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 March 31, 2001
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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
D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND
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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
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Common stock of Registrant at the date of this report was 100 shares, all held
by Eastern Enterprises.
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
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(In Thousands)
Three Months Ended
March 31, March 31,
2001 2000
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(Predecessor)
OPERATING REVENUES $122,048 $86,335
Cost of gas sold 79,367 44,841
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Operating Margin 42,681 41,494
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OPERATING EXPENSES:
Operations 6,069 4,435
Maintenance 949 1,050
Depreciation and amortization 3,870 5,784
Amortization of goodwill 2,334 1,506
Income taxes 9,129 9,811
Taxes, other than income 1,463 1,665
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Total Operating Expenses 23,814 24,251
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OPERATING EARNINGS 18,867 17,243
OTHER EARNINGS (LOSS), NET (92) (51)
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EARNINGS BEFORE INTEREST EXPENSE 18,775 17,192
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INTEREST EXPENSE:
Long-term debt 2,116 2,133
Other, including amortization
of debt expense 4,207 1,379
Less - Interest during construction (22) (15)
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Total Interest Expense 6,301 3,497
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NET EARNINGS $ 12,474 $13,695
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COMMON STOCK DIVIDENDS $ - $ 6,039
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The accompanying notes are an integral part of these consolidated financial
statements.
FORM 10-Q
Page 3
COLONIAL GAS COMPANY
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CONSOLIDATED BALANCE SHEETS
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(In Thousands)
March 31, March 31, December 31,
2001 2000 2000
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(Predecessor)
ASSETS
GAS PLANT, at cost $ 395,343 $ 390,447 $ 394,509
Construction work-in-progress 11,557 6,080 7,751
Less-Accumulated depreciation (123,595) (115,593) (119,564)
--------- --------- ---------
Net plant 283,305 280,934 282,696
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CURRENT ASSETS:
Cash and cash equivalents 6,090 220 124
Accounts receivable, less reserves
of $4,420 and $3,149 at
March 31, 2001 and 2000,
respectively, and $2,964 at
December 31, 2000 50,972 31,918 24,285
Accounts receivable - affiliates 87 - 5,235
Accrued utility revenue 20,800 11,033 22,414
Unbilled gas costs receivable 37,509 1,076 33,550
Natural gas and other inventories 4,086 4,197 13,246
Materials and supplies 1,511 2,359 1,709
Prepaid expenses 170 171 262
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Total Current Assets 121,225 50,974 100,825
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OTHER ASSETS:
Goodwill, net of amortization 369,516 237,624 371,850
Deferred charges and other assets 4,345 5,018 4,077
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Total Other Assets 373,861 242,642 375,927
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TOTAL ASSETS $ 778,391 $ 574,550 $ 759,448
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
FORM 10-Q
Page 4
COLONIAL GAS COMPANY
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Consolidated Balance Sheets
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(In Thousands)
March 31, March 31, December 31,
2001 2000 2000
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(Predecessor)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholder's investment-
Common stock, $1 par value-
Authorized and outstanding-100 shares
at March 31, 2001 and 2000 and
December 31, 1999 $ - $ - $ -
Amounts in excess of par value 203,558 225,667 203,558
Retained earnings 19,330 7,885 6,856
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Total common stockholder's investment 222,888 233,552 210,414
Long-term obligations, less current
portion 120,484 121,021 120,621
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Total Capitalization 343,372 354,573 331,035
ADVANCE FROM KEYSPAN 250,000 - 250,000
ADVANCES FROM EASTERN - 100,000 -
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Total Capitalization and advances 593,372 454,573 581,035
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CURRENT LIABILITIES:
Current portion of long-term obligations 384 646 572
Notes payable-utility pool 47,327 - 47,209
Notes payable-utility pool gas
inventory financing 5,995 - 19,216
Notes payable - 24,000 -
Gas inventory financing - 5,001 -
Accounts payable 34,242 15,459 38,765
Accounts payable-affiliates 17,671 2,055 6,486
Accrued income taxes 2,167 10,755 291
Accrued interest 10,597 2,314 4,263
Customer deposits 717 631 738
Refunds due customers 1,318 4,057 2,681
Dividend payable-parent company - 6,039 -
Other 1,248 659 781
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Total Current Liabilities 121,666 71,616 121,002
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RESERVES AND DEFERRED CREDITS:
Deferred income taxes 42,375 31,935 36,641
Unamortized investment tax credits 2,554 2,759 2,605
Postretirement benefits obligation 6,263 5,209 5,972
Other 12,161 8,458 12,193
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Total Reserves and Deferred Credits 63,353 48,361 57,411
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TOTAL CAPITALIZATION AND LIABILITIES $778,391 $574,550 $759,448
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
FORM 10-Q
Page 5
COLONIAL GAS COMPANY
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Consolidated Statements of Cash Flows
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(In Thousands)
For the Three Months Ended
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March 31 March 31
2001 2000
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(Predecessor)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 12,474 $ 13,695
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization 6,204 7,500
Deferred taxes 5,734 (341)
Other changes in assets and liabilities:
Accounts receivable (21,539) (15,931)
Accrued utility revenue 1,614 (2,959)
Accounts payable-affiliates 11,185 (15,861)
Unbilled gas costs receivable (3,959) 12,727
Inventories 9,358 7,302
Accounts payable (4,523) (1,119)
Federal and state income taxes 1,876 14,937
Refunds due customers (1,363) (1,274)
Other 6,863 (777)
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Cash provided by operating activities 23,924 17,899
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements (4,855) (3,060)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in notes payable 118 (5,000)
Change in inventory financing (13,221) (10,008)
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Cash used for financing activities (13,103) (15,008)
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Increase (decrease) in cash and cash
equivalents 5,966 (169)
Cash and cash equivalents at beginning
of period 124 389
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Cash and cash equivalents at end of period $ 6,090 $ 220
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The accompanying notes are an integral part of these consolidated financial
statements.
FORM 10-Q
Page 6
COLONIAL GAS COMPANY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MARCH 31, 2001
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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")
and an indirect wholly-owned subsidiary of KeySpan Corporation ("KeySpan").
The consolidated financial statements include the accounts of the Company
and its affiliate, Massachusetts Fuel Inventory Trust (through December 31,
2000). 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, except for the method of
accounting for depreciation and property taxes during interim periods as
discussed in "Interim Period Depreciation and Property Tax Accounting".
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 2000 Annual Report filed on Form 10-K with the Securities and
Exchange Commission.
MERGER
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On November 8, 2000, KeySpan acquired all the common stock of Eastern for
$64.56 per share in cash. The transaction was accounted for using the
purchase method of accounting for business combinations. The purchase
price was allocated to the net assets acquired of Eastern and its
subsidiaries based upon their fair value. The historical cost basis of the
Company's assets and liabilities, with minor exceptions, was determined to
represent fair value due to the existence of regulatory-approved rate plans
that are based upon the recovery of historical costs and a fair return
thereon. The allocation of the purchase price remains subject to
adjustment upon final valuation of certain acquired balances of the
Company. Under push-down accounting, the excess of the purchase price over
the fair value of the Company's net assets acquired, or goodwill, of
approximately
FORM 10-Q
Page 7
$139 million has been recorded as an asset and is being amortized over a
period of 40 years. The push-down accounting resulted in a decrease to
equity of $9 million, net of fair value adjustments of $2 million, and the
recording of a $250 million advance from KeySpan, $100 million of which was
previously advanced from Eastern.
SEASONAL ASPECT
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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 to customers during November through April are higher than those
charged during May through October.
INTERIM PERIOD DEPRECIATION AND PROPERTY TAX ACCOUNTING
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To be consistent with KeySpan accounting policies, the Company charges
annual depreciation and property tax expense on an estimated basis equally
throughout the year. In prior years, the Company charged depreciation and
property tax expense in an amount equal to the percentage of the annual
volume of firm gas throughput projected for the month, applied to the
estimated annual depreciation and property tax expense.
WORKFORCE REDUCTION PROGRAM
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As a result of the KeySpan merger, the Company has implemented a severance
program in an effort to reduce is workforce. In 2000, the Company recorded
a merger-related liability of $1.7 million associated with this severance
program. During the first quarter of 2001, payments approximating $.2
million were made under this program.
Reclassifications
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Certain prior quarter financial statement amounts have been reclassified
for consistent presentation with the current year.
FORM 10-Q
Page 8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS:
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RESULTS OF OPERATIONS
Net earnings for the first quarter of 2001 were $12.5 million, a decrease
of $1.2 million, or 8.9%, from the first quarter of 2000. Weather was 4%
colder than normal and 5% colder than 2000.
Operating revenues in the first quarter of 2001 increased $36 million, or
41%, principally due to increased gas costs and the colder weather.
Operating margin increased $1.2 million, or 2.9%, principally due to the
colder weather and customer growth.
Operations and maintenance expenses increased $1.5 million, due to a higher
provision for bad debts due to higher gas costs and increased employee
benefit related costs.
Depreciation and property taxes decreased $1.9 million and $.2 million,
respectively, due to the modification in the method of recording these
expenses within the year as discussed under "Interim Period Depreciation
and Property Tax Accounting".
The first quarter of 2001 reflects increased amortization of goodwill of
$.8 million and higher interest and debt issuance costs of $3.0 million
associated with the additional $150 million advance from KeySpan.
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 effect of
strategic initiatives on earnings and cash flow, the impact of any merger-
related activities, the ability to successfully integrate operations,
temperatures above or below normal, changes in economic conditions,
including interest rates and fuel prices, regulatory and court decisions,
developments with respect to previously-disclosed environmental liabilities
and such other factors detailed from time to time in reports filed by the
Company with the SEC. 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 sufficient to meet 2001
capital expenditures, working capital requirements, dividend payments and
normal debt repayments.
FORM 10-Q
Page 9
The Company expects capital expenditures for 2001 to be approximately $25
million. Capital expenditures will be primarily for system expansion
associated with customer growth and improvements to the delivery
infrastructure.
FORM 10-Q
Page 10
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
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None.
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
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(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.
FORM 10-Q
Page 11
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
D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND
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(Registrant)
Joseph F. Bodanza
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J.F. Bodanza, Senior Vice President
Finance, Accounting and Regulatory Affairs
(Principal Financial and Accounting Officer)
Dated: May 15, 2001
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