UNITED STATES
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 March 31, 1998
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, 1998 was 8,732,120.
COLONIAL GAS COMPANY
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income -
Three Months Ended March 31, 1998 and 1997
Twelve Months Ended March 31, 1998 and 1997
Consolidated Condensed Balance Sheets -
March 31, 1998, December 31, 1997 and
March 31, 1997
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997
Twelve Months Ended March 31, 1998 and 1997
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
March 31,
1998 1997
(In Thousands Except
Per Share Amounts)
Operating Revenues $77,822 $83,061
Cost of gas sold 40,917 43,717
Operating Margin 36,905 39,344
Operating Expenses:
Operations 6,650 7,437
Maintenance 1,067 1,146
Depreciation and Amortization 3,184 2,973
Taxes, other than income 1,254 1,382
Total Operating Expenses 12,155 12,938
Income Taxes 8,675 9,432
Utility Operating Income 16,075 16,974
Other Operating Income:
Energy Trucking revenues 406 1,339
Energy Trucking expenses, including income
taxes and interest 361 1,258
Energy Trucking net income 45 81
Other, net of income taxes 51 49
Total Other Operating Income 96 130
Non-Operating Income, Net 176 94
Income Before Interest and Debt Expense 16,347 17,198
Interest and Debt Expense 2,135 1,905
Net Income $14,212 $15,293
Average Common Shares Outstanding 8,703 8,543
Income per Average Common Share $ 1.63 $ 1.79
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)
Twelve Months Ended
March 31,
1998 1997
(In Thousands Except
Per Share Amounts)
Operating Revenues $181,901 $175,630
Cost of gas sold 99,655 92,909
Operating Margin 82,246 82,721
Operating Expenses:
Operations 29,257 28,940
Maintenance 4,425 4,505
Depreciation and Amortization 12,260 11,307
Taxes, other than income 5,132 5,357
Total Operating Expenses 51,074 50,109
Income Taxes 9,216 9,675
Utility Operating Income 21,956 22,937
Other Operating Income:
Energy Trucking revenues 4,596 8,794
Energy Trucking expenses, including
income taxes and interest 4,305 7,602
Energy Trucking net income 291 1,192
Other, net of income taxes 317 203
Total Other Operating Income 608 1,395
Non-Operating Income, Net 659 692
Income Before Interest and Debt Expense 23,223 25,024
Interest and Debt Expense 8,264 8,481
Net Income $14,959 $16,543
Average Common Shares Outstanding 8,640 8,470
Income per Average Common Share $ 1.73 $ 1.95
Dividends Paid per Common Share $ 1.34 $ 1.30
(See accompanying notes to consolidated condensed financial
statements)
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
March 31, December 31, March 31,
1998 1997 1997
(Unaudited) (Unaudited)
(In Thousands)
Utility Property:
At original cost $370,317 $362,742 $338,174
Accumulated depreciation (91,523) (88,210) (85,433)
Net utility property 278,794 274,532 252,741
Non-Utility Property - Net 7,567 7,312 5,879
Net property 286,361 281,844 258,620
Capital Leases - Net 2,614 2,630 2,487
Current Assets:
Cash and cash equivalents 3,092 259 3,406
Accounts receivable 29,991 21,788 32,102
Allowance for doubtful
accounts (3,561) (3,203) (3,445)
Accrued utility revenues 5,447 7,417 5,869
Unbilled gas costs 8,118 19,266 12,296
Fuel and other inventories 10,122 12,959 8,785
Prepayments and other current
assets 6,791 9,481 5,778
Total current assets 60,000 67,967 64,791
Deferred Charges and Other Assets:
Unrecovered deferred
income taxes 8,820 9,014 9,580
Unrecovered demand side
management costs 8,122 8,273 7,983
Unrecovered environmental
expenses - incurred 4,135 3,833 4,130
Unrecovered environmental
expenses - accrued 707 707 1,063
Unrecovered transition
costs - accrued 2,800 2,800 4,500
Other 12,202 11,923 11,499
Total deferred charges
and other assets 36,786 36,550 38,755
Total Assets $385,761 $388,991 $364,653
(See accompanying notes to consolidated condensed financial
statements)
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND CAPITALIZATION
March 31, December 31, March 31,
1998 1997 1997
(Unaudited) (Unaudited)
(In Thousands)
Capitalization:
Common equity:
Common Stock - par value $3.33 per share
Authorized - 15,000 shares
Issued and outstanding -
8,728, 8,688 and
8,561 shares $29,063 $28,931 $28,508
Premium on common stock 58,262 57,277 54,985
Retained earnings 47,219 35,924 43,838
Total Common equity 134,544 122,132 127,331
Long-term debt 90,059 100,102 85,226
Total capitalization 224,603 222,234 212,557
Capital Lease Obligations 1,528 1,617 1,538
Current Liabilities:
Current maturities of
long-term debt 20,167 10,164 15,155
Current capital lease
obligations 1,086 1,013 949
Notes payable 38,500 49,400 40,100
Gas inventory purchase
obligations 9,088 14,895 7,412
Accounts payable 10,482 15,674 8,556
Other 17,268 11,362 17,733
Total current liabilities 96,591 102,508 89,905
Deferred Credits and Reserves:
Deferred income taxes-funded 42,626 41,443 37,023
Deferred income taxes-unfunded 8,820 9,014 9,580
Accrued environmental expenses 707 707 1,063
Accrued transition costs 2,800 2,800 4,500
Other 8,086 8,668 8,487
Total deferred credits
and reserves 63,039 62,632 60,653
Total Capitalization and
Liabilities $385,761 $388,991 $364,653
(See accompanying notes to consolidated condensed financial
statements)
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
(In Thousands)
Cash Flows From Operating Activities:
Net income $14,212 $15,293
Adjustments to reconcile net
income to net cash 3,719 2,498
Changes in current assets and
liabilities 12,392 6,173
Net cash provided by operating
activities 30,323 23,964
Cash Flows From Investing Activities:
Utility capital expenditures (7,489) (4,836)
Non-utility capital expenditures (378) (56)
Change in deferred accounts (734) (1,376)
Net cash used in investing
activities (8,602) (6,268)
Cash Flows From Financing Activities:
Dividends paid on Common Stock (2,917) (2,774)
Issuance of Common Stock 1,117 907
Issuance of long-term debt, net of
issuance costS 9,658 0
Retirement of long-term debt, including
premiums (10,040) (37)
Change in notes payable (10,900) (10,300)
Change in gas inventory purchase
obligations (5,807) (5,627)
Net cash used in financing
activities (18,889) (17,831)
Net increase (decrease) in cash and
cash equivalents 2,832 (135)
Cash and cash equivalents at beginning of
period 259 3,541
Cash and cash equivalents at end of period $3,092 $3,406
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest - net of amount capitalized $3,414 $2,812
Income and franchise taxes $ 278 $ 529
(See accompanying notes to consolidated condensed financial
statements)
COLONIAL GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Twelve Months Ended
March 31,
1998 1997
(In Thousands)
Cash Flows From Operating Activities:
Net income $14,959 $16,543
Adjustments to reconcile net income
to net cash 19,528 20,218
Changes in current assets and liabilities 4,346 (12,430)
Net cash provided by operating
activities 38,833 24,331
Cash Flows From Investing Activities:
Capital expenditures (38,441) (27,415)
Non-utility Capital expenditures (2,210) (973)
Change in deferred accounts (200) (2,924)
Net cash used in investing
activities (40,851) (31,312)
Cash Flows From Financing Activities:
Dividends paid on Common Stock (11,578) (11,013)
Issuance of Common Stock 3,832 3,503
Issuance of long-term debt, net of
issuance costs 24,528 19,867
Retirement of long-term debt, including
premiums (15,155) (11,286)
Change in notes payable (1,600) 100
Change in gas inventory purchase
obligations 1,676 1,371
Net cash (used in) provided by
financing activities 1,703 2,542
Net decrease in cash and cash equivalents (315) (4,439)
Cash and cash equivalents at beginning of
period 3,406 7,845
Cash and cash equivalents at end of period $3,092 $3,406
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the period for:
Interest - net of amount
capitalized $10,067 $9,795
Income and franchise taxes $7,258 $6,283
(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 March 31, 1998 and 1997 and results of
operations for the three and twelve month periods ended
March 31, 1998 and 1997 and cash flows for the three and
twelve month periods ended March 31, 1998 and 1997.
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,
1998 and 1997 are not necessarily indicative of the
results to be expected for the full year.
3. During the three months ended March 31, 1998, the Company
issued 40,000 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 $132,000 and
Premium on Common Stock increased $985,000.
4. Contingencies
Reference is made to Note I/Contingencies of the Notes to
Consolidated Financial Statements contained within the
Company's 1997 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 March 31, 1998 and 1997
Net income for the three months ending March 31, 1998
decreased $1,081,000 or 7.1% to $14,212,000 compared to
$15,293,000 for the same period last year. Weather for the
first quarter was 10.2% warmer than the prior year and 13.5%
warmer than normal, causing a $2,439,000 or 6.2% decrease in
operating margin. Operating income for the Company's utility
operations decreased $899,000 or 5.3%, despite an $787,000
or 11% reduction in operations expense due to a $460,000
decrease in bad debt expense, a $156,000 decrease in health
insurance expense, and a $112,000 decrease in payroll costs.
Income taxes decreased $757,000 or 8.0% due to a lower level
of utility income subject to tax.
Other operating income (net of income taxes) decreased
$34,000 or 26% over the comparable 1997 period primarily as
a result of a $36,000 or 45% decrease in net income of
Transgas Inc., the Company's energy trucking subsidiary,
which is attributable to the warmer weather. Hauls of
liquefied natural gas (LNG) decreased 45% in the three
months ended March 30, 1998, compared to the same period in
1997.
Interest expense increased $230,000 or 12% in the three
months ended March 31, 1998 compared to the same period last
year principally due to the issuance of long-term debt to
finance capital expenditures.
Twelve Months Ended March 31, 1998 and 1997
Net income was $14,959,000 for the twelve months ending
March 31, 1998, compared with $16,543,000 for the comparable
1997 period. This $1,584,000 or 9.6% decrease in net income
primarily resulted from three factors: weather which was
3.6% warmer than normal and 2% warmer than the prior period;
a $901,000 or 76% weather-related decline in earnings from
Transgas Inc., and a $953,000 or 8.4% increase in
depreciation due to the addition of utility property.
Other operating income (net of income taxes) decreased
$787,000 or 56% compared to the comparable 1997 period. The
net income of Transgas Inc. for the twelve months ended
March 31, 1998 decreased $901,000 or 76% due to the warm
winter of 1997-1998, which resulted in a significant
decrease in demand for energy trucking services. The
decrease in Transgas net income was partially offset by
increased merchandise and jobbing net income of $114,000.
Regulatory Matters
On May 8, 1998, the Massachusetts Department of
Telecommunications and Energy (the "DTE") opened an industry-
wide investigation into the time period for calculating the
lost margins gas companies are allowed to recover as a
result of their conservation or demand side management
("DSM") programs. The investigation was opened in
connection with a December 1997 filing by the Company which
sought the collection of lost DSM margins for the period May
1996 through April 1997. In that December 1997 filing, the
Company used the same calculation method (based on the
useful life of installed conservation measures) that it had
used in filings previously approved by the DTE. The current
DTE investigation could result in a shortening of the time
period for calculating lost DSM margins to less than the
full useful life of installed measures. A shortening of the
period would result in some decrease in operating revenues,
but it is uncertain at this time whether or by how much the
period would be shortened and, therefore, what impact it
would have on the Company.
Information Systems
As part of its ongoing "Genesis" program for automating and
improving its information systems, the Company is in the
process of implementing a new customer information and
billing system that is expected to be in place by the end of
May 1998. The new customer information and billing system
is designed to be capable of processing Year 2000 and
subsequent date data. Although there can be no assurance
until the conversion to the new system is completed, at this
time the Company does not anticipate any significant
implementation difficulties.
Liquidity and Capital Resources
On April 15, 1998, the quarterly dividend on the Company's
common stock was increased to $.345 per share or an
annualized dividend rate of $1.38 per share. This is the
62nd consecutive year that the Company has paid a dividend
to common shareholders and the 19th consecutive year that it
has increased its per share dividend payment.
On December 9, 1997, the Company received approval from the
DTE to issue and sell up to 400,000 shares of Common Stock
pursuant to the Company's Common Stock and Dividend
Reinvestment Plan.
On March 20, 1998, the Company issued the remaining
$10,000,000 under its Medium Term Note Program ("MTN")
(Series A) as a 10-year First Mortgage Bond with an
effective rate of 6.38%.
On March 30, 1998, the Company established a new $75,000,000
MTN Program (Series B), of which approximately $45,000,000
has been authorized for issuance to date by the
Massachusetts Department of Telecommunications and Energy
(DTE).
On April 2, 1998, the Company called $20,000,000 of 8.05%
First Mortgage Bonds (Series CG) one year prior to their
maturity, at a price of 102.02%.
On April 7, 1998, the Company issued $20,000,000 of 30-year
First Mortgage Bonds under its MTN Program (Series B), with
an effective rate of 6.68%. The Bonds are redeemable at the
option of the holder in April 2008.
PART II - OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4(l) Fourth Supplemental Indenture Filed herewith.
dated as of March 1, 1998
relating to the Company's Secured
Medium Term Notes, Series B
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: May 15, 1998 s/F.L. Putnam, III
F.L. Putnam, III
President and Chief
Executive Officer
Date: May 15, 1998 s/Nickolas Stavropoulos
Nickolas Stavropoulos
Executive Vice President -
Finance, Marketing and Chief
Financial Officer
[END OF FORM 10-Q FOR PERIOD ENDING MARCH 31, 1998]