SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q __x__ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1997 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 November 1, 1997 was 8,653,666. COLONIAL GAS COMPANY INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Statements of Income - Three Months Ended September 30, 1997 and 1996 Nine Months Ended September 30, 1997 and 1996 Twelve Months Ended September 30, 1997 and 1996 Consolidated Condensed Balance Sheets - September 30, 1997, December 31, 1996 and September 30, 1996 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 Twelve Months Ended September 30, 1997 and 1996 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 September 30, 1997 1996 (In Thousands Except Per Share Amounts) Operating Revenues $15,190 $15,245 Cost of gas sold 8,587 8,474 Operating Margin 6,603 6,771 Operating Expenses: Operations 7,345 7,156 Maintenance 1,078 968 Depreciation and Amortization 2,976 2,765 Taxes, other than income 1,253 1,237 Total Operating Expenses 12,652 12,126 Income Taxes (3,029) (2,789) Utility Operating Loss (3,020) (2,566) Other Operating Income: Truck transportation revenues 2,470 2,902 Truck transportation expenses, including income taxes and interest 2,018 2,050 Truck transportation net income 452 852 Other, net of income taxes 4 76 Total Other Operating Income 456 928 Non-Operating Income, Net 91 219 Loss Before Interest and Debt Expense (2,473) (1,419) Interest and Debt Expense 2,093 2,161 Net Loss $(4,566) $(3,580) Average Common Shares Outstanding 8,620 8,448 Loss per Average Common Share (0.53) $(0.42) Dividends Paid per Common Share $ .335 $ .325 (See accompanying notes to consolidated condensed financial statements) COLONIAL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) Nine Months Ended September 30, 1997 1996 (In Thousands Except Per Share Amounts) Operating Revenues $125,726 $117,060 Cost of gas sold 68,621 60,368 Operating Margin 57,105 56,692 Operating Expenses: Operations 22,464 23,563 Maintenance 3,338 3,234 Depreciation and Amortization 8,921 8,424 Taxes, other than income 4,029 4,077 Total Operating Expenses 38,752 39,298 Income Taxes 4,973 4,435 Utility Operating Income 13,380 12,959 Other Operating Income: Truck transportation revenues 4,260 9,148 Truck transportation expenses, including income taxes and interest 3,949 7,006 Truck transportation net income 311 2,142 Other, net of income taxes 172 175 Total Other Operating Income 483 2,317 Non-Operating Income, Net 294 570 Income Before Interest and Debt Expense 14,157 15,846 Interest and Debt Expense 5,931 6,402 Net Income $8,226 $ 9,444 Average Common Shares Outstanding 8,576 8,413 Income per Average Common Share $ .96 $ 1.12 Dividends Paid per Common Share $1.005 $ 0.970 (See accompanying notes to consolidated condensed financial statements) COLONIAL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED) Twelve Months Ended September 30, 1997 1996 (In Thousands Except Per Share Amounts) Operating Revenues $179,595 $173,685 Cost of gas sold 95,440 88,045 Operating Margin 84,155 85,640 Operating Expenses: Operations 30,284 31,901 Maintenance 4,581 4,403 Depreciation and Amortization 11,725 11,025 Taxes, other than income 5,324 5,303 Total Operating Expenses 51,914 52,632 Income Taxes 9,626 9,767 Utility Operating Income 22,615 23,241 Other Operating Income: Truck transportation revenues 6,143 11,197 Truck transportation expenses, including income taxes and interest 5,947 8,918 Truck transportation net income 196 2,279 Other, net of income taxes 206 181 Total Other Operating Income 402 2,460 Non-Operating Income, Net 481 1,021 Income Before Interest and Debt Expense 23,498 26,722 Interest and Debt Expense 8,237 8,749 Net Income $15,261 $17,973 Average Common Shares Outstanding 8,554 8,395 Income per Average Common Share $ 1.78 $ 2.14 Dividends Paid per Common Share $ 1.33 $ 1.29 (See accompanying notes to consolidated condensed financial statements) COLONIAL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS ASSETS September 30, December 31, September 30, 1997 1996 1996 (Unaudited) (Unaudited) (In Thousands) Utility Property: At original cost $356,141 $333,319 $327,102 Accumulated depreciation (91,233) (82,336) (81,273) Net utility property 264,908 250,983 245,829 Non-Utility Property - Net 6,701 5,925 6,001 Net property 271,609 256,908 251,830 Capital Leases - Net 2,392 1,811 1,795 Current Assets: Cash and cash equivalents 1,563 3,541 9,061 Accounts receivable - net 4,599 15,004 4,827 Accrued utility revenues 723 6,333 701 Unbilled gas costs 13,694 19,238 13,201 Fuel and other inventories 14,495 14,849 14,492 Prepayments and other current assets 9,487 8,593 10,323 Total current assets 44,561 67,558 52,605 Deferred Charges and Other Assets: Unrecovered deferred income taxes 9,192 9,774 9,980 Unrecovered environmental expenses - incurred 3,641 4,011 3,779 Unrecovered environmental expenses - accrued 656 1,183 1,793 Unrecovered transition costs - accrued 4,500 4,500 3,600 Other 19,871 18,667 16,625 Total deferred charges and other assets 37,860 38,135 35,777 Total Assets $356,422 $364,412 $342,007 (See accompanying notes to consolidated condensed financial statements) COLONIAL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS LIABILITIES AND CAPITALIZATION September 30, December 31, September 30, 1997 1996 1996 (Unaudited) (Unaudited) (In Thousands) Capitalization: Common equity: Common Stock - par value $3.33 per share Authorized - 15,000 shares Issued and outstanding - 8,647, 8,518 and 8,472 shares $28,794 $27,863 $28,212 Premium on common stock 56,517 51,447 53,363 Retained earnings 31,011 25,760 27,043 Total Common equity 116,322 105,070 108,618 Long-term debt 100,144 75,418 85,305 Total capitalization 216,466 180,488 193,923 Capital Lease Obligations 1,471 1,359 967 Current Liabilities: Current maturities of long-term debt 10,161 6,141 5,149 Current capital lease obligations 921 894 828 Notes payable 34,600 61,835 52,000 Gas inventory purchase obligations 9,934 12,340 10,899 Accounts payable 9,390 12,150 8,605 Other 11,767 8,306 9,713 Total current liabilities 76,773 101,666 87,194 Deferred Credits and Reserves: Deferred income taxes-funded 39,126 32,299 34,771 Deferred income taxes- unfunded 9,192 10,562 9,980 Accrued environmental expenses 656 2,300 1,793 Accrued transition costs 4,500 3,600 3,600 Other 8,238 10,147 9,779 Total deferred credits and reserves 61,712 58,908 59,923 Total Capitalization and Liabilities $ 356,422 $ 342,421 $ 342,007 (See accompanying notes to consolidated condensed financial statements) COLONIAL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1997 1996 (In Thousands) Cash Flows From Operating Activities: Net income $ 8,226 $ 9,444 Adjustments to reconcile net income to net cash 14,158 18,198 Changes in current assets and liabilities 16,283 6,118 Net cash provided by operating activities 38,667 33,760 Cash Flows From Investing Activities: Capital expenditures (24,226) (20,187) Change in deferred accounts (1,460) (3,499) Net cash used in investing activities (25,686) (23,686) Cash Flows From Financing Activities: Dividends paid on Common Stock (8,535) (8,160) Issuance of Common Stock 2,724 2,265 Issuance of long-term debt 15,000 20,000 Retirement of long-term debt (5,113) (11,105) Debt issue cost (130) (278) Change in notes payable (15,800) (9,835) Change in gas inventory purchase obligations (3,105) (1,441) Net cash used in financing activities (14,959) (8,554) Net (decrease) increase in cash and cash equivalents (1,978) 1,520 Cash and cash equivalents at beginning of period 3,541 7,541 Cash and cash equivalents at end of period $ 1,563 $ 9,061 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest - net of amount capitalized $ 7,480 $ 6,989 Income and franchise taxes $ 6,109 $ 6,780 (See accompanying notes to consolidated condensed financial statements) COLONIAL GAS COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) Twelve Months Ended September 30, 1997 1996 (In Thousands) Cash Flows From Operating Activities: Net income $ 15,261 $17,973 Adjustments to reconcile net income to net cash 19,090 21,492 Changes in current assets and liabilities 1,262 (4,798) Net cash provided by operating activities 35,613 34,667 Cash Flows From Investing Activities: Capital expenditures (32,281) (27,850) Change in deferred accounts (4,550) (5,611) Net cash used in investing activities (36,831) (33,461) Cash Flows From Financing Activities: Dividends paid on Common Stock (11,293) (10,829) Issuance of Common Stock 3,735 2,923 Issuance of long-term debt 25,000 40,000 Retirement of long-term debt (5,149) (27,502) Debt issue costs (208) (3,217) Change in notes payable (17,400) 200 Change in gas inventory purchase obligations (965) (968) Net cash (used in) provided by financing activities (6,280) 607 Net (decrease) increase in cash and cash equivalents (7,498) 1,813 Cash and cash equivalents at beginning of period 9,061 7,248 Cash and cash equivalents at end of period $ 1,563 $ 9,061 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest - net of amount capitalized $ 9,640 $ 10,489 Income and franchise taxes $ 7,817 $ 6,827 (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 September 30, 1997 and 1996 and results of operations for the three, nine and twelve month periods ended September 30, 1997 and 1996 and cash flows for the nine and twelve month periods ended September 30, 1997 and 1996. 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 nine month periods ending September 30, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 3. During the nine months ended September 30, 1997, the Company issued 129,000 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 $428,000 and Premium on Common Stock increased $2,296,000. 4. Contingencies Reference is made to Note I/Contingencies of the Notes to Consolidated Financial Statements contained within the Company's 1996 Annual Report to Stockholders. 5. Reclassifications are made periodically to previously issued financial statements to conform to the current year presentation. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Three Months Ended September 30, 1997 and 1996 The Company's net loss for the three months ended September 30, 1997 was $4,566,000, or $.53 per share, which is 28% or $986,000 more than the $3,580,000 loss, or $.42 per share, reported for the same period last year. This was primarily caused by two factors. First, utility operating loss increased $454,000 or 18%, due to a $168,000 decrease in operating margin and a $299,000 increase in operations and maintenance expense. Second, net income for Transgas Inc., Colonial's energy trucking subsidiary, decreased $400,000 or 47% as a result of warmer weather in the winter of 1996-97. 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 residential customers are heating accounts. Nine Months Ended September 30, 1997 and 1996 Net income for the nine months ended September 30, 1997 was $8,226,000 or $0.96 per share, compared to $9,444,000 or $1.12 per share for the comparable 1996 period. The Company's operating margin increased 0.7% or $413,000 during the period due to a 5.7% increase in total gas sold despite weather which was 3.9% warmer than the comparable period in the prior year and 1.1% warmer than normal. The Company customer base grew by 4.0% during the nine months ended September 30, 1997. Operations and maintenance expenses decreased $995,000 or 3.7% due primarily to decreased insurance expenses and bad debt expenses, and the expiration of the amortization of previously deferred rate case expenses. Depreciation and amortization expense was up $497,000 due to an increase in utility property. Income taxes increased $538,000 or 12% due to a higher level of utility income subject to tax. Other operating income fell $1,834,000, or 79%, due primarily to the financial results for Transgas compared to the 1996 period. A 52% decrease in Transgas' LNG hauls over the first nine months led to a $4,888,000 decrease in revenue and resulted in a $1,831,000 decrease in truck transportation net income. The decreased LNG hauls were primarily due to the warmer than normal weather during the winter months. Twelve Months Ended September 30, 1997 and 1996 Net income for the twelve month period ended September 30, 1997 fell to $15,261,000, or $1.78 per share, down 15% from $17,973,000 or $2.14 per share over the twelve month period ended September 30, 1996. The Company's operating margin decreased 1.7% or $1,485,000 during the current twelve month period due to a 1.5% decrease in firm gas sales and firm transportation resulting from weather that was 4.6% warmer than the comparable prior year period. Total operating expenses decreased by $718,000. Operations and maintenance expenses decreased $1,439,000, or 4.0%, principally due to decreases in insurance expenses and bad debt expenses, as well as the expiration of the amortization of previously deferred rate case expense. Depreciation and amortization increased $700,000, or 6.3% due to an increase in utility property. Income taxes decreased $141,000 or 1.4% due to a lower level of utility income subject to tax. Other operating income fell $2,058,000 primarily due to a $2,083,000 decrease in net income for Transgas. The warmer winter of 1996-1997 negatively affected Transgas' performance as compared to the twelve-month period ended September 30, 1996. Interest and debt expense decreased $512,000 or 5.9% due to decreased interest expense on long term debt and increased regulatory interest income as a result of increased unbilled gas costs. Liquidity and Capital Resources On September 12, 1997, the Company entered into a new $75 million credit facility to replace a similar facility which had expired. The new credit facility has a 3 year term but the maturity of each individual borrowing made under the facility must be less than one year. Like the facility it replaced, the new credit facility is designed to allow the Company to meet its short term working capital needs and provides the Company with the option to borrow under any one of several alternative rates. Up to $30 million of the credit facility can be used to finance the Company's fuel inventory purchases. PART II - OTHER INFORMATION Item 5. Other Information Effective September 18, 1997, the Company's Common Stock began trading on the New York Stock Exchange under the symbol "CLG". Previously, the Company's Common Stock was traded on the NASDAQ National Market System. Item 6. Exhibits and Reports on Form 8-K a. List of Exhibits The following Exhibits will be filed in an amendment to this Form 10-Q: Exhibit 4e Revolving Credit Agreement for Colonial Gas Company, dated as of September 12, 1997, with Fleet National Bank as Agent for designated Banks 4f Revolving Credit Agreement for Massachusetts Fuel Inventory Trust, dated as of September 12, 1997, with Fleet National Bank as Agent for designated Banks 4h Security Agreement and Assignment of Contracts dated as of September 12, 1997, made by Massachusetts Fuel Inventory Trust in favor of Fleet National Bank as Agent for designated Banks b. Reports on Form 8-K None 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: November 12, 1997 s/F.L. Putnam III F.L. Putnam III President and Chief Executive Officer Date: November 12, 1997 s/Nickolas Stavropoulos Nickolas Stavropoulos Executive Vice President - Finance , Marketing and Chief Financial Officer [END OF FORM 10-Q FOR PERIOD ENDING SEPTEMBER 30, 1997]