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
X For the quarterly period ended June 30, 1994
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
(State or other jurisdiction of incorporation or organization)
04-1558100
(I.R.S. Employer Identification Number)
40 Market Street, Lowell, Massachusetts 01852
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 458-3171
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 No
X
The number of shares of the registrant's common stock,
$3.33 par value, outstanding as of August 1, 1994 was 8,135,618.
COLONIAL GAS COMPANY
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income -
Three Months Ended June 30, 1994 and 1993
Six Months Ended June 30, 1994 and 1993
Twelve Months Ended June 30, 1994 and 1993
Consolidated Condensed Balance Sheets -
June 30, 1994, December 31, 1993 and June 30, 1993
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1994 and 1993
Twelve Months Ended June 30, 1994 and 1993
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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
June 30,
1994 1993
(In Thousands Except
Per Share Amounts)
Operating Revenues $19,073 $20,587
Cost of gas sold 10,328 11,689
Operating Margin 8,745 8,898
Operating Expenses:
Operations 8,152 8,293
Maintenance 1,477 1,353
Depreciation and Amortization 2,283 1,634
Taxes, other than income 1,145 981
Total Operating Expenses 13,057 12,261
Income Taxes (2,463) (1,946)
Utility Operating Loss (1,849) (1,417)
Other Operating Income (Loss):
Truck transportation revenues 3,430 982
Truck transportation expenses,
including income taxes and interest (2,925) (1,017)
Truck transportation net income 505 (35)
Other, net of income taxes (45) (61)
Total Other Operating Income (Loss) 460 (96)
Non-Operating Income, Net 155 351
Loss Before Interest and Debt Expense (1,234) (1,162)
Interest and Debt Expense 2,104 2,073
Net Loss $(3,338) $(3,235)
Average Common Shares Outstanding 8,104 7,908
Loss per Average Common Share $ (0.41) $ (0.41)
Dividends Paid per Common Share $ .315 $ .310
(See accompanying notes to consolidated condensed financial statements)
COLONIAL GAS COMPANY AND SUBSIDIAIRIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
June 30,
1994 1993
(In Thousands Except
Per Share Amounts)
Operating Revenues $105,156 $98,713
Cost of gas sold 56,537 54,700
Operating Margin 48,619 44,013
Operating Expenses:
Operations 18,016 17,255
Maintenance 3,072 2,683
Depreciation and Amortization 4,567 3,267
Taxes, other than income 2,235 2,084
Total Operating Expenses 27,890 25,289
Income Taxes 6,821 5,876
Utility Operating Income 13,908 12,848
Other Operating Income (Loss):
Truck transportation revenues 7,278 2,448
Truck transportation expenses,
including income taxes and interest (6,115) (2,787)
Truck transportation net income (loss) 1,163 (339)
Other, net of income taxes (91) (90)
Total Other Operating Income (Loss) 1,072 (429)
Non-Operating Income, Net 177 386
Income Before Interest and Debt Expense 15,157 12,805
Interest and Debt Expense 4,096 4,006
Net Income $11,061 $ 8,799
Average Common Shares Outstanding 8,069 7,886
Income per Average Common Share $ 1.37 $ 1.12
Dividends Paid per Common Share $ 0.625 $ 0.615
(See accompanying notes to consolidated condensed financial statements)
COLONIAL GAS COMPANY AND SUBSIDIAIRIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Twelve Months Ended
June 30,
1994 1993
(In Thousands Except
Per Share Amounts)
Operating Revenues $172,704 $161,432
Cost of gas sold 92,752 88,651
Operating Margin 79,952 72,781
Operating Expenses:
Operations 33,546 33,095
Maintenance 6,020 5,420
Depreciation and Amortization 8,093 6,214
Taxes, other than income 4,007 3,790
Total Operating Expenses 51,666 48,519
Income Taxes 8,336 6,582
Utility Operating Income 19,950 17,680
Other Operating Income (Loss):
Truck transportation revenues 12,388 8,391
Truck transportation expenses,
including income taxes and interest (10,491) (8,367)
Truck transportation net income 1,897 24
Other, net of income taxes (188) (162)
Total Other Operating Income (Loss) 1,709 (138)
Non-Operating Income, Net 856 1,077
Income Before Interest and Debt Expense 22,515 18,619
Interest and Debt Expense 8,231 8,174
Net Income $14,284 $10,445
Average Common Shares Outstanding 8,022 7,835
Income per Average Common Share $ 1.78 $ 1.33
Dividends Paid per Common Share $ 1.245 $ 1.218
(See accompanying notes to consolidated condensed financial statements)
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
June 30, December 31, June 30,
1994 1993 1993
(Unaudited) (Unaudited)
(In Thousands)
Utility Property:
At original cost $269,511 $260,570 $246,070
Accumulated depreciation (62,590) (57,857) (56,037)
Net utility property 206,921 202,713 190,033
Non-Utility Property - Net 3,007 3,235 3,207
Net property 209,928 205,948 193,240
Capital Leases - Net 3,276 3,914 3,976
Current Assets:
Cash and cash equivalents 8,487 5,482 4,801
Accounts receivable 12,346 16,156 13,323
Allowance for
doubtful accounts (3,159) (1,682) (2,727)
Accrued utility revenues 619 7,170 492
Unbilled gas costs 4,159 16,759 7,587
Fuel and other inventories 13,877 17,529 13,571
Prepayments and other
current assets 6,458 6,254 6,002
Total current assets 42,787 67,668 43,049
Deferred Charges and Other Assets:
Unrecovered deferred
income taxes 12,301 12,689 12,369
Unrecovered environmental
expenses - incurred 4,028 4,062 3,003
Unrecovered environmental
expenses - accrued 5,300 5,300 13,800
Unrecovered transition
costs - accrued 2,000 2,000 -
Other 11,921 10,537 9,640
Total deferred charges
and other assets 35,550 34,588 38,812
Total Assets $291,541 $312,118 $279,077
(See accompanying notes to consolidated condensed financial statements)
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
June 30, December 31, June 30,
1994 1993 1993
(Unaudited) (Unaudited)
(In Thousands)
Capitalization:
Common equity:
Common Stock - par value $3.33 per share
Authorized - 15,000 shares
Issued and outstanding - 8,118,
8,030 and 7,938 shares $27,032 $26,739 $26,432
Premium on common stock 47,369 45,799 43,948
Retained earnings 27,763 21,745 23,466
Total Common equity 102,164 94,283 93,846
Long-term debt 82,364 87,432 87,432
Total capitalization 184,528 181,715 181,278
Capital Lease Obligations 2,538 3,149 3,165
Current Liabilities:
Current maturities of
long-term debt 3,318 3,318 3,318
Current capital lease
obligations 738 765 811
Notes payable 18,000 32,600 6,700
Gas inventory purchase
obligations 7,723 15,233 6,990
Accounts payable 8,453 12,161 7,030
Accrued pipeline charges - 305 483
Other 11,520 9,031 12,355
Total current liabilities 49,752 73,413 37,687
Deferred Credits and Reserves:
Deferred income taxes-funded 24,726 23,395 20,343
Deferred income taxes-unfunded 12,301 12,689 12,369
Accrued environmental expenses 5,300 5,300 13,800
Accrued transition costs 2,000 2,000 -
Other 10,396 10,457 10,435
Total deferred credits
and reserves 54,723 53,841 56,947
Total Capitalization
and Liabilities $291,541 $312,118 $279,077
(See accompanying notes to consolidated condensed financial statements)
COLONIAL GAS COMPANY AND SUBSIDIAIRIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1994 1993
(In Thousands)
Cash Flows From Operating Activities:
Net income $11,061 $ 8,799
Adjustments to reconcile net income to net cash 8,160 29,637
Changes in current assets and liabilities 24,290 (640)
Net cash provided by operating activities 43,511 37,796
Cash Flows From Investing Activities:
Capital expenditures (9,091) (9,057)
Change in deferred accounts (1,057) 1,404
Net cash used in investing activities (10,148) (7,653)
Cash Flows From Financing Activities:
Dividends paid on Common Stock (5,043) (4,849)
Issuance of Common Stock 1,863 2,125
Issuance of long-term debt - -
Retirement of long-term debt (5,068) (1,500)
Change in notes payable (14,600) (17,800)
Change in gas inventory purchase obligations (7,510) (7,751)
Net cash used in financing activities (30,358) (29,775)
Net increase in cash and cash equivalents 3,005 368
Cash and cash equivalents at beginning of period 5,482 4,433
Cash and cash equivalents at end of period $ 8,487 $ 4,801
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest - net of amount capitalized $ 4,580 $ 4,497
Income and franchise taxes $ 4,287 $ 2,472
(See accompanying notes to consolidated condensed financial statements)
COLONIAL GAS COMPANY AND SUBSIDIAIRIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twelve Months Ended
June 30,
1994 1993
(In Thousands)
Cash Flows From Operating Activities:
Net income $14,284 $10,445
Adjustments to reconcile net income to net cash 11,899 11,107
Changes in current assets and liabilities 1,890 3,042
Net cash provided by operating activities 28,073 24,594
Cash Flows From Investing Activities:
Capital expenditures (25,566) (25,798)
Change in deferred accounts 179 3,590
Net cash used in investing activities (25,387) (22,208)
Cash Flows From Financing Activities:
Dividends paid on Common Stock (9,987) (9,599)
Issuance of Common Stock 4,021 4,341
Issuance of long-term debt - -
Retirement of long-term debt (5,068) (4,500)
Change in notes payable 11,300 6,700
Change in gas inventory purchase obligations 734 (638)
Net cash provided by (used in)
financing activities 1,000 (3,696)
Net increase in cash and cash equivalents 3,686 (1,310)
Cash and cash equivalents at beginning of period 4,801 6,111
Cash and cash equivalents at end of period $ 8,487 $ 4,801
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest - net of amount capitalized $ 9,064 $ 8,918
Income and franchise taxes $ 6,753 $ 3,655
(See accompanying notes to consolidated condensed financial statements)
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, 1994 and 1993 and
results of operations for the three, six and twelve month
periods ended June 30, 1994 and 1993 and cash flows for
the six and twelve month periods ended June 30, 1994 and 1993.
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, 1994 and 1993 are not necessarily
indicative of the results to be expected for the full year.
3. During the six months ended June 30, 1994, the Company
issued 87,752 shares of Common Stock, $3.33 par value,
under a Dividend Reinvestment and Common Stock Purchase
Plan and under Employee Savings Plans. As a result,
Common Stock, $3.33 par value, increased $293,000 and
Premium on Common Stock increased $1,570,000.
4. By Order dated June 24, 1994, the DPU opened an
investigation "for the purpose of setting standards for the
recovery by Massachusetts gas utilities of FERC Order 636 -
related transition costs billed by interstate gas pipeline
companies." Order 636 of the Federal Energy Regulatory Commission
(FERC) required interstate pipelines to unbundle their
supply and transportation services. In the unbundling
process, the interstate pipelines have incurred
substantial costs -- the "transition costs" referenced in
the DPU's June 24, 1994 Order. FERC has allowed the
pipelines to recover prudently incurred transition costs
from customers such as the Company. The Company has, in
turn, sought and to-date received DPU approval to recover
these costs from its customers through its cost of gas
adjustment clause (CGAC). Although the DPU in its June 24,
1994 Order indicated it would examine, among other issues,
"whether utility shareholders should bear any portion of the
transition costs," the Company believes that there is strong
legal precedent to support the position that the transition
costs should continue to be borne entirely by customers.
Accordingly, the Company continues to record on its balance
sheet a long term liability of $2,000,000 ("Accrued Transition
Costs") and a matching regulatory asset of $2,000,000
("Unrecovered Transition Costs Accrued").
5. Contingencies
Reference is made to Note J/Contingencies of the Notes to
Consolidated Financial Statements contained within the
Company's 1993 Annual Report to Stockholders.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Three Months Ended June 30, 1994 and June 30, 1993
The Company's net loss for the three months ended June 30,
1994 was $3,338,000, which is 3.2% or $103,000 more than the
$3,235,000 loss reported for the same period last year. The
principal reasons for this change are described below. 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 customers
are residential accounts.
The Company's operating margin declined 1.7% or $153,000
during the second quarter due to lower firm gas sales
resulting from weather which was 4.6% warmer than the
comparable period last year and 2.8% warmer than normal.
Total operating expenses increased by 6.5% or $796,000
primarily due to a $649,000 increase in depreciation and
amortization expense based on the higher depreciation rates
approved with the Company's 1993 rate increase.
Income taxes credit increased $517,000 or 27% due to an
increase in operating loss.
Other operating income rose $556,000 due to a $540,000
increase in the net income of Transgas Inc., the Company's
energy trucking subsidiary. The extremely cold winter of
1993-94 continued to heighten demand for Transgas' liquefied
natural gas (LNG) services during the second quarter of
1994. Following the busiest period in Transgas' history
during the first three months of the year, the subsidiary
maintained its strong momentum throughout the second quarter
as local distribution companies refilled their LNG
inventories to pre-winter conditions. Transgas delivered
4,860 loads of LNG during the second quarter of 1994
compared to 1,780 loads during the same period last year.
The subsidiary's activity level is expected to remain high
over the next quarter.
Six Months Ended June 30, 1994 and 1993
Net income for the six months ended June 30, 1994 was
$11,061,000, compared to $8,799,000 for the comparable 1993
period. This $2,262,000 or 26% increase is due to factors
described below.
The 11% or $4,606,000 improvement in the Company's
operating margin during the period was due to higher firm
gas sales (resulting from annualized customer growth of 2.8% and
weather which was 2.4% colder than the comparable period last year
and 11% colder than normal) and a 4.9% rate increase
effective November 1, 1993.
Total operating expenses increased by 10% or $2,601,000,
of which depreciation and amortization expense increased
$1,300,000, due to higher depreciation rates approved with
the Company's 1993 rate increase. Operations expense
increased by $761,000; including an increase of $277,000 in
wages and $277,000 in direct labor fringe benefit costs.
Income taxes increased $945,000 or 16% due to a higher
level of income subject to tax.
Other operating income increased $1,501,000 due to
improved results for Transgas. This increase in earnings is
attributable to the extreme cold weather, which saw Transgas
LNG and propane loads increase 236% over last year. Also,
portable pipeline revenue increased $898,000 or 295% over
last year.
Twelve Months Ended June 30, 1994 and 1993
Net income for the twelve-month period ending June 30,
1994 was $14,284,000 compared to $10,445,000 for the same
period in 1993. This 37% or $3,839,000 increase is due to
factors described below.
The 9.9% or $7,171,000 improvement in the Company's
operating margin during the period was due to higher firm
gas sales resulting from continued customer growth (which
in the current year was 2.8%) and an increase in rates
effective November 1, 1993. Weather was 1.1% colder than
the comparable twelve-month period and 9.1% colder than normal.
Total operating expenses increased by 6.5% or $3,147,000,
of which depreciation and amortization expense increased
$1,879,000, due to higher depreciation rates approved with
the Company's 1993 rate increase.
Income taxes increased $1,754,000 or 27% due to a higher
level of income subject to tax.
Other operating income increased $1,847,000 due to the
significant increase in LNG delivery and vaporization
services provided by Transgas resulting from the heightened
demand for LNG as a result of the extremely cold 1993-94
winter.
Liquidity and Capital Resources
In July 1994, the Company established a bank
line of credit of $75,000,000 with a consortium of four
banks to replace its expiring $60,000,000 bank line of
credit. The $75,000,000 bank line of credit expires on June
15, 1997. The bank line of credit allows the Company to borrow
from time to time up to $75,000,000, less whatever amount
has been borrowed through the Company's gas inventory trust
(described below). The line of credit allows the Company the
option to borrow under four alternative rates: prime rate,
certificate of deposit rate, eurodollar rate (LIBOR), and a
competitive bid option.
The Company has an agreement with a single-purpose
Massachusetts trust, the Company's gas inventory trust,
under which the Company sells supplemental gas inventory to
the trust at the Company's cost. The Company's agreement
with the trust requires it to repurchase such inventory at
cost when needed and to reimburse the trust for expenses
incurred to finance the gas inventory. The trust finances
such purchases of inventory by borrowing under a bank line
of credit with a maximum borrowing commitment of $30,000,000
that is complementary to and on similar terms as the
Company's bank line of credit described above.
On May 31, 1994, the Company received approval from the
Massachusetts Department of Public Utilities (DPU) for authority
to issue and sell up to 400,000 additional shares of Common
Stock, $3.33 par value, pursuant to its Dividend
Reinvestment and Common Stock Purchase Plan and 75,000
additional shares of Common Stock, $3.33 par value, pursuant
to its Cape Cod Division Savings Plan for Local 13507 United
Steelworkers of America AFL-CIO-CLC.
PART II - OTHER INFORMATION
Item 5. Other Information
Effective May 1, 1994 F.L. Putnam III, formerly Executive
Vice President and General Manager, replaced C.O. Swanson as
President upon Mr. Swanson's retirement.
On August 3, 1994, the DPU issued its Order in its
investigation on the establishment of guidelines and standards
for mergers and acquisitions of Massachusetts utilities. In its
Order, the DPU stated that a merger or acquisition constitutes
one of several measures utilities in Massachusetts should be
considering in order to achieve savings, efficiencies, increased
reliability and better quality of service. Accordingly, the
DPU discarded its previous position that the recovery of
acquisition premiums by an acquiring utility was per se
impermissible. Instead, the DPU will consider utility merger
or acquisition proposals that seek recovery of an
acquisition premium on a case-by-case basis and in light of
the demonstrated benefits and costs of each particular
proposal.
In addition, this Order sets forth the DPU's intention of
opening next month a separate investigation into performance-
based regulation of utilities. The DPU indicated that it
recognizes the potential value of regulatory mechanisms different
than the current cost of service/rate of recovery system.
According to the Order, alternative regulatory mechanisms are
yet another measure for utilities to consider as a means to
improve performance, and proposals for such mechanisms will be
encouraged.
Item 6. Exhibits and Reports on Form 8-K
a. List of Exhibits
Exhibit No. Exhibit
4a Fifth Amendment to the Revolving Credit
Agreement with Colonial Gas Company,
dated as of June 16, 1994.
4b Sixth Amendment to the Revolving Credit
Agreement with Colonial Gas Company,
dated as of July 13, 1994.
4c Fourth Amendment to the Revolving Credit
Agreement with Massachusetts Fuel Inventory
Trust, dated as of June 16, 1994.
4d Fifth Amendment to the Revolving Credit
Agreement with Massachusetts Fuel Inventory
Trust, dated as of July 13, 1994.
b. Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter
ended June 30, 1994.
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 12, 1994 F.L. Putnam III
President
Date: August 12, 1994 Nickolas Stavropoulos
Vice President - Finance and
Chief Financial Officer