liabilities 22,651 12,392 -------- -------- Net cash provided by operating activities 36,145 30,323 -------- -------- Cash Flows From Investing Activities: Utility capital expenditures (4,669) (7,489) Non-utility capital expenditures -- (378) Change in deferred accounts 367 (734) -------- -------- Net cash used in investing activities (4,302) (8,602) -------- -------- Cash Flows From Financing Activities: Dividends paid on Common Stock (3,078) (2,917) Issuance of Common Stock 1,335 1,117 Issuance of long-term debt, net of issuance costs -- 9,658 Retirement of long-term debt, including premiums (43) (10,040) Change in notes payable (21,000) (10,900) Change in gas inventory purchase obligations (6,403) (5,807) -------- -------- Net cash used in financing activities (29,189) (18,889) -------- -------- Net increase (decrease) in cash and cash equivalents 2,654 2,832 Cash and cash equivalents at beginning of period 3,125 259 -------- -------- Cash and cash equivalents at end of period $ 5,779 $ 3,092 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest - net of amount capitalized $ 3,957 $ 3,414 ======== ======== Income and franchise taxes $ 265 $ 278 ======== ========
(See accompanying notes to consolidated condensed financial statements) 7 COLONIAL GAS COMPANY AND SUBSIDIARIES ------------------------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) -----------
Twelve Months Ended March 31, --------------------- 1999 1998 ---------- --------- (In Thousands) Cash Flows From Operating Activities: Net income $ 13,193 $ 14,959 Adjustments to reconcile net income to net cash 11,451 19,528 Changes in current assets and liabilities 9,649 4,346 --------- --------- Net cash provided by operating activities 34,293 38,833 --------- --------- Cash Flows From Investing Activities: Capital expenditures (28,272) (38,441) Non-utility Capital expenditures -- (2,210) Change in deferred accounts 2,087 (200) --------- --------- Net cash used in investing activities (26,185) (40,851) --------- --------- Cash Flows From Financing Activities: Dividends paid on Common Stock (12,200) (11,578) Issuance of Common Stock 6,759 3,832 Issuance of long-term debt, net of issuance costs 29,457 24,528 Retirement of long-term debt, including premiums (20,571) (15,155) Change in notes payable (7,500) (1,600) Change in gas inventory purchase obligations (1,366) 1,676 --------- --------- Net cash (used in) provided by financing activities (5,421) 1,703 --------- --------- Net decrease in cash and cash equivalents 2,687 (315) Cash and cash equivalents at beginning of period 3,092 3,406 --------- --------- Cash and cash equivalents at end of period $ 5,779 $ 3,092 ========= ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest - net of amount capitalized $ 10,771 $ 10,067 ========= ========= Income and franchise taxes $ 7,225 $ 7,258 ========= =========
(See accompanying notes to consolidated condensed financial statements) 8 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 March 31, 1999 and 1998 and results of operations for the three and twelve month periods ended March 31, 1999 and 1998 and cash flows for the three and twelve month periods ended March 31, 1999 and 1998. 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 periods ending March 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. 3. During the three months ended March 31, 1999, 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 $131,000 and Premium on Common Stock increased $1,204,000. 4. Contingencies Reference is made to Note I/Contingencies of the Notes to Consolidated Financial Statements contained within the Company's 1998 Annual Report to Stockholders. 5. Reclassifications are made periodically to previously issued financial statements to conform to the current year presentation. 9 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations - --------------------- Three Months Ended March 31, 1999 and 1998 ------------------------------------------ Net income for the three months ending March 31, 1999 increased $904,000 or 6.4% to $15,116,000 compared to $14,212,000 for the same period last year. Weather for the first quarter was 7.7% colder than the prior year (although 5.5% warmer than normal), contributing to a $4,376,000 or 11.9% increase in operating margin. Offsetting the increase in operating margin was a $1,023,000 or 13.3% increase in operations and maintenance expense and a $599,000 increase in depreciation and amortization. The increase in operations and maintenance expense was principally due to an accrual relating to Colonial's incentive compensation program, insurance refunds received in the first quarter of 1998, and processing costs relating to Colonial's new customer system. Increased depreciation and amortization was due to the addition of utility property and the completion of our new customer and computer aided dispatch systems in mid- 1998. Income taxes increased $1,113,000 or 12.8% due to a higher level of utility income subject to tax. Other operating income (net of income taxes) decreased $216,000 from the comparable 1998 period primarily as a result of a $121,000 decrease in net income of Transgas Inc., the Company's energy trucking subsidiary, and a $95,000 decrease in merchandise and jobbing net income. Although Transgas' LNG hauls and revenues were greater in the first quarter of 1999 than the first quarter of 1998, energy trucking activity was still below normal due to the warmer weather and increases in expenses more than offset the increase in revenues. Interest expense increased $95,000 or 4% for the three months ended March 31, 1999 compared to the same period last year due to higher levels of borrowing. Twelve Months Ended March 31, 1999 and 1998 ------------------------------------------- Net income was $13,193,000 for the twelve months ending March 31, 1999, compared with $14,959,000 for the comparable 1998 period. This $1,766,000 or 11.8% decrease in net income primarily resulted from a $1,774,000 or 14.5% increase in depreciation due to the addition of utility property and the completion of Colonial's customer and computer aided dispatch systems in 1998, and $1,353,000 of merger-related costs, net of taxes. These increased expenses were partially offset by a $1,982,000 or 2.4% increase in gross margin resulting from customer growth and an increase in higher margin sales. Other operating income (net of income taxes) decreased $473,000 or 78% compared to the comparable 1998 period. The net income of Transgas Inc. for the twelve months 10 ended March 31, 1999 decreased $379,000, principally due to increased expenses. Continued warmer than normal weather over the last two years has resulted in a significant decrease in demand for energy trucking services. A decrease in merchandise and jobbing net income of $94,000 also contributed to the reduced other operating income. Merger Related Expenses, Net - ---------------------------- The Company recorded $227,000 and $1,353,000 of after-tax merger related expenses for the three months and twelve months ending March 30, 1999, respectively. These costs are associated with the Company's pending merger with Eastern Enterprises. Regulatory Matters - ------------------ On October 17, 1998, the Company entered into an Agreement and Plan of Reorganization (the "Merger Agreement") with Eastern Enterprises ("Eastern"), a Massachusetts business trust which owns all of the outstanding stock of two other Massachusetts local gas distribution companies, Boston Gas Company ("Boston Gas") and Essex Gas Company. The Merger Agreement provides for the merger of the Company with and into a subsidiary of Eastern, as a result of which the Company will become a wholly owned subsidiary of Eastern. The pending merger was approved by shareholders of Colonial and Eastern at separate special shareholder meetings, which were held on February 10, 1999. Anti-trust clearance has also been obtained. Completion of the pending merger is subject to receipt of satisfactory regulatory approvals, including approval of the Massachusetts Department of Telecommunications and Energy (the "DTE") and the Securities and Exchange Commission. The DTE's evidentiary hearings on the pending merger closed on April 23, 1999 and a decision is expected in due course. The Company continues to anticipate that the merger will be completed sometime around mid-year 1999. Year 2000 - --------- State of Readiness ------------------ In connection with that pending merger, the Company is addressing certain Year 2000 ("Y2K") issues through system integrations with Boston Gas, Eastern's largest gas utility subsidiary. The Company has established, in concert with Boston Gas, a specialized Y2K program team that is implementing a systematic program of inventory, assessment and remediation. Information technology ("IT") systems and embedded chip systems which are "mission critical", i.e. those which would have a significant adverse impact on the operation of the core business of the Company and its subsidiary, Transgas, in the event of a Y2K problem, have been identified. Through this Y2K program team, the Company is in the process of testing, upgrading, replacing or remediating its mission critical IT systems. The Company expects that its Y2K work on approximately one half of its mission critical systems will be completed by the end of the second quarter of 1999, with the remaining mission critical systems to be addressed through conversions to Y2K 11 compliant Boston Gas systems during the beginning of the third quarter of 1999. The Company plans to test and/or upgrade, as appropriate, non-mission critical IT systems within this same timeframe. In the event the pending merger is not completed within this timeframe, the Company anticipates entering into appropriate contractual arrangements with Boston Gas to utilize certain of its Y2K compliant systems. With respect to embedded chip systems, the Company has completed its inventory and is finalizing its assessment and action plan. Testing, upgrading, replacement or other remediation of embedded chips is anticipated to be substantially complete by the end of the second quarter of 1999. The Company has identified critical third party vendors and continues to work with them to keep apprised of their Y2K readiness. It appears, based on information gathered to date, that the majority of the Company's firm gas suppliers and interstate pipeline service providers anticipate being Y2K compliant by the end of the second quarter of 1999, and that all are committed to being Y2K compliant by the fourth quarter of 1999. Notwithstanding the Company's efforts with third parties, there can be no assurance that the systems of third parties on which the Company's systems rely will be timely converted or that any such failure to convert by a third party would not have an adverse effect on the Company's operations. Cost of Year 2000 Remediation ----------------------------- Based on its current information, without any system integrations with Boston Gas, the Company believes the cost of its Y2K compliance would approximate $1.5 million. With the system integrations expected with Boston Gas, the Company anticipates actual Y2K remediation costs to be significantly lower than this amount. During the first quarter of 1999, Y2K compliance expenses were less than $100,000. Substantially all remaining Y2K remediation costs are expected to be incurred during the second and third quarters of 1999. Risks of Year 2000 Issues and Contingency Plans ----------------------------------------------- Given its efforts to minimize the risk of Y2K failure by its internal systems and its distribution network control systems, the Company believes its worst case scenario would involve failures by a pipeline supplier or by telecommunications and electricity services. A short term interruption in pipeline supplies would require the utilization of locally-stored liquefied natural gas supplies. A telecommunications or electric outage would require the Company to enact business contingency and disaster recovery measures to enable the continuation of service to its customers. The Company has initiated the development of a business contingency plan concerning Y2K risks to its internal systems, embedded chips and significant suppliers. Detailed plans for critical business processes are expected to be developed and tested by the end of the third quarter of 1999. 12 Forward Looking Information - --------------------------- This report and other Company reports contain forward looking statements which are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could cause actual results to differ materially from those projected in these forward looking statements include, but are not limited to, variations in weather, changes in the regulatory environment, customers' preferences on energy sources, general economic conditions, increased competition and other uncertainties, all of which are difficult to predict, and many of which are beyond the control of the Company. PART II - OTHER INFORMATION Item 5. Other Information - -------------------------- None Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- a. Exhibits -------- None b. Reports on Form 8-K ------------------- None 13 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: May 13, 1999 /s/ F. L. Putnam, III ------------ ------------------------------------- F. L. Putnam, III President and Chief Executive Officer Date: May 13, 1999 /s/ Nickolas Stavropoulos ------------ ------------------------------------- Nickolas Stavropoulos Executive Vice President - Finance, Marketing and Chief Financial Officer 14 EX-27 2 FINANCIAL DATA SCHEDULE
UT 1,000 3-MOS DEC-31-1999 MAR-31-1999 PER-BOOK 292,916 8,564 58,235 18,425 12,960 391,100 29,800 64,284 48,212 142,296 0 0 120,000 38,722 0 0 59 0 963 620 88,440 391,100 87,994 9,788 60,600 70,388 17,606 (260) 17,346 2,230 15,116 0 15,116 3,078 2,133 13,494 1.69 1.69
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