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, 2002
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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
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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")
Statement of Earnings
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Unaudited
(In Thousands)
For the Three Months Ended
--------------------------
March 31, March 31,
2002 2001
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OPERATING REVENUES ............................. $84,807 $122,048
Cost of gas sold .......................... 47,032 79,367
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Operating Margin .......................... 37,775 42,681
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OPERATING EXPENSES:
Operations ................................ 5,923 6,069
Maintenance ............................... 1,391 949
Depreciation and amortization ............. 3,965 3,870
Amortization of goodwill .................. - 2,334
Income taxes .............................. 7,479 9,129
Taxes, other than income .................. 1,063 1,463
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Total Operating Expenses .................. 19,821 23,814
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OPERATING EARNINGS ............................. 17,954 18,867
OTHER EARNINGS (LOSS), NET ..................... (23) (92)
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EARNINGS BEFORE INTEREST EXPENSE ............... 17,931 18,775
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INTEREST EXPENSE:
Long-term debt ............................ 2,127 2,116
Other, including amortization
of debt expense ........................... 4,128 4,207
Less - Interest during construction ....... (41) (22)
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Total Interest Expense .................... 6,214 6,301
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NET EARNINGS ................................... $11,717 $ 12,474
======= ========
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
Page 3
Colonial Gas Company
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Balance Sheets
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Unaudited
(In Thousands)
March 31, March 31, December 31,
2002 2001 2001
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ASSETS
GAS PLANT, at cost ............................. $ 418,788 $ 395,343 $ 418,099
Construction work-in-progress ............. 14,359 11,557 9,763
Less-Accumulated depreciation ............. (136,932) (123,595) (133,127)
--------- --------- ---------
Net plant ......................... 296,215 283,305 294,735
--------- --------- ---------
CURRENT ASSETS:
Cash and cash equivalents ................. 153 6,090 121
Accounts receivable, less reserves
of $4,078 and $4,420 at
March 31, 2002 and 2001,
respectively, and $3,709 at
December 31, 2001 ...................... 36,042 50,972 19,531
Accounts receivable - affiliates .......... 27,869 87 25,713
Accrued utility revenue ................... 11,688 20,800 19,064
Deferred gas costs ........................ 5,824 37,509 15,579
Natural gas and other inventories ......... 6,403 4,086 16,832
Materials and supplies .................... 807 1,511 695
Prepaid expenses .......................... 72 170 72
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Total Current Assets .............. 88,858 121,225 97,607
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OTHER ASSETS:
Goodwill .................................. 377,652 369,516 377,652
Deferred charges and other assets ......... 4,937 4,345 6,998
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Total Other Assets ................ 382,589 373,861 384,650
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TOTAL ASSETS ................................... $ 767,662 $ 778,391 $ 776,992
========= ========= =========
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
Page 4
Colonial Gas Company
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Balance Sheets
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Unaudited
(In Thousands)
March 31, March 31, December 31,
2002 2001 2001
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CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stockholder's investment-
Common stock, $1 par value-
Authorized-200,000 shares; outstanding-100 shares ............... $ - $ - $ -
Amounts in excess of par value .................................. 269,430 203,558 269,430
Retained earnings ................................................. 2,989 19,330 5,272
Accumulated comprehensive income .................................. (5,281) - (5,281)
-------- -------- --------
Total common stockholder's investment ........................... 267,138 222,888 269,421
Long-term obligations, less current portion ....................... 120,620 120,484 120,205
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Total Capitalization ............................................ 387,758 343,372 389,626
Advance from KeySpan .............................................. 214,000 250,000 200,000
-------- -------- --------
Total Capitalization and Advance ................................ 601,758 593,372 589,626
-------- -------- --------
CURRENT LIABILITIES:
Current portion of long-term obligations ......................... 247 384 296
Note payable utility pool ........................................ 51,957 47,327 68,517
Note payable utility pool-gas inventory financing ................ 8,580 5,995 21,958
Accounts payable ................................................. 16,530 34,242 12,538
Accounts payable-affiliates ...................................... - 17,671 -
Accrued taxes .................................................... 1,267 1,187 896
Accrued state income taxes ....................................... 659 2,167 (75)
Accrued interest ................................................. 12,497 10,597 8,726
Customer deposits ................................................ 462 717 538
Refunds due customers ............................................ 163 1,318 303
Other ............................................................ 155 61 353
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Total Current Liabilities ................................... 92,517 121,666 114,050
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OTHER LIABILITIES:
Deferred income taxes ............................................ 39,033 42,375 38,322
Unamortized investment tax credits ............................... 2,351 2,554 2,402
Postretirement benefits obligation ............................... 6,721 6,263 6,770
Other ............................................................ 25,282 12,161 25,822
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Total Other Liabilities ....................................... 73,387 63,353 73,316
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TOTAL CAPITALIZATION AND LIABILITIES .................................. $767,662 $778,391 $776,992
======== ======== ========
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
Page 5
Colonial Gas Company
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Statement of Cash Flows
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Unaudited
(In Thousands)
For the Three Months Ended
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March 31, March 31,
2002 2001
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Cash flows from operating activities:
Net earnings ........................................................ $ 11,717 $ 12,474
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization ................................... 3,965 6,204
Deferred taxes .................................................. 711 5,734
Other changes in assets and liabilities:
Accounts receivable ........................................ (18,667) (21,539)
Accrued utility revenue .................................... 7,376 1,614
Deferred gas costs ......................................... 9,755 (3,959)
Inventories ................................................ 10,317 9,358
Accounts payable ........................................... 3,992 6,662
State income taxes ......................................... 734 1,876
Accrued interest ........................................... 3,771 6,334
Other ...................................................... 1,372 (834)
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Cash provided by operating activities .................................... 35,043 23,924
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Cash flows from investing activities:
Capital expenditures, net of retirements ............................ (5,073) (4,855)
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Cash used for investing activities ....................................... (5,073) (4,855)
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Cash flows from financing activities:
(Repayments to) proceeds from note payable-utility pool ............. (16,560) 118
(Repayments to) note payable-inventory financing .................... (13,378) (13,221)
Advance from KeySpan ................................................ 14,000 -
Dividend paid to KeySpan ............................................ (14,000) -
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Cash used for financing activities ....................................... (29,938) (13,103)
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Increase in cash and cash equivalents .................................... 32 5,966
Cash and cash equivalents at beginning of period ......................... 121 124
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Cash and cash equivalents at end of period ............................... $ 153 $ 6,090
======== ========
The accompanying notes are an integral part of these financial statements.
FORM 10-Q
Page 6
COLONIAL GAS COMPANY
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NOTES TO FINANCIAL STATEMENTS
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MARCH 31, 2002
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1. ACCOUNTING POLICIES AND OTHER INFORMATION
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General
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Colonial Gas Company (the "Company") is a gas distribution company
engaged in the transportation and sale of natural gas to residential,
commercial and industrial customers. The Company's service territory
includes 24 municipalities located northwest of Boston and on Cape Cod.
The Company is a wholly-owned subsidiary of Eastern Enterprises
("Eastern") and an indirect wholly-owned subsidiary of KeySpan
Corporation ("KeySpan"), a registered holding company under the Public
Utility Holding Company Act of 1935, as amended.
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.
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 2001 Annual Report filed on Form 10-K
with the Securities and Exchange Commission. The December 31, 2001
financial statement information has been derived from the audited
financial statements.
Merger and Goodwill
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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. 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 $388 million was
recorded as an asset and was amortized based on a 40-year period,
through December 31, 2001.
FORM 10-Q
Page 7
Recent Accounting Pronouncements
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On January 1, 2002, the Company adopted SFAS 141, "Business
Combinations", and SFAS 142 "Goodwill and Other Intangible Assets". The
key concepts from the two interrelated Statements include mandatory use
of the purchase method when accounting for business combinations,
discontinuance of goodwill amortization, a revised framework for
testing goodwill impairment at a "reporting unit" level, and new
criteria for the identification and potential amortization of other
intangible assets. Other changes to existing accounting standards
involve the amount of goodwill to be used in determining the gain or
loss on the disposal of assets, and a requirement to test goodwill for
impairment at least annually.
The annual impairment test is to be performed within six months of
adopting SFAS 142 with any resulting impairment reflected as either a
change in accounting principle, or a charge to operations in the
financial statements. We have completed our analysis for the Company,
determining that no impairment exists.
For the three months ended March 31, 2001, goodwill amortization of
$2.3 million was recorded. As required by SFAS 142, below is a
reconciliation of reported net income for the three months ended March
31, 2001 and pro-forma net income, for the same period, adjusted for
the discontinuance of goodwill amortization.
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
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Net Earnings ............. $ 11,717 $ 12,474
Add back: goodwill
amortization ........... - $ 2,334
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Adjusted net earnings .... $ 11,717 $ 14,808
In July of 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". The Standard requires entities to record the
fair value of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially
recorded, the entity will capitalize a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is
accreted to its then present value, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement
of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard
is effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged. We are currently evaluating the impact,
if any, that this Statement may have on our results of operations and
financial condition.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was effective January 1, 2002, and addresses accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business." SFAS No. 144 retains
the fundamental provisions of SFAS No. 121 and expands the reporting of
discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and
that will be eliminated from the ongoing operations of the entity in a
disposal transaction. The implementation of this Statement, effective
January 1, 2002, did not have an impact on our results of operations
and financial condition.
FORM 10-Q
Page 8
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.
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 9
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 2002 were $11.7 million, a
decrease of $.8 million, or 6%, from the first quarter of 2001. Weather
was 12% warmer than normal and 16% warmer than 2001.
Operating revenues in the first quarter of 2002 decreased $37.2
million, or 31%, principally due to decreases in cost of gas charged to
customers and the warmer weather.
Operating margin decreased $4.9 million, or 11%, principally due to the
warmer weather.
Operations and maintenance expense increased $.3 million, or 4.2%.
In accordance with SFAS 142, as of January 1, 2002, the company no
longer amortizes goodwill. The first quarter of 2001 reflects
amortization of goodwill of $2.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that projected cash flow from operations, in
combination with currently available resources, is sufficient to meet
2002 capital expenditures, working capital requirements, dividend
payments and normal debt repayments.
On March 31, 2002, the Company received $14 million and recorded an
additional advance to KeySpan. The Company paid a dividend to KeySpan
of $14 million.
The Company expects capital expenditures for 2002 to be approximately
$31 million and cost of removal to be approximately $1 million. Actual
capital expenditures for the first quarter were $5 million. Capital
expenditures will be largely for system expansion to meet customer
growth and improvements to the distribution system.
FORM 10-Q
Page 10
FORWARD-LOOKING INFORMATION
Certain statements contained in this Form 10-Q concerning expectations,
beliefs, plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements that are
other than statements of historical facts, are "forward-looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Without limiting the foregoing, all
statements relating to our future outlook, anticipated capital
expenditures, future cash flows and borrowings, pursuit of potential
future acquisition opportunities and sources of funding, are
forward-looking statements. Such forward-looking statements reflect
numerous assumptions and involve a number of risks and uncertainties
and actual results may differ materially from those discussed in such
statements. Among the factors that could cause actual results to differ
materially are: general economic conditions, especially in
Massachusetts; available sources and cost of fuel; federal and state
regulatory initiatives that increase competition, threaten cost and
investment recovery, and impact rate structures; the ability of the
Company to successfully reduce its cost structure; inflationary trends
and interest rates; and other risks detailed from time to time in other
reports and other documents filed by the Company with SEC. For any of
these statements, the Company claims the protection of the safe harbor
for forward-looking information contained in the Private Securities
Litigation Reform Act of 1995, as amended.
FORM 10-Q
Page 11
PART II. OTHER INFORMATION
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ITEM 1. LEGAL AND REGULATORY PROCEEDINGS
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On November 1, 2001, the Massachusetts Department of Telecommunications
and Energy ("Department") issued an order requiring all Massachusetts
electric and gas utilities to develop service quality plans effective
January 1, 2002. On April 17, 2002, the Department issued an order
approving the Company's Service Quality Plan that was filed with the
Department on March 1, 2002. Service quality will be separately tracked
and measured against historical benchmarks. The Department may assess a
penalty against a company that fails to meet its service quality
benchmarks. The penalty amount can be up to 2% of the company's
distribution revenues. Each measurement period will be a calendar year.
The first measurement period began on January 1, 2002.
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
In our Report on Form 8-K, dated April 5, 2002, we disclosed that on
March 29, 2002, our Board of Directors, upon recommendation of the
Audit Committee, determined not to renew the engagement of Arthur
Andersen LLP as independent public accountants and appointed Deloitte &
Touche LLP as our independent public accountants.
FORM 10-Q
Page 12
SIGNATURES
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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)
/s/ 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, 2002
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