Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
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 2-23416
BOSTON GAS COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-1103580
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108 (617) 742-8400
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (REGISTRANT'S TELEPHONE NUMBER)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. Yes X No
Indicate the number of shares outstanding of the registrant's class of
common stock as of March 14, 1994.
ALL COMMON STOCK, 514,184 SHARES, ARE HELD BY EASTERN ENTERPRISES.
The registrant meets the conditions set forth in General Instruction
(J)(1)(a) and (b) of Form 10-K and is therefore filing this form with the
reduced disclosure format.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
BOSTON GAS COMPANY
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1993
PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Boston Gas Company (the "Company") is engaged in the transportation,
distribution and sale of natural gas to residential, commercial, and industrial
customers which includes the City of Boston, Massachusetts, and 73 other
Massachusetts communities. The Company has one subsidiary, Massachusetts LNG
Incorporated ("Mass LNG"), which holds a long-term lease on two liquefied
natural gas facilities. The Company has been in business for 171 years and is
the second oldest gas company in the United States. Since 1929, all of the
common stock of the Company has been owned by Eastern Enterprises ("Eastern"),
which is headquartered in Weston, Massachusetts.
GAS SALES
The following table provides statistical information with respect to the
Company's sales during the three years 1991-1993.
SALES STATISTICS
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
---- ---- -----
Gas sales by classification (millions of cubic feet @
1,000 B.T.U.)
Residential
Heating(A)........................................... 38,126 37,923 32,731
Non-heating.......................................... 3,793 3,906 3,847
Commercial(B)........................................... 26,011 25,796 23,614
Industrial -- firm...................................... 4,955 4,914 4,150
Seasonal firm contracts................................. 10,022 6,379 --
------- ------- -------
Total -- firm...................................... 82,907 78,918 64,342
Interruptible........................................... 8,106 14,456 20,206
Special sales for resale................................ 2,083 4,246 --
------- ------- -------
Total gas sales........................................... 93,096 97,620 84,548
Interruptible transportation............................ 39,304 27,270 31,424
Firm transportation..................................... 12,351 7,369 --
------- ------- -------
Total throughput.......................................... 144,751 132,259 115,972
======= ======= =======
Percent of normal billing degree days..................... 99% 104% 87%
- ---------------
(A) The heating classification includes all gas sold to customers having central
or space heating.
(B) The commercial classification includes central-metered apartment houses and
condominiums with five or more units.
Firm gas sales are made under rate schedules or contracts with customers
who do not contemplate service interruption. Firm sales of natural gas sold for
purposes of space heating are directly related to weather conditions.
Consequently, variations in weather patterns can have a significant impact upon
the Company's revenues and earnings. The Company also provides seasonal firm
sales and transportation services to customers for terms of less than 365 days.
Non-firm sales include interruptible sales made pursuant to contracts with
customers who typically can use oil and gas interchangeably and special sales
for resale to other gas companies for distribution to their
1
3
customers. Non-firm sales are dependent upon gas supply availability, weather
conditions and the price of gas in relation to the price of alternate fuels. The
price the Company charges is generally tied to the price of the customer's
alternate fuel. Availability of gas supply and price competition from residual
oil are important factors in retaining non-firm sales. Beginning November 1,
1993, gross margins from non-firm sales and transportation services ($8,434,000
in 1993 and $10,248,000 in 1992) are passed back to firm customers through the
cost of gas adjustment clause up to a threshold based upon the prior season's
experience. Non-firm margins realized in excess of the threshold are shared
between shareholders and core customers 25% and 75%, respectively.
One customer accounted for 4.0% of the Company's operating revenues in
1993, 2.3% in 1992 and 3.5% in 1991.
GAS SUPPLY
The Company purchases approximately 70% of its pipeline gas supplies
directly from producers and marketers pursuant to long-term contracts which are
subject to review and approval by the Massachusetts Department of Public
Utilities ("Department"). Seven of the Company's direct purchase agreements have
been approved by the Department including two long-term Canadian agreements.
Five other long-term agreements are pending before the Department, with orders
expected by April, 1994. The Company purchases its remaining pipeline supplies
pursuant to short-term, firm winter service agreements and on a spot basis.
Pipeline supplies are transported on interstate pipeline systems to the
Company's service territory pursuant to transportation agreements approved by
the Federal Energy Regulatory Commission ("FERC"). The Company has also
contracted with pipeline companies and others for the storage of natural gas and
related transportation from underground storage fields located in New York and
Pennsylvania. Supplemental supplies of liquefied natural gas ("LNG") and propane
are purchased and produced from foreign and domestic sources.
All interstate pipelines serving the Company have implemented service
restructuring plans on terms and conditions approved by FERC pursuant to Order
No. 636. Order No. 636, issued April 8, 1992, required interstate pipeline
companies to unbundle existing gas service contracts into separate gas sales,
transportation and storage services. Accordingly, the Company's firm bundled
service with Algonquin Gas Transmission Company ("Algonquin"), a wholly-owned
subsidiary of Algonquin Energy, Inc., a wholly-owned subsidiary of Texas Eastern
Transmission Corporation ("Texas Eastern"), itself a wholly-owned subsidiary of
Panhandle Eastern Corporation, was converted to an annual firm transportation
entitlement of 65,600 MMCF. Similarly, the Company's firm bundled sales service
with Texas Eastern has been converted to an annual firm transportation
entitlement of 100,100 MMCF; and its firm bundled sales service with Tennessee
Gas Pipeline Company, a division of Tenneco, Inc. ("Tennessee"), has been
converted to an annual firm transportation entitlement of 77,800 MMCF. In
addition, as a result of industry restructuring, the Company has firm
entitlements on interstate pipelines upstream of Tennessee, Texas Eastern, and
Algonquin, with direct access to supply areas. Together, these transportation
entitlements are used to transport natural gas purchased by the Company from
producing regions and underground storage facilities to our service territory.
After restructuring, the Company now holds direct entitlements to 16,500 MMCF of
storage capacity with Tennessee, Texas Eastern and others. These new
transportation and storage agreements with Algonquin, Texas Eastern, and
Tennessee have terms generally expiring no earlier than November 1996, April
2012, and April 2000, respectively. The Company is provided rights of first
refusal under Order No. 636 to extend the terms of such service. The Company
considers the service reliability of its natural gas portfolio after industry
restructuring to be comparable to that existing prior to Order No. 636.
In addition to its domestic supply arrangements, the Company has three
contracts for the purchase of Canadian gas supplies. The Company's contract with
Boundary, Inc. provides for the purchase of 3,845 MMCF of gas annually and
expires on January, 2003. The Company also has contracts with Alberta Northeast
Gas, Ltd. ("ANE") to purchase up to 6,242 MMCF of gas annually, and with
Imperial Oil of Canada, Ltd. ("Imperial"), formerly Esso Resources Canada, Ltd.,
for the purchase of 12,775 MMCF of gas annually. These contracts expire on
November, 2003 and April, 2007, respectively. The Company has contracted with
Iroquois Gas Transmission System ("IGTS"), Tennessee and Algonquin to transport
these
2
4
gas supplies from the Canadian border to delivery points in the Company's
service territory. All necessary Canadian government approvals for the purchase,
import, and transportation of these volumes have been issued.
The Company has contracts, expiring in 1998, with Distrigas of
Massachusetts Corporation ("DOMAC") for the purchase of an annual quantity of up
to 2,000 MMCF of LNG and for 1,000 MMCF of LNG storage capacity and related
vaporization services. The Company also purchases LNG from DOMAC on a spot basis
when prices are competitive with alternative supplies. DOMAC's affiliate,
Distrigas Corporation, imports the LNG from Algeria pursuant to agreements with
Sonatrach, the Algerian National Energy Company, through its wholly-owned
subsidiary Sonatrading Amsterdam B.V. The United States Department of Energy
("DOE") and FERC have granted the necessary approvals for the import, sale and
storage of LNG.
The Company relies on supplemental supplies to meet firm sendout
requirements which are greater than its firm pipeline capacity entitlements. The
number of days that peak sendout can be maintained is limited by the capacity of
the Company's storage facilities for supplemental gas supplies and the rate at
which these supplies can be sent out, and subsequently replenished. Increased
deliveries of pipeline supplies have reduced the Company's dependence on more
costly supplemental supplies. The Company considers its peak day sendout
capability, based on its total supply resources, adequate to meet the
requirements of its customers.
The Company owns or leases facilities which enable it to store the
equivalent of 4,000 MMCF of natural gas in liquid form as LNG and vaporize it
for use during periods of high demand. The inventory for these facilities is
provided by liquefaction of pipeline gas and from LNG purchased. The maximum
storage capacity of these facilities may be limited by various factors,
including maintenance and other operating considerations.
In addition to LNG, the Company has the ability to use propane to meet its
demand requirements during periods of extreme cold weather. Propane can be mixed
with air and introduced, along with natural gas, into the gas distribution
system at a number of propane-air facilities owned by the Company.
The following table provides statistical information with respect to the
Company's sources of supply during 1991-1993:
YEARS ENDED DECEMBER 31,
-------------------------
1993 1992 1991
---- ---- ----
Gas supply (millions of cubic feet @ 1,000 B.T.U.)
Natural gas purchased.......................................... 86,276 94,086 77,283
Propane and manufactured gas................................... 18 50 77
LNG purchased.................................................. 13,375 12,344 11,412
------ ------- ------
Total manufactured and purchased............................ 99,669 106,480 88,772
Deduct:
Net increase in storage gas................................. 4,021 5,195 1,034
Company use, unbilled and other............................. 2,552 3,665 3,190
------ ------- ------
Total gas billed................................................. 93,096 97,620 84,548
====== ======= ======
REGULATION AND RATES
The Company's operations are subject to Massachusetts statutes applicable
to gas utilities. Rates, the territorial limit of the Company's service area,
issuance of securities, affiliated party transactions, purchase of gas and
pipeline safety regulations are regulated by the Department.
The rates for gas service rendered by the Company are subject to approval
by, and are on file with, the Department. Gas operating revenues are recognized
when billed. No revenue is recorded for the amount of gas distributed to
customers which is unbilled at the end of a period. The Company has a cost of
gas adjustment clause which allows for the adjustment of billing rates for firm
gas sales to recover the cost of gas delivered to firm customers. For financial
reporting purposes, the Company defers the cost of any firm gas that has been
distributed, but is unbilled at the end of a period, to a period in which the
gas is billed to customers.
3
5
On October 30, 1993, the Department allowed the Company an annual revenue
increase of $37,700,000, effective November 1, 1993, and also approved several
rate design changes that reduce the volatility of the Company's margins
attributable to weather. This was accomplished by increasing customer charges
and moving the recovery of certain local production and storage costs from base
rates to the cost of gas adjustment clause.
Facility expansion is regulated by the Department. Municipal, state and
federal authorities have jurisdiction over the use of public ways, land and
waters for gas mains and other distribution facilities.
LICENSES AND FRANCHISES
The Company and Eastern were granted an intrastate exemption from the
provisions of the Public Utility Holding Company Act of 1935 ("the Act") under
Section 3(a)(1) thereof, pursuant to an order of the Securities and Exchange
Commission (the "SEC") dated February 28, 1955, as amended by orders dated
November 3, 1967 and August 28, 1975. On February 7, 1989, the SEC issued a
proposed rule under the Act which would provide limits for non-utility related
diversification by intrastate public utility holding companies, such as Eastern,
that are exempt under the Act. Since its proposal in 1989, the SEC has taken no
action with respect to this proposed rule. Eastern and the Company cannot
predict whether this proposed rule will be adopted or whether it will affect
their exemption under the Act.
Except as set forth above, there are no patents, trademarks, licenses or
concessions that are important to the business of the Company.
COMPETITION AND MARKETING
The Company competes with fuel oil and electricity and other supplies of
gas for residential, commercial and industrial uses. The Company's marketing
efforts continue to benefit from growing customer awareness of natural gas as a
safe, reliable, economical and environmentally sound fuel. Customer recognition
that the use of gas improves overall air quality, reduces pollutants and
eliminates on-site fuel storage problems has become increasingly significant.
The Company added annual firm sales of approximately 2,443 MMCF in 1993. In
the commercial and industrial markets, where the Company has a 22% market share
in its service territory, a degree of penetration which is approximately half
that of the United States commercial and industrial market share, considerable
growth opportunities exist. In 1993, the Company added new firm annual load of
1,812 MMCF in these markets. Increasing environmental regulation of emissions
should provide additional opportunities in the commercial and industrial
markets. The Company has identified several industrial facilities that must file
compliance plans under these regulations by April 1, 1994.
Approximately 4,391 residential customers converted to gas for central
heating last year. Despite lower oil prices, the Company expects continued
strong activity in the residential conversion market. Approximately 46% of the
Company's existing customers do not use gas for central heating. The Company
plans on targeting this group as well as electrically-heated residential
complexes with special programs to encourage the conversion to natural gas.
FERC Order No. 636 and other regulatory changes have increased the
potential for competition among existing and new suppliers of natural gas in the
Company's service area, particularly in large commercial and industrial markets
(see "Gas Supply"). The Company believes it is well positioned to respond to
such sales competition. The Company received approval from the Department to
file contracts designed to compete with non-captive commercial and industrial
customers with alternative energy options. This provides for an expedited
approval process and enhances the Company's ability to negotiate sales
agreements that reflect competitive market conditions. In June 1992, FERC
granted the Company authority to make sales for resale in interstate commerce
under the terms of a blanket marketing certificate. This additional sales
authority allows the Company to maximize the use of its supply entitlements,
thereby minimizing the cost of gas to firm customers and making its sales rates
more competitive. The Company is also well positioned to provide transportation
service to customers who may engage in direct purchases of natural gas from
other suppliers under firm and interruptible transportation tariffs approved by
the Department. The rate design changes
4
6
approved by the Department in the October 30, 1993 rate order provide for margin
neutrality regardless of the customer's decision to purchase gas directly from
the Company or purchase third-party gas for transportation on the Company's
distribution system.
The Company continues to pursue market opportunities in natural gas-powered
vehicles. The recent passage of The National Energy Policy Act, as well as the
Clean Air Act Amendments of 1990, both of which mandate the use of alternative
fuel vehicles by the mid-1990's by certain commercial fleets, have enhanced
opportunities in this market. The Company has initiated a number of programs
demonstrating the environmental and operating advantages of natural gas
vehicles. The Company's marketing activities include the installation of two
Company-owned fueling stations, conversion of 92 Company vehicles, and
establishment of pilot programs with a number of large fleet operators to
demonstrate the advantages of choosing natural gas to meet alternative fuel
vehicle requirements.
Other new markets, such as air conditioning, cogeneration and desiccant
dehumidification continue to develop as new technologies emerge.
ENVIRONMENTAL REGULATION
The Company is subject to local, state and federal environmental regulation
of its operations and properties. The Company is working with the Massachusetts
Department of Environmental Protection ("DEP") to determine the environmental
impact, if any, of by-products associated with 13 former manufactured gas plant
("MGP") properties which the Company currently owns and for which the Company
may be potentially responsible. The Company is currently assessing seven of
these properties pursuant to applicable DEP procedures. The Company expects to
spend approximately $1 million in assessing these properties in 1994 and expects
similar expenditures for site assessment for the next several years as other
properties are investigated. Since the DEP has not yet approved a remediation
plan for any Company site, the Company cannot reliably predict the potential
liability associated with final remediation of any of these properties. Company
experience to date indicates that assessment and remediation costs of at least
$18 million could be incurred over the next several years at these thirteen
properties, subject to possible contribution or the assumption of responsibility
by New England Electric System ("NEES") or one of its subsidiaries as discussed
below.
Massachusetts Electric Company, a wholly-owned subsidiary of NEES, has
assumed responsibility for remediating a fourteenth property currently owned by
the Company (part of the site of gas manufacturing operations in Lynn,
Massachusetts) pursuant to the decision of the Court of Appeals for the First
Circuit in The John S. Boyd, Inc., et al. v. Boston Gas Company, et al, Civil
Action No. 89-575-T (May 26, 1993). The First Circuit found that NEES and its
subsidiaries, as the prior owners and operators of the Lynn MGP site, were
responsible for remediating the site and that the Company did not assume any
liability for environmental remediation when it acquired the property from NEES
in 1973. Of the thirteen other sites currently owned by the Company, ten were
acquired from NEES. Given substantial similarities between these acquisitions
and that involved in Boyd, it is not probable that the Company will have any
material exposure for environmental remediation at these ten sites.
There are 23 other former MGP sites within the Company's service territory
which the Company does not currently own. The DEP has not issued a Notice of
Responsibility to the Company for any of these 23 sites. At this time, there is
substantial uncertainty as to whether the Company is responsible for remediating
any of these sites either because the Company never owned the site, the Company
does not have successor liability for contamination of the site by earlier
operators, or site conditions do not require remediation by the Company.
By an order issued on May 25, 1990, the Department approved a settlement
agreement which provides for the recovery through the cost of gas adjustment
clause of all environmental response costs associated with former MGP sites over
separate, seven-year amortization periods without a return on the unamortized
balance. The settlement agreement also provides for no further investigation of
the prudency of any Massachusetts gas utility's past MGP operations.
5
7
EMPLOYEE RELATIONS
As of December 31, 1993, the Company had 1,720 employees, 71% of whom were
organized in six local unions with which the Company has collective bargaining
agreements. In 1993, after a seventeen-week work stoppage, the Company entered
into a new six-year labor contract with the bargaining units which, among other
things, provides for annual general wage increases of approximately 4%, updates
work rules and changes health care coverage to a managed care program with cost
sharing.
ITEM 2. PROPERTIES.
The Company and Mass LNG own or lease facilities which enable them to
liquefy natural gas in periods of low demand, store the resulting LNG and
vaporize it for use in periods of high demand. The Company owns and operates
such a facility in Dorchester, Massachusetts, and Mass LNG leases and operates
one such facility in Lynn, Massachusetts, and a storage facility in Salem,
Massachusetts. In addition, the Company owns propane-air facilities at several
locations throughout its service territory.
In addition to the properties described above, the Company owns or leases
several small buildings and miscellaneous parcels of land located throughout its
service area which are used for such purposes as storage, subsidiary operations
centers, district business offices and natural gas receiving stations.
The Company's gas distribution system on December 31, 1993 included
approximately 5,700 miles of gas mains, 396,000 services and 519,000 active
customer meters.
The Company's gas mains and services, as well as related equipment, are, in
general not on land owned in fee, being in part, in, under or over public ways,
land or water and, in part, upon or under private ways or other property not
owned by the Company, such occupation of public and private property being, in
general, pursuant to easements, licenses, permits or grants of location. Except
as stated above, the principal items of property of the Company are owned in
fee. A portion of the utility properties and franchises of the Company are
pledged as security for the Company's First Mortgage Bonds.
In 1993, the Company's expenditures on capital expansion and improvement
were $47.1 million. Capital expenditures were principally made for improvements
to the distribution system, for system expansion to meet customer demand and for
productivity enhancement.
ITEM 3. LEGAL PROCEEDINGS.
With the resolution of the John Boyd case discussed in Item 1 above, and
other than normal routine litigation incidental to the Company's business, there
are no material pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of Security Holders in the fourth quarter
of 1993.
6
8
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Eastern was the holder of record of all of the outstanding common equity
securities of the Company throughout the year ended December 31, 1993. Dividends
on such common equity amounted to $8,998,219 and $7,712,760 for 1993 and 1992,
respectively. At December 31, 1993, under the most restrictive provision
limiting dividend payments in the Company's financing indentures, there were no
restrictions on retained earnings.
ITEM 6. SELECTED FINANCIAL DATA.
Not required.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
1993 COMPARED TO 1992
Earnings available to common shareholders in 1993 of $18.0 million were
$9.3 million lower than the prior year. Earnings in 1992 reflect a one-time
increase of $7.2 million, as a result of a modification to the Company's gas
cost recovery mechanism approved by the Department in May 1992. The modification
shifted the recovery of a portion of pipeline gas costs from the non-heating
season to the heating season to more closely match revenues with costs incurred.
Excluding such modification, earnings year to year decreased $2.1 million. This
decline in earnings was primarily due to the seventeen week labor dispute and
increased depreciation and amortization expense. In addition, weather was 1.3%
warmer than normal and 4.5% warmer than 1992.
Partially offsetting the above was a $5.0 million increase in net earnings
related to the rate increase granted the Company by the Department effective
November 1, 1993. The Department awarded the Company an annual revenue increase
of $37.7 million, or 6.3%. During 1993, the Company added annual firm sales of
approximately 2.4 BCF from the conversion of approximately 4,391 existing
non-heating residences to natural gas and the addition of new customers.
Operating earnings of $49.0 million , excluding the 1992 operating earnings
impact of the change in the gas cost recovery mechanism of $11.6 million, were
$2.4 million lower than 1992. The increase in operating expenses was mainly due
to the work stoppage and its resultant impact on expenditure capitalization.
Depreciation and amortization expense increases in 1993 are principally the
result of continued investments in system replacement and expansion and
productivity programs. Year to year increases in property taxes also contributed
to the decline in operating earnings.
1992 COMPARED TO 1991
Earnings available to common shareholders in 1992 of $27.3 million were 76%
higher than 1991 earnings of $15.5 million primarily due to more seasonable
weather and the modification to the Company's gas cost recovery mechanism
approved by the Department effective May 1, 1992. Since the change took effect
May 1, 1992, the Company recognized a one-time increase in earnings of $7.2
million; however, the modification has no impact on earnings over a 12 month
period. Excluding the modification to the gas cost recovery mechanism, earnings
year to year increased $4.6 million.
More seasonal weather, following unusually warm weather conditions in 1990
and 1991, produced the most favorable impact on 1992 earnings, representing a
$9.1 million increase over 1991 results. 1992, which was 19% colder as compared
to 1991, resulted in an increase in firm gas sales of 7.3 BCF. Growth in the
firm customer base also contributed to the increase in earnings. During 1992,
the Company added annual firm sales of approximately 3.1 BCF from the conversion
of 4,690 existing non-heating residences to natural gas and the additional new
customers.
Operating earnings, excluding the pre-tax impact of the change in the gas
cost recovery mechanism of $11.6 million, were $12.2 million higher than 1991
operating earnings of $39.3 million. Operating expense
7
9
increases were primarily the result of higher labor and system maintenance
costs. Depreciation and amortization expense increased in 1992 due to continued
investments related primarily to customer growth, system replacement and
productivity improvements. Interest expense increased in 1992 as compared to
1991 due to higher levels of average debt outstanding and reduced capitalized
interest.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains four committed lines of credit totaling $40.0
million. The Company also maintains various uncommitted lines of credit and
markets its own commercial paper. In addition, the Company may borrow up to
$45.0 million under Eastern's credit facilities.
In accordance with the rate order issued by the Department effective
October 1, 1988, the Company funds all of its gas inventory through external
financing. The costs of such financing are recovered from customers through the
Company's cost of gas adjustment clause. Effective December 31, 1993, the
Company increased its credit capacity for fuel financing through the negotiation
of a credit agreement with a group of banks which provides for borrowing of up
to $90.0 million for the purpose of financing its inventory of gas supplies. The
Company's' capacity under the prior agreement was $60.0 million. (See Note 4 of
the Notes to Consolidated Financial Statements.)
On May 12, 1993, the Company received from its shareholder, Eastern
Enterprises, a $20.0 million equity contribution, which was used to redeem $20.0
million of the Company's outstanding 9% Debentures, due 2001.
On July 13, 1993, the Registrant selected a Final Term which is a Mandatory
Redemption Term with respect to its Variable Term Cumulative Preferred Stock,
Series A. The dividend rate during the Final Term is 6.421% per annum and
dividends are paid quarterly. The Final Term calls for 5% annual sinking fund
payments beginning on September 1, 1999, is non-callable for 10 years, and shall
end on September 1, 2018.
The Company expects capital expenditures for 1994 to be approximately $53.0
million. Capital expenditures will be largely for improvements to the
distribution system, for system expansion to meet customer demand and for
productivity enhancement. The Company also expects to incur assessment and
remediation costs of approximately $1.0 million in 1994 associated with MGP
sites. Such costs are recoverable in rates as discussed more fully in Note 12 of
Notes to Consolidated Financial Statements.
On October 30, 1993, the Department granted the Company an annual revenue
increase of $37.7 million effective November 1, 1993.
In January 1994, the Company issued $36.0 million of Medium-term Notes
Series B, with a weighted average maturity of 24 years and coupon of 6.94%
pursuant to a $50.0 million shelf registration statement dated October 28, 1992
on file with the SEC.
The Company believes that projected cash flow from operations, in
combination with currently available resources, is sufficient to meet 1994
capital expenditures and working capital requirements, normal debt repayments
and dividends to shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this item appears commencing on Page F-1 of
this Report. Such information is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
8
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Not required.
ITEM 11. EXECUTIVE COMPENSATION.
Not required.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Not required.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not required.
9
11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Information with respect to these items appears on Page F-1 of this Report.
Such information is incorporated herein by reference.
(3) LIST OF EXHIBITS.
3.1 -- Restated Articles of Organization, as amended (Filed as Exhibit 3.1 to the
registration statement of the Company on Form S-3 (File No. 33-48525)).*
3.2 -- By-Laws of the Company as amended (Filed as Exhibit 1 to the Annual Report of
the Company on Form 10-K for the year ended December 31, 1976 (File No.
2-23416)).*
4.1. -- Indenture dated as of September 1, 1972 between the Company and State Street
Bank and Trust Company, Trustee, including form of Debenture on pages 1-7 thereof
(Filed as Exhibit 4.6 to the registration statement of the Company on Form S-1
(File No. 2-45350)).*
4.1.1 -- First Supplemental Indenture to Exhibit 4.1 dated as of April 1, 1974 between
the Company and State Street Bank and Trust Company, Trustee (Filed as Exhibit
2.3.2 to the registration statement of the Company on Form S-7 (File No.
2-52522)).*
4.1.2 -- Third Supplemental Indenture to Exhibit 4.1 dated as of May 29, 1981 between
the Company and State Street Bank and Trust Company, Trustee (Filed as Exhibit
4.1 to the Quarterly Report of the Company on Form 10-Q for the quarter ended
June 30, 1981).*
4.1.3 -- Fifth Supplemental Indenture to Exhibit 4.1 dated as of May 1, 1986 between
the Company and State Street Bank and Trust Company, Trustee (Filed as Exhibit
4.1 to the Quarterly Report of the Company on Form 10-Q for the quarter ended
June 30, 1986).*
4.1.4 -- Sixth Supplemental Indenture to Exhibit 4.1 dated as of December 15, 1986
between the Company and State Street Bank and Trust Company, Trustee (Filed as
Exhibit 4.1.4 to the Annual Report of the Company on Form 10-K for the year
ended December 31,1986).*
4.2 -- Indenture of First Mortgage dated as of May 1, 1965 from the Company to The
National Shawmut Bank of Boston, Trustee (Filed as Exhibit 4.1 to the
registration statement of the Company on Form S-1 (File No. 2-36752)).*
4.2.1 -- First Supplemental Indenture to Exhibit 4.2 dated as of May 1, 1969 (Filed as
Exhibit 4.2 to the registration statement of the Company on Form S-1 (File No.
2-36752)).*
4.2.2 -- Second Supplemental Indenture to Exhibit 4.2 dated as of April 1, 1970 (Filed
as an exhibit to the current report of the Company on Form 8-K for the month of
April 1970 (File No.
2-23416)).*
4.2.3 -- Third Supplemental Indenture to Exhibit 4.2 dated as of September 1, 1971
(Filed as an exhibit to the current report of the Company on Form 8-K for the
month of September 1971 (File No. 2-23416)).*
4.2.4 -- Fourth Supplemental Indenture to Exhibit 4.2 dated as of April 1, 1972 (Filed
as an exhibit to the current report of the Company on Form 8-K for the month of
April 1972 (File No.
2-23416)).*
4.2.5 -- Fifth Supplemental Indenture to Exhibit 4.2 dated as of April 1, 1973 (Filed
as an exhibit to the current report of the Company on Form 8-K for the month of
April 1973 (File No.
2-23416)).*
4.2.6 -- Sixth Supplemental Indenture to Exhibit 4.2 dated as of March 1, 1974 (Filed
as an exhibit to the current report of the Company on Form 8-K for the month of
March 1974 (File No.
2-23416)).*
4.3 -- Indenture dated as of December 1, 1989 between the Company and The Bank of New
York, Trustee (Filed as Exhibit 4.2 to the registration statement of the Company
on Form S-3 (File No. 33-31869)).*
10
12
4.3.1 -- Agreement of Registration, Appointment and Acceptance by and among the
Company, The Bank of New York as Resigning Trustee, and The First National Bank
of Boston as Successor Trustee under Indenture dated as of November 2, 1992
(Filed as an exhibit to registration statement of the Company on Form S-3
(File No. 33-53858)).*
10.1 -- Gas Transportation Contract between Boston Gas Company and Tennessee Gas
Pipeline Company dated as of September 1, 1993 providing for transportation of
approximately 94,000 dekatherms of natural gas per day (Filed herewith).
10.2 -- Gas Transportation Contract between Boston Gas Company and Texas Eastern
Transmission Corporation dated December 30, 1993 providing for transportation of
approximately 83,000 dekatherms of natural gas per day (Filed herewith).
10.3 -- Gas Transportation Contract between Boston Gas Company and Texas Eastern
Transmission Corporation dated December 30, 1993 providing for transportation of
approximately 30,000 dekatherms of natural gas per day (Filed herewith).
10.4 -- Gas Transportation Contract between Boston Gas Company and Algonquin Gas
Transmission Company dated December 30, 1993 providing for transportation of
approximately 48,000 dekatherms of natural gas per day (Filed herewith).
10.5 -- Gas Transportation Contract between Boston Gas Company and Algonquin Gas
Transmission Company dated December 30, 1993 providing for transportation of
approximately 97,000 dekatherms of natural gas per day (Filed herewith).
10.6 -- Gas Storage Agreement between the Company and Consolidated Gas Supply
Corporation dated February 18, 1980 (Filed as Exhibit 20.3 to the Quarterly
Report of the Company on Form 10-Q for the quarter ended March 31, 1982).*
10.7 -- Gas Storage Agreement between the Company and Honeoye Storage Corporation
dated October 11, 1985 (Filed as Exhibit 10.17 to the Annual Report of the
Company on Form
10-K for the year ended December 31, 1985).*
10.8 -- Gas Storage Agreement between the Company and PennYork Energy Corporation
dated as of December 21, 1984 (Filed as Exhibit 10.18 to the Annual Report of the
Company on Form
10-K for the year ended December 31, 1985).*
10.9 -- Gas Sales Contract between the Company and Esso Resources Canada, Limited,
(now Imperial Oil of Canada, Ltd.) dated as of May 1, 1989 (Filed as Exhibit
10.12 to the Annual Report of the Company on Form 10-K for the year ended
December 31, 1989).*
10.9.1 -- Amendment to Exhibit 10.12 dated as of September 28, 1989 (Filed as Exhibit
10.12.1 to the Annual Report of the Company on Form 10-K for the year ended
December 31, 1989).*
10.10 -- Storage Service Agreement between the Company and Distrigas of Massachusetts
Corporation dated as of December 17, 1988 (Filed as Exhibit 10.13 to the Annual
Report of the Company on Form 10-K for the year ended December 31, 1989).*
10.11 -- Liquid Purchase Agreement between the Company and Distrigas of Massachusetts
Corporation dated as of April 14, 1989 (Filed as Exhibit 10.14 to the Annual
Report of the Company on Form 10-K for the year ended December 31, 1989).*
10.12 -- Gas Sales Agreement between the Company and Alberta Northeast Gas, Ltd. dated
as of February 7, 1991 (Filed as Exhibit 10.16 to the Annual Report of the
Company on Form
10-K for the year ended December 31, 1990).*
10.13 -- Firm Gas Transportation Agreement between the Company and Iroquois Gas
Transmission System, L.P. dated as of February 7, 1991 (Filed as Exhibit 10.17 to
the Annual Report of the Company on Form 10-K for the year ended December 31,
1990).*
10.14 -- Firm Gas Transportation Agreement between the Company and Tennessee Gas
Pipeline Company dated as of February 7, 1991 (Filed as Exhibit 10.18 to the
Annual Report of the Company on Form 10-K for the year ended December 31,
1990).*
10.15 -- Lease Agreement between Industrial National Leasing Corporation, Lessor, and
Massachusetts LNG Incorporated, Lessee, dated as of June 1, 1972 (Filed as an
exhibit to Certificate of Notification by Massachusetts LNG Incorporated (and
others) dated June 9, 1972 (File No. 70-5170)).*
11
13
10.16 -- Lease Supplement to Exhibit 10.12 between National Leasing Corporation and
Massachusetts LNG Incorporated dated October 19, 1972 (Filed as Exhibit 5.23.1 to
the registration statement of the Company on Form S-7 (File No. 2-52522)).*
10.17 -- Credit Agreement dated as of December 22, 1993 by and among the Company,
Morgan Guaranty Trust Company of New York, National Westminster Bank PLC, Shawmut
Bank, N.A. and The First National Bank of Boston (Filed herewith).
10.18 -- Sublease between the Company and Eastern Enterprises dated November 5, 1987
(Filed as Exhibit 10.20 to the Annual Report of the Company on Form 10-K for the
year ended December 31, 1987).*
22 -- Subsidiaries of the Company (Filed as Exhibit 22 to the Annual Report of the
Company on Form 10-K for the year ended December 31, 1985).*
24 -- Consent of Independent Public Accountants.
There were no reports on Form 8-K filed in the Fourth Quarter of 1993.
- ---------------
* Not filed herewith. In accordance with Rule 12(b)(32) of the General Rules and
Regulations under the Securities Exchange Act of 1934, reference is made to
the document previously filed with the Commission.
12
14
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BOSTON GAS COMPANY
Registrant
By: J. F. BODANZA
_________________________________
J. F.BODANZA
SENIOR VICE PRESIDENT AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Dated:
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON THE 16TH DAY OF MARCH 1994.
SIGNATURE TITLE
--------- -----
C. R. MESSER Director and President
- --------------------------------------------
C. R. Messer
A. J. DIGIOVANNI Director and Senior Vice President
- --------------------------------------------
A. J. DiGiovanni
J. F. BODANZA Director and Senior Vice President
- -------------------------------------------- and Treasurer (Principal Financial
J. F. Bodanza and Accounting Officer)
J. A. IVES Director
- --------------------------------------------
J. A. Ives
R. R. CLAYTON Director
- --------------------------------------------
R. R. Clayton
W. J. FLAHERTY Director
- --------------------------------------------
W. J. Flaherty
13
15
BOSTON GAS COMPANY AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(INFORMATION REQUIRED BY ITEMS 8 AND 14 (A) OF FORM 10-K)
PAGE
---------------
Report of Independent Public Accountants.................................... F-17
Consolidated Balance Sheets as of December 31, 1993 and 1992.............. F-2 and F-3
Consolidated Statements of Earnings for the Three Years Ended December 31,
1993................................................................... F-4
Consolidated Statements of Retained Earnings for the Three Years Ended
December 31, 1993...................................................... F-5
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1993............................................................... F-6
Notes to Consolidated Financial Statements................................ F-7 to F-16
Interim Financial Information for the Two Years Ended December 31, 1993
(Unaudited)............................................................ F-18
Schedules for the Three Years Ended December 31, 1993:
V-- Property, Plant and Equipment.................................. F-19 to F-21
VI-- Accumulated Depreciation and Amortization of Property, Plant
and Equipment.................................................. F-19 to F-21
VIII-- Valuation and Qualifying Accounts.............................. F-22 to F-24
IX-- Short-term Borrowings.......................................... F-25
X-- Supplementary Earnings Statement Information................... F-26
Schedules other than those listed above have been omitted as the
information has been included in the consolidated financial statements and
related notes or is not applicable nor required.
Separate financial statements of the Company are omitted because the
Company is primarily an operating company and its subsidiary is wholly-owned and
is not indebted to any person in an amount that is in excess of 5% of total
consolidated assets.
F-1
16
BOSTON GAS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31,
------------------
1993 1992
---- ----
(IN THOUSANDS)
Gas Plant, at cost................................................ $649,580 $623,725
Construction work-in-progress..................................... 8,131 186
Less-Accumulated depreciation................................... 195,284 182,550
-------- --------
Net Plant....................................................... 462,427 441,361
Current Assets:
Cash and cash equivalents....................................... 1,160 5,300
Accounts receivable, less reserves of $13,518 at December 31,
1993 and $11,408 at December 31, 1992........................ 89,096 73,256
Deferred gas costs.............................................. 65,802 40,868
Natural gas and other inventories, at average cost.............. 53,152 42,140
Materials and supplies, at average cost......................... 5,019 5,650
Prepaid expenses................................................ 3,708 2,035
Income taxes.................................................... 6,046 5,047
-------- --------
Total Current Assets......................................... 223,983 174,296
Other Assets:
Deferred post-retirement benefits cost.......................... 101,182 99,126
Deferred charges and other assets............................... 46,848 23,872
-------- --------
Total Other Assets........................................... 148,030 122,998
-------- --------
Total Assets................................................. $834,440 $738,655
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
17
BOSTON GAS COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDER'S INVESTMENT
DECEMBER 31,
------------------
1993 1992
---- ----
(IN THOUSANDS)
Capitalization:
Stockholder's investment --
Common stock, $100 par value --
Authorized and outstanding -- 514,184 shares at December
31, 1993 and 1992......................................... $ 51,418 $ 51,418
Amounts in excess of par value............................. 43,233 23,233
Retained earnings.......................................... 95,680 86,653
-------- --------
Total Common Stockholder's Investment................... 190,331 161,304
Variable term cumulative preferred stock, $1 par value,
(liquidation preference, $25 per share) 1,200,000 shares
authorized and
outstanding................................................ 29,197 29,436
Long-term obligations, less current portion..................... 171,345 193,510
-------- --------
Total Capitalization.................................... 390,873 384,250
Gas inventory financing......................................... 59,297 48,631
-------- --------
Total Capitalization and Gas Inventory Financing........ 450,170 432,881
Current Liabilities:
Current portion of long-term obligations..................... 2,165 1,712
Notes payable................................................ 106,300 53,332
Accounts payable............................................. 52,773 52,971
Accrued taxes................................................ 161 297
Accrued interest............................................. 3,004 3,321
Customer deposits............................................ 2,597 2,959
Refunds due customers........................................ 8,029 13,061
Pipeline transition costs.................................... 24,174 --
-------- --------
Total Current Liabilities............................... 199,203 127,653
Commitments and Contingencies:
Reserves and Deferred Credits:
Deferred income taxes........................................ 61,561 52,724
Unamortized investment tax credits........................... 9,427 10,116
Post-retirement benefits obligation.......................... 91,955 89,587
Other........................................................ 22,124 25,694
-------- --------
Total Reserves and Deferred Credits..................... 185,067 178,121
-------- --------
Total Liabilities and Stockholder's Investment.......... $834,440 $738,655
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
18
BOSTON GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
Operating Revenues................................... $614,294 $594,330 $527,928
Cost of Gas Sold................................ 375,103 357,697 326,352
-------- -------- --------
Operating Margin................................ 239,191 236,633 201,576
Operating Expenses:
Other operating expenses........................ 133,187 129,795 124,557
Maintenance..................................... 29,376 21,225 19,044
Depreciation and amortization................... 27,566 22,493 18,685
Income taxes.................................... 12,105 17,995 8,770
-------- -------- --------
202,234 191,508 171,056
-------- -------- --------
Operating Earnings................................... 36,957 45,125 30,520
Other Earnings, Net.................................. 278 47 18
-------- -------- --------
Earnings before Interest Expense..................... 37,235 45,172 30,538
Interest Expense:
Long-term debt.................................. 15,447 15,710 14,228
Other, including amortization of debt expense... 2,957 2,577 3,360
Less-Interest during construction............... (583) (823) (2,537)
-------- -------- --------
17,821 17,464 15,051
-------- -------- --------
Net Earnings......................................... 19,414 27,708 15,487
Preferred Stock Dividends............................ 1,389 405 --
-------- -------- --------
Earnings Applicable to Common Stock.................. $ 18,025 $ 27,303 $ 15,487
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
19
BOSTON GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
Balance at Beginning of Year......................... $ 86,653 $ 67,063 $ 59,726
Net earnings.................................... 19,414 27,708 15,487
Preferred stock dividends ($1.16 per share in
1993 and $.34 per share in 1992............... (1,389) (405) --
Cash dividends on common stock ($17.50 per share
in 1993, $15.00 per share in 1992 and $15.85
per share in 1991)............................ (8,998) (7,713) (8,150)
-------- -------- --------
Balance at End of Year............................... $ 95,680 $ 86,653 $ 67,063
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
20
BOSTON GAS COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net earnings.................................... $ 19,414 $ 27,708 $ 15,487
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization.............. 27,566 22,493 18,685
Deferred taxes............................. 8,837 (2,997) 4,104
Other changes in assets and liabilities:
Accounts receivable................... (15,840) (11,962) 2,135
Inventory............................. (10,381) (15,430) 1,127
Deferred gas costs.................... (24,933) (26,994) 2,792
Deferred post-retirement benefits..... 312 (5,000) (5,400)
Accounts payable...................... (198) 4,334 2,105
Accrued interest...................... (317) 271 615
Federal and state income taxes........ (998) 9,083 234
Refunds due customers................. (5,032) 1,263 (2,107)
Other................................. (3,844) 3,867 (2,095)
-------- -------- --------
Cash (used for) provided by operating activities..... (5,414) 6,636 37,682
-------- -------- --------
Cash flows used for investing activities:
Capital expenditures.................. (47,057) (51,136) (57,400)
Net cost of removal................... (4,328) (8,096) (3,530)
-------- -------- --------
Cash used for investing activities................... (51,385) (59,232) (60,930)
-------- -------- --------
Cash flows from financing activities:
Capital contribution from parent...... 20,000 -- --
Changes in notes payable, net......... 52,968 (307) 13,104
Changes in inventory financing........ 10,666 17,461 (4,021)
Proceeds from issuance of long-term
debt................................ -- 28,000 25,000
Repayment of long-term debt........... (20,480) (10,030) (1,466)
Proceeds from issuance of preferred
stock............................... (240) 29,436 --
Cash dividends paid on common and
preferred stock..................... (10,255) (8,089) (8,150)
-------- -------- --------
Cash provided by financing activities................ 52,659 56,471 24,467
-------- -------- --------
Increase (decrease) in cash and cash
equivalents(1)..................................... (4,140) 3,875 1,219
Cash and cash equivalents at beginning of year....... 5,300 1,425 206
-------- -------- --------
Cash and cash equivalents at end of year............. $ 1,160 $ 5,300 $ 1,425
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts
capitalized......................... $ 18,559 $ 17,461 $ 14,661
Income taxes.......................... $ 7,813 $ 6,372 $ 4,246
- ---------------
(1) For the purposes of this statement of cash flows, the Company considers
highly liquid investment instruments purchased with a maturity of three
months or less to be cash equivalents.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
21
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
The significant accounting policies followed by the Company and its
subsidiary are described below and in the following footnotes:
Note 2--Cost of Gas Adjustment Clause and Deferred Gas Costs
Note 3--Income Taxes
Note 6--Pension Benefits
Note 7--Post-Retirement Benefits Other Than Pensions
Note 8--Leases
Principles of Consolidation
The Company is a wholly-owned subsidiary of Eastern Enterprises
("Eastern"). The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Massachusetts LNG Incorporated ("Mass
LNG"). All material intercompany balances and transactions between the Company
and its subsidiary have been eliminated in consolidation.
Depreciation
Depreciation is provided at rates designed to amortize the cost of
depreciable property, plant and equipment over their estimated remaining useful
lives. The composite depreciation rate, expressed as a percentage of the average
depreciable property in service, was 3.98% in 1993, 3.80% in 1992 and 3.79% in
1991.
Accumulated depreciation is charged with the original cost and cost of
removal, less salvage value, of units retired. Expenditures for repairs, upkeep
of units of property and renewal of minor items of property replaced
independently of the unit of which they are a part are charged to maintenance
expense as incurred.
Gas Operating Revenues
Gas operating revenues are recorded when billed. Revenue is not recorded
for the amount of gas distributed to customers which is unbilled at the end of
the period; however, the cost of this gas is deferred as discussed in Note 2.
(2) COST OF GAS ADJUSTMENT CLAUSE AND DEFERRED GAS COSTS
The cost of gas adjustment clause requires the Company to adjust its rates
semiannually for firm gas sales in order to track changes in the cost of gas
distributed with an annual adjustment of subsequent rates for any collection
over or under actual costs incurred. As a result, the Company defers the cost of
any firm gas that has been distributed, but is unbilled at the end of a period,
to a period in which the gas is billed to customers. The cost of gas adjustment
clause also recovers the amortization of all environmental response costs
associated with former manufactured gas plant ("MGP") sites and costs related to
the Company's various conservation and load management programs.
In May of 1992, the Company modified the cost of gas adjustment clause
shifting a portion of pipeline gas costs from the non-heating to the heating
season in order to more closely match revenues with the related costs.
(3) INCOME TAXES
The Company is a member of an affiliated group of companies which files a
consolidated federal income tax return. The Company follows the policy,
established for the group, of providing for income taxes which would be payable
on a separate company basis. The Company's effective income tax rate was 38.4%
in 1993,
F-7
22
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INCOME TAXES (CONTINUED)
39.4% in 1992 and 36.2% in 1991. State taxes represent the majority, or 4.3%,
4.6% and 4.8% of the difference between the effective rate and the Federal
income tax rate for 1993, 1992 and 1991, respectively.
A summary of the provision for income taxes for the three years ended
December 31 is as follows:
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
Current--
Federal..................... $ 4,063 $ 12,128 $4,471
State....................... 771 2,410 1,127
4,834 14,538 5,598
-------- -------- ------
Deferred--
Federal..................... 5,951 2,711 2,526
State....................... 1,320 746 646
-------- -------- ------
7,271 3,457 3,172
-------- -------- ------
$ 12,105 $ 17,995 $8,770
======== ======== ======
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS
109 requires adjustment of deferred tax assets and liabilities to reflect the
future tax consequences, at currently enacted rates, of items already reflected
in the financial statements. A regulatory asset of $1,880,000 was established
for the recovery of prepaid taxes established at the higher federal tax rates in
effect prior to 1988. In its most recent rate request proceeding, the Company
received permission to recover this amount over three years. A regulatory
liability of $6,144,000 was established for the tax benefit of unamortized
investment tax credits, which SFAS 109 requires to be treated as a temporary
difference. This benefit will be passed on to customers over the lives of
property giving rise to the investment credits, consistent with the 1986 Tax
Reform Act. About 38% of each of these items reflect a "gross-up" for taxes as
SFAS 109 eliminated net-of tax accounting for regulatory assets and liabilities.
The regulatory liability for excess deferred taxes being returned to customers
over a 30 year period pursuant to a 1988 rate order was similarly increased by
$4,445,000 upon the adoption of SFAS 109.
The Revenue Reconciliation Act of 1993, enacted on August 10, 1993,
increased the statutory Federal income tax rate from 34% to 35%, retroactive to
January 1, 1993. The provision for income taxes in 1993 includes approximately
$300,000 for the impact of the rate change on current earnings. The effect of
the rate change on deferred tax requirements at January 1, 1993 is reflected in
the regulatory asset and liability established at the adoption of SFAS 109.
For income tax purposes, the Company uses accelerated depreciation and
shorter depreciation lives permitted by the Internal Revenue Service. Deferred
federal and state taxes are provided for the tax effects of all temporary
differences between financial reporting and taxable income. Significant items
making up deferred tax liabilities and deferred tax assets at December 31, 1993
and 1992, are as follows:
1993 1992
---- ----
(IN THOUSANDS)
ASSETS:
Unbilled revenues........................... $ 30,924 $ 21,878
Regulatory liabilities...................... 5,494 6,797
Reserve for uncollectible receivables....... 5,302 4,368
Other....................................... 6,765 6,697
-------- --------
Total deferred tax assets................... $ 48,485 $ 39,740
-------- --------
F-8
23
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1993 1992
---- ----
(IN THOUSANDS)
(3) INCOME TAXES (CONTINUED)
LIABILITIES:
Accelerated depreciation.................... $ 69,558 $ 61,546
Deferred gas costs.......................... 23,861 15,526
Other....................................... 13,967 11,059
--------- ---------
Total deferred tax liabilities.............. $ 107,386 $ 88,131
--------- ---------
Total net deferred taxes.................... $ 58,901 $ 48,391
========= =========
During 1991, deferred income taxes were provided for significant timing
differences in the recognition of revenue and expenses for tax and financial
statement purposes. The principal component of the 1991 deferred provision was
$2,308,000 for accelerated depreciation, partially offset by a credit of
$1,021,000 for deferred gas costs.
Investment tax credits are deferred and credited to income over the lives
of the property giving rise to such credits. The credit to income was
approximately $689,000 in 1993, $673,000 in 1992 and $692,000 in 1991.
(4) COMMITMENTS
Long-term Obligations
The following table provides information on long-term obligations, less the
current portion, as of December 31, 1993 and 1992, respectively.
DECEMBER 31,
-----------------
1993 1992
---- ----
(IN THOUSANDS)
First Mortgage Bonds--
8.375% Series, due 1996.......................... $ 2,880 $ 3,360
Debentures--
7.95% Series, due 1997........................... 2,775 3,142
8.75% Series, due 2001........................... 30,000 30,000
9.00% Series, due 2001........................... 30,000 50,000
Medium-Term Notes--
8.87% Series due 2005............................ 15,000 15,000
9.68% Series due 2010............................ 10,000 10,000
8.95% Series due 2011............................ 10,000 10,000
8.97% Series due 2019............................ 7,000 7,000
9.75% Series due 2020............................ 5,000 5,000
9.00% Series due 2011............................ 10,000 10,000
9.05% Series due 2021............................ 15,000 15,000
8.33% Series due 2017............................ 8,000 8,000
8.33% Series due 2018............................ 10,000 10,000
8.33% Series due 2022............................ 10,000 10,000
Capital Lease Obligations (Note 8)................. 5,690 7,008
-------- --------
$171,345 $193,510
======== ========
The First Mortgage Bonds are secured by a first mortgage lien on a portion
of the Company's utility properties and franchises. The annual sinking fund
requirement for the 8.375% First Mortgage Bonds is $480,000.
F-9
24
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) COMMITMENTS (CONTINUED)
The 7.95% Sinking Fund Debentures have an annual sinking fund requirement
of $425,000. The 9.0% and 8.75% Sinking Fund Debentures require annual sinking
fund payments of $5,000,000 and $3,000,000, respectively, beginning in 1997.
On October 28, 1992, the Company filed a Shelf registration covering the
issuance of up to $50,000,000 of additional Medium-Term Notes through December
31, 1994 for the financing of capital expenditures and the payment of related
obligations. In January 1994 the Company issued $36,000,000 of Medium-Term Notes
with maturities of 20 - 30 years and an average weighted interest rate of 6.94%.
The aggregate consolidated annual sinking fund requirements, less amounts
acquired in advance, and current maturities of long-term debt (excluding capital
leases) for the next five years are as follows:
YEAR AMOUNT
---- ------
(IN THOUSANDS)
1994.............. 847
1995.............. 905
1996.............. 2,825
1997.............. 9,925
1998.............. 8,000
The terms of the various indentures referred to above, as supplemented,
provide that dividends may not be paid on common stock of the Company under
certain conditions. At December 31, 1993 there were no restrictions on retained
earnings available for payment of dividends.
Gas Inventory Financing
Under the terms of the general rate order issued by the Department of
Public Utilities (the Department) effective October 1, 1988, the Company funds
all of its inventory of gas supplies through external sources. All costs related
to this funding are recoverable from its customers. The Company maintains a
credit agreement with a group of banks which provides for the borrowing of up to
$90,000,000 for the exclusive purpose of funding its inventory of gas supplies
or for backing commercial paper issued for the same purpose. The Company had
$59,297,000 and $48,631,000 of commercial paper outstanding at December 31, 1993
and 1992, respectively, for this purpose. Since the commercial paper is
supported by the credit agreement, these borrowings have been classified as
non-current in the accompanying consolidated balance sheets. The credit
agreement includes a 364 day revolving credit which may be converted to a
two-year term loan at the Company's option if the 364 day revolving credit is
not renewed by the banks. The Company may select interest rate alternatives
based on prime or Eurodollar rates. No borrowings were outstanding under this
agreement at December 31, 1993 and no borrowings were outstanding under the
prior $60,000,000 credit agreement at December 31, 1992.
Notes Payable
The Company maintains four committed lines of credit totaling $40,000,000
which provide for interest at either prime rate or money market rates. The
Company pays facility fees related to these lines of credit. In addition, the
Company has various uncommitted lines of credit which provide for interest at
the federal funds, money market or prime rates. These lines of credit are used
for short-term borrowings. The Company had outstanding borrowings of
$106,300,000 and $53,332,000 in commercial paper and bank loans not related to
gas inventory financing at December 31, 1993 and 1992, respectively.
F-10
25
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) COMMITMENTS (CONTINUED)
Eastern Borrowing Arrangement
Eastern has a credit agreement with a group of banks which provides for the
borrowing by Eastern and its subsidiaries of up to $60,000,000 (of which the
Company may borrow up to $35,000,000) at any time through December 31, 1994,
with borrowings thereunder maturing not later than December 31, 1995. The
interest rate for such borrowings is the agent bank's prime rate, or at
Eastern's option, 1/4 of 1% over the agent bank's Eurodollar rate or 3/8 of 1%
over the agent bank's certificate of deposit rate. Eastern has the option until
December 31, 1994 to convert up to $25,000,000 of the total commitment to a
five-year term loan arrangement with the same interest rate provisions through
1994 and thereafter with interest of 1/8 of 1% over the agent bank's prime rate
or 5/8 of 1% over the agent bank's Eurodollar rate or 7/8 of 1% over the agent
bank's certificate of deposit rate. The credit agreement provides, among other
things, for a commitment fee of 1/4 of 1% on the first $50,000,000 unused
portion of the commitment and 3/16 of 1% on the unborrowed portion of the
commitment greater than $50,000,000.
Eastern also has a $10,000,000 line of credit under which the Company is
entitled to borrow which provides for interest at the prime rate, or at
Eastern's option, rates tied to Eurodollar, certificate of deposit or money
market quotes.
(5) VARIABLE TERM CUMULATIVE PREFERRED STOCK
On July 13, 1993, the Company selected a Final Term which is a Mandatory
Redemption Term with respect to its Variable Term Cumulative Preferred Stock,
Series A. The dividend rate during the Final Term is 6.421% per annum and
dividends are paid quarterly. The Final Term calls for 5% annual sinking fund
payments beginning on September 1, 1999, is non-callable for 10 years, and shall
end on September 1, 2018.
(6) PENSION BENEFITS
The Company, through retirement plans under collective bargaining
agreements and participation in Eastern's pension plans, provides retirement
benefits for substantially all of its employees. The benefits under these plans
are based on stated amounts for years of service or employee's average
compensation during the five years prior to retirement. The Company follows a
policy of funding retirement and employee benefit plans in accordance with the
requirements of the plans and agreements in sufficient amounts to satisfy the
"Minimum Funding Standards" of the Employee Retirement Income Security Act of
1974 ("ERISA").
Net pension cost included the following components:
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
Service cost-benefits earned during the year........ $ 2,331 $2,072 $ 2,043
Interest cost on projected benefit obligation....... 7,304 6,735 6,427
Actual return on plan assets........................ (15,984) (9,491) (20,122)
Net amortization and deferral....................... 7,105 1,666 13,665
------- ------ -------
Net pension cost.................................... $ 756 $ 982 $ 2,013
======= ====== =======
The expected long-term rate of return on assets was 8.5% in 1993 and 1992
and 7.5% in 1991. The discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5% for 1993 as well as for prior
years. The rate of increase in future compensation levels was 5.0%.
F-11
26
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) PENSION BENEFITS (CONTINUED)
The following table sets forth the funded status of pension plans and
amounts recognized in the Company's consolidated balance sheets based on a
measurement date as of October 1, 1993 and 1992.
1993 1992
---- ----
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $83,759 in 1993 and $78,381 in 1992...... $ 92,226 $ 85,735
========= ========
Projected benefit obligation for service rendered to
date................................................. $(103,154) $(96,355)
Plan assets at fair value, primarily listed stocks,
corporate bonds and U.S. bonds....................... 114,711 110,085
--------- --------
Plan assets in excess of projected benefit
obligation........................................... 11,557 13,730
Unrecognized net obligation at January 1, 1986 being
recognized over 15 years............................. 1,522 1,738
Unrecognized net gain.................................. (18,164) (12,215)
Unrecognized prior service cost........................ 15,096 7,014
--------- --------
Net pension asset...................................... $ 10,011 $ 10,267
========= ========
(7) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company, through
participation in Eastern administered plans and welfare plans under collective
bargaining agreements, provides certain health care and life insurance benefits
for retired employees.
Effective January 1, 1991, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions," by immediately recognizing the
cumulative effect of the accounting change. SFAS 106 requires that the expected
cost of post-retirement benefits other than pensions be charged to expense
during the period that the employee renders service. As of the date of adoption,
the cumulative effect of the accounting change ("transition obligation") was,
$89,120,000. With approval by the Department, the Company has deferred the cost
of the transition obligation and the amount by which expense under SFAS 106
exceeds amounts currently included in rates. The 1993 rate order allows the
Company to phase in incremental costs associated with SFAS 106 over a four-year
period. Each year during the phase-in, the Company will file for an increase in
rates to reflect an additional increment of SFAS 106 costs. The difference
between the incremental annual amount allowed in rates during the phase-in
period and the SFAS 106 costs will be deferred as a regulatory asset with
carrying costs.
Net post-retirement benefit cost included the following components:
1993 1992 1991
---- ---- ----
(IN THOUSANDS)
Service cost-benefits earned during the year......... $ 1,301 $ 1,096 $ 1,043
Interest cost on accumulated benefit obligation...... 7,021 7,824 7,518
Net amortization and deferral of actuarial gains and
losses............................................. (1,235) 239 --
Actual return on plan assets......................... (282) (173) --
------- ------- -------
Post-retirement benefit cost......................... 6,805 8,986 8,561
Amount charged to regulatory asset................... (2,368) (4,876) (5,130)
------- ------- -------
Net post-retirement benefit cost..................... $ 4,437 $ 4,110 $ 3,431
======= ======= =======
F-12
27
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
Prior to the 1993 rate order, the Company recognized as expense and
recovered through rates billed to customers the cost of post-retirement benefits
on a claims paid basis. Such costs totalled $4,437,000 in 1993, $4,110,000 in
1992 and $3,431,000 in 1991.
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets based on a measurement
date as of October 1, 1993 and October 1, 1992.
1993 1992
---- ----
(IN THOUSANDS)
Retirees..................................................... $(50,561) $(61,418)
Other fully eligible participants............................ (7,943) (11,981)
Other active participants.................................... (13,523) (26,373)
-------- --------
(72,027) (99,772)
Plan assets at fair value.................................... 10,856 5,573
-------- --------
Accumulated post-retirement benefits obligation in excess of
plan assets................................................ (61,171) (94,199)
Unrecognized actuarial loss (gain)........................... (15,997) 4,677
Unrecognized prior service costs............................. (14,787) (5,065)
Amounts contributed to plans in the fourth quarter of 1992... -- 5,000
-------- --------
Accrued post-retirement benefits............................. $(91,955) $(89,587)
======== ========
The Company established a 501(c)(9) Voluntary Employee Beneficiary
Association ("VEBA") Trust in 1991 to begin funding its post-retirement benefit
obligation for collectively bargained employees. The Company contributed
$5,000,000 in 1992 to the VEBA.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% in 1993 and 1992. A 12% and 15%
annual increase in the cost of covered health care benefits was assumed for 1993
and 1992, respectively. This rate of increase is assumed to drop gradually to 5%
after 7 years. A 1% increase in the assumed health care cost trend would have
increased the post-retirement benefit cost by $489,000 and $1,056,000 and the
accumulated post-retirement benefit obligation by $5,691,000 in 1993 and
$9,164,000 in 1992.
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112 ("SFAS 112"), "Employer's Accounting
for Postemployment Benefits", which establishes standards of financial
accounting and reporting for certain postemployment benefit obligations. The
adoption of SFAS 112 is not expected to have a material effect on the Company's
financial condition or results of operations. SFAS 112 is effective for fiscal
years beginning after December 15, 1993.
(8) LEASES
The Company and its subsidiary lease certain facilities and equipment under
long-term leases which expire on various dates through the year 2000. Total
rentals charged to income under all lease agreements were approximately
$7,663,000 in 1993, $6,939,000 in 1992 and $6,417,000 in 1991.
F-13
28
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) LEASES (CONTINUED)
The Company capitalizes its financing leases which include liquefied
natural gas facilities and an operations center. A summary of property held
under capital leases as of December 31, 1993 and 1992 is as follows:
1993 1992
---- ----
(IN THOUSANDS)
LNG facilities..................................... $15,600 $15,600
Buildings.......................................... 6,000 6,000
------- -------
21,600 21,600
Less--Accumulated depreciation..................... 14,592 13,361
------- -------
$ 7,008 $ 8,239
======= =======
Under the terms of SFAS 71, the timing of expense recognition on
capitalized leases should conform with regulatory rate treatment. The Company
has included the rental payments on its financing leases in its cost of service
for rate purposes. Therefore, the total depreciation and interest expense that
was recorded on the leases was equal to the rental payments included in other
operating and maintenance expense in the accompanying consolidated statements of
income.
The Company also has various operating lease agreements for office
facilities and other equipment. The remaining minimum rental commitment for
these and all other noncancellable leases, including the financing leases, at
December 31, 1993 is as follows:
CAPITAL OPERATING
YEAR LEASES LEASES
---- ------- -------
(IN THOUSANDS)
1994............................................... $1,852 $ 4,320
1995............................................... 1,853 4,126
1996............................................... 1,854 3,350
1997............................................... 1,269 1,622
1998............................................... 684 324
Later Years........................................ 1,430 --
------ -------
Total minimum lease payments....................... $8,942 $13,742
=======
Less--Amount representing interest and executory
costs............................................ 1,934
------
Present value of minimum lease payments on capital
leases........................................... $7,008
======
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
Cash and Short-term Investments
The carrying amounts approximate fair value because of the short maturity
of those instruments.
Short-term Debt
The carrying amounts of the Company's short-term debt, including notes
payable and gas inventory financing, approximate their fair value.
Long-term Debt
The fair value of long-term debt is estimated based on currently quoted
market prices for similar types of borrowing arrangements.
F-14
29
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Preferred Stock
The fair value of the preferred stock for 1993 is based on currently quoted
market prices. For 1992 the carrying amount approximates fair value because of
the frequency with which dividend rates were reset.
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1993 are as follows:
1993 1992
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and short-term investments.......... $ 1,160 $ 1,160 $ 5,300 $ 5,300
Short-term debt.......................... $165,597 $165,597 $101,963 $101,963
Long-term debt........................... $173,510 $197,114 $195,222 $208,436
Preferred stock.......................... $ 29,197 $ 30,600 $ 29,436 $ 29,436
(10) SUPPLEMENTARY INFORMATION
The Company paid Eastern $3,096,000 in 1993, $2,707,000 in 1992 and
$2,520,000 in 1991 for various legal, tax and corporate services rendered.
(11) SIGNIFICANT CUSTOMER
Firm and non-firm sales to a single customer produced revenues totaling
$24,800,000 in 1993, $13,900,000 in 1992 and $18,500,000 in 1991, or 4.0%, 2.3%
and 3.5% of total revenues in 1993, 1992 and 1991, respectively.
(12) ENVIRONMENTAL ISSUES
The Company is subject to local, state and federal environmental regulation
of its operations and properties. The Company is working with the Massachusetts
Department of Environmental Protection ("DEP") to determine the environmental
impact, if any, of by-products associated with 13 former manufactured gas plant
("MGP") properties which the Company currently owns and for which the Company
may be potentially responsible. The Company is currently assessing seven of
these properties pursuant to applicable DEP procedures. The Company expects to
spend approximately $1 million in assessing these properties in 1994 and expects
similar expenditures for site assessment for the next several years as other
properties are investigated. Since the DEP has not yet approved a remediation
plan for any Company site, the Company cannot reliably predict the potential
liability associated with final remediation of any of these properties. Company
experience to date indicates that assessment and remediation costs of at least
$18 million could be incurred over the next several years at these thirteen
properties, subject to possible contribution or the assumption of responsibility
by New England Electric System ("NEES") or one of its subsidiaries as discussed
below.
Massachusetts Electric Company, a wholly-owned subsidiary of NEES, has
assumed responsibility for remediating a fourteenth property currently owned by
the Company (part of the site of gas manufacturing operations in Lynn,
Massachusetts) pursuant to the decision of the Court of Appeals for the First
Circuit in The John S. Boyd, Inc., et al. v. Boston Gas Company, et al, Civil
Action No. 89-575-T (May 26, 1993). The First Circuit found that NEES and its
subsidiaries, as the prior owners and operators of the Lynn MGP site, were
responsible for remediating the site and that the Company did not assume any
liability for environmental remediation when it acquired the property from NEES
in 1973. Of the 13 other sites currently owned by the Company, 10 were acquired
from NEES. Given substantial similarities between these acquisitions and that
involved in Boyd, it is not probable that the Company will have any material
exposure for environmental remediation at these 10 sites.
F-15
30
BOSTON GAS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) ENVIRONMENTAL ISSUES (CONTINUED)
There are 23 other former MGP sites within the Company's service territory
which the Company does not currently own. The DEP has not issued a Notice of
Responsibility to the Company for any of these 23 sites. At this time, there is
substantial uncertainty as to whether the Company is responsible for remediating
any of these sites either because the Company never owned the site, the Company
does not have successor liability for contamination of the site by earlier
operators, or site conditions do not require remediation by the Company.
By an order issued on May 25, 1990, the Department approved a settlement
agreement which provides for the recovery through the cost of gas adjustment
clause of all environmental response costs associated with former MGP sites over
separate, seven-year amortization periods without a return on the unamoritized
balance. The settlement agreement also provides for no further investigation of
the prudency of any Massachusetts gas utility's past MGP operations.
(13) PIPELINE TRANSITION COSTS
Pursuant to Federal Energy Regulatory Commission ("FERC") Order No. 636,
pipelines will be allowed to recover prudently incurred transition costs,
including (1) gas supply realignment costs or the costs of renegotiating
existing gas supply contracts with producers; (2) unrecovered purchased gas
adjustment costs or unrecovered gas costs at the time the pipelines ceased the
merchant function; (3) stranded costs or the unrecovered costs of assets that
cannot be assigned to customers of unbundled services; and (4) new facilities
costs or the costs of new facilities required to physically implement the order.
The Company's obligation for transition costs is $30.6 million and it has
recorded this amount less actual billings at December 31, 1993 of $6.3 million
as a liability in the accompanying consolidated balance sheet. As pipelines
continue to incur and file for recovery of transition costs, the Company's
obligation may increase.
The Company's obligation to Tennessee for transition costs is $12.0
million, based on filings by Tennessee at FERC. Payments to Tennessee for such
costs commenced in October 1993. The Company's obligations to Texas Eastern and
Algonquin for transition costs is $18.6 million, based on filings by Texas
Eastern and Algonquin at FERC. Payments to Texas Eastern and Algonquin began in
July 1993.
The Department has allowed recovery of the Company's transition costs
liability over a five-year period commencing in May 1994. Accordingly, the
Company has recorded a regulatory asset equivalent to the liability established
at December 31, 1993.
F-16
31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Boston Gas Company:
We have audited the accompanying consolidated balance sheets of Boston Gas
Company (a Massachusetts Corporation and wholly-owned subsidiary of Eastern
Enterprises) and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of earnings, retained earnings and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Boston Gas Company and
subsidiary as of December 31, 1993 and 1992 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to
consolidated financial statements and schedules are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not a part
of the basic financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
Boston, Massachusetts
February 4, 1994
F-17
32
BOSTON GAS COMPANY AND SUBSIDIARY
INTERIM FINANCIAL INFORMATION
FOR THE TWO YEARS ENDED DECEMBER 31, 1993 (UNAUDITED)
The following table summarizes the Company's reported quarterly information
for the years ended December 31, 1993 and 1992:
THREE MONTHS ENDED
----------------------------------------------
SEPT.
MARCH 31 JUNE 30 30 DEC. 31
-------- -------- ------- --------
(IN THOUSANDS)
1993
Operating revenues............................. $258,226 $128,567 $66,606 $160,895
Operating margin............................... 95,282 49,209 29,047 65,653
Operating earnings (loss)...................... 27,357 4,446 (5,521) 10,675
Net earnings (loss) applicable to common
stock........................................ 22,372 (182) (9,891) 5,726
1992
Operating revenues............................. $250,701 $122,093 $70,707 $150,829
Operating margin............................... 101,119 49,210 29,295 57,009
Operating earnings (loss)...................... 32,900 7,568 (3,775) 8,432
Net earnings (loss) applicable to common
stock........................................ 28,254 3,247 (8,203) 4,005
The above amounts vary significantly due to the seasonality of the Company's
business.
F-18
33
SCHEDULE V
BOSTON GAS COMPANY AND SUBSIDIARY
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
ADDITIONS
TO TRANSFERS
BALANCE, UTILITY AND OTHER BALANCE,
DECEMBER 31, PLANT, SALES AND DEBITS DECEMBER 31,
CLASSIFICATION 1992 AT COST RETIREMENTS (CREDITS) 1993
- --------------------------------------- ------------ --------- ----------- --------- ------------
GAS UTILITY:
Land and rights-of-way............... $ 4,223 $ (161) $ -- $ -- $ 4,062
Structures........................... 29,284 2,462 516 -- 31,230
Street mains......................... 253,110 13,104 565 -- 265,649
Transportation equipment............. 4,761 126 152 -- 4,735
Other equipment...................... 293,835 21,499 10,952 -- 304,382
Construction work-in-progress........ 186 7,945 -- -- 8,131
Intangible plant..................... 38,341 2,082 1,072 -- 39,351
Miscellaneous property (not used in
operations)....................... 171 -- -- -- 171
-------- ------- ------- -------- --------
Total utility property.......... $623,911 $47,057 $13,257 $ -- $657,711
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
ADDITIONS
--------------------- DEDUCTIONS
BALANCE, CHARGED FROM RESERVES BALANCE,
DECEMBER 31, CHARGED TO OTHER --------------------- DECEMBER 31,
CLASSIFICATION 1992 TO INCOME ACCOUNTS RETIREMENTS OTHER 1993
- -------------------------------- ------------ --------- -------- ----------- ------ ------------
TOTAL GAS UTILITY
PROPERTY...................... $182,550 $28,255 $1,232 $12,426 $4,327 $195,284
-------- ------- ------ ------- ------ --------
-------- ------- ------ ------- ------ --------
F-19
34
SCHEDULE V
BOSTON GAS COMPANY AND SUBSIDIARY
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
ADDITIONS TRANSFERS
BALANCE, TO UTILITY AND OTHER BALANCE,
DECEMBER 31, PLANT, SALES AND DEBITS DECEMBER 31,
CLASSIFICATION 1991 AT COST RETIREMENTS (CREDITS) 1992
- ------------------------------- ------------ ---------- ----------- --------- ------------
GAS UTILITY:
Land and rights-of-way....... $ 3,920 $ 303 $ -- $ -- $ 4,223
Structures................... 23,412 6,065 193 -- 29,284
Street mains................. 228,599 25,620 1,109 -- 253,110
Transportation equipment..... 6,127 47 1,413 -- 4,761
Other equipment.............. 271,081 27,639 4,885 -- 293,835
Construction
work-in-progress.......... 35,839 (35,653) -- -- 186
Intangible plant............. 11,191 27,150 -- -- 38,341
Miscellaneous property (not
used in operations)....... 206 (35) -- -- 171
------------ ---------- ----------- --------- ------------
Total utility
property............. $580,375 $ 51,136 $ 7,600 $ -- $623,911
------------ ---------- ----------- --------- ------------
------------ ---------- ----------- --------- ------------
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
ADDITIONS
-------------------- DEDUCTIONS
BALANCE, CHARGED FROM RESERVES BALANCE,
DECEMBER 31, CHARGED TO OTHER -------------------- DECEMBER 31,
CLASSIFICATION 1991 TO INCOME ACCOUNTS RETIREMENTS OTHER 1992
---------------------- ------------ --------- -------- ----------- ------ ------------
TOTAL GAS UTILITY
PROPERTY............ $173,927 $23,166 $1,345 $ 7,600 $8,288 $182,550
------------ --------- -------- ----------- ------ ------------
------------ --------- -------- ----------- ------ ------------
F-20
35
SCHEDULE V
BOSTON GAS COMPANY AND SUBSIDIARY
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS)
ADDITIONS
TO TRANSFERS
BALANCE, UTILITY AND OTHER BALANCE,
DECEMBER 31, PLANT, SALES AND DEBITS DECEMBER 31,
CLASSIFICATION 1990 AT COST RETIREMENTS (CREDITS) 1991
- --------------------------------------- ------------ --------- ----------- --------- ------------
GAS UTILITY:
Land and rights-of-way............... $ 3,920 $ -- $-- $ -- $ 3,920
Structures........................... 21,829 1,624 41 -- 23,412
Street mains......................... 210,689 18,890 980 -- 228,599
Transportation equipment............. 8,286 155 2,314 -- 6,127
Other equipment...................... 251,344 26,436 6,699 -- 271,081
Construction work-in-progress........ 25,993 9,846 -- -- 35,839
Intangible plant..................... 10,771 449 29 -- 11,191
Miscellaneous property (not used in
operations)....................... 206 -- -- -- 206
------------ --------- ----------- --------- ------------
Total utility property.......... $533,038 $57,400 $10,063 $ -- $580,375
------------ --------- ----------- --------- ------------
------------ --------- ----------- --------- ------------
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS)
ADDITIONS
--------------------- DEDUCTIONS
BALANCE, CHARGED FROM RESERVES BALANCE,
DECEMBER 31, CHARGED TO OTHER --------------------- DECEMBER 31,
CLASSIFICATION 1990 TO INCOME ACCOUNTS RETIREMENTS OTHER 1991
- -------------------------------- ------------ --------- -------- ----------- ------ ------------
TOTAL GAS UTILITY
PROPERTY...................... $167,012 $19,378 $1,173 $10,063 $3,573 $173,927
------------ --------- -------- ----------- ------ ------------
------------ --------- -------- ----------- ------ ------------
F-21
36
SCHEDULE VIII
BOSTON GAS COMPANY AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
ADDITIONS
--------------------- NET
BALANCE, CHARGED DEDUCTIONS BALANCE,
DECEMBER 31, CHARGED TO OTHER FROM DECEMBER 31,
DESCRIPTION 1992 TO INCOME ACCOUNTS RESERVES 1993
- ---------------------------------------- ------------ --------- -------- ---------- ------------
RESERVES DEDUCTED FROM ASSETS:
Reserves for doubtful accounts........ $ 11,408 $13,127 $ -- $ 11,017 $ 13,518
------------ --------- -------- ---------- ------------
------------ --------- -------- ---------- ------------
RESERVES NOT DEDUCTED FROM ASSETS:
Accumulated deferred income taxes..... $ 52,724 $ 7,532 $ 3,057 $ 1,752 $ 61,561
------------ --------- -------- ---------- ------------
Deferred investment tax credits....... $ 10,116 $ -- $ -- $ 689 $ 9,427
------------ --------- -------- ---------- ------------
Post-retirement benefit cost.......... $ 89,587 $ -- $ 6,805 $ 4,437 $ 91,955
------------ --------- -------- ---------- ------------
Other reserves and deferred credit--
Reserve for self-insurance....... 2,354 1,124 -- 1,208 2,270
FAS 109 Regulatory Liability..... 6,144 (440) -- 192 5,512
Deferred net normalization
surplus....................... 11,340 (422) -- 2,424 8,494
Other............................ 5,856 4,530 4,443 8,981 5,848
------------ --------- -------- ---------- ------------
Total other reserves and
deferred credits............ 25,694 4,792 4,443 12,805 22,124
------------ --------- -------- ---------- ------------
Total reserves not deducted
from assets................. $178,121 $12,324 $ 14,305 $ 19,683 $185,067
------------ --------- -------- ---------- ------------
------------ --------- -------- ---------- ------------
F-22
37
SCHEDULE VIII
BOSTON GAS COMPANY AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)
ADDITIONS
--------------------- NET
BALANCE, CHARGED DEDUCTIONS BALANCE,
DECEMBER 31, CHARGED TO OTHER FROM DECEMBER 31,
DESCRIPTION 1991 TO INCOME ACCOUNTS RESERVES 1992
- ---------------------------------------- ------------ --------- -------- ---------- ------------
RESERVES DEDUCTED FROM ASSETS:
Reserves for doubtful accounts........ $ 10,020 $12,444 $ -- $ 11,056 $ 11,408
------------ --------- -------- ---------- ------------
------------ --------- -------- ---------- ------------
RESERVES NOT DEDUCTED FROM ASSETS:
Accumulated deferred income taxes..... $ 55,721 $(2,997) $ -- $ -- $ 52,724
------------ --------- -------- ---------- ------------
Deferred investment tax credits....... $ 10,789 $ -- $ -- $ 673 $ 10,116
------------ --------- -------- ---------- ------------
Post-retirement benefit cost.......... $ 89,711 $ -- $ 8,986 $ 9,110 $ 89,587
------------ --------- -------- ---------- ------------
Other reserves and deferred credits--
Reserve for self-insurance....... 3,199 1,732 -- 2,577 2,354
FAS 109 Regulatory Liability..... -- -- 6,144 -- 6,144
Deferred net normalization
surplus....................... 7,164 -- 4,445 269 11,340
Other............................ 5,581 9,355 -- 9,080 5,856
------------ --------- -------- ---------- ------------
Total other reserves and
deferred credits............ 15,944 11,087 10,589 11,926 25,694
------------ --------- -------- ---------- ------------
Total reserves not deducted
from assets................. $172,165 $ 8,090 $ 19,575 $ 21,709 $178,121
------------ --------- -------- ---------- ------------
------------ --------- -------- ---------- ------------
F-23
38
SCHEDULE VIII
BOSTON GAS COMPANY AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS)
ADDITIONS
--------------------- NET
BALANCE, CHARGED DEDUCTIONS BALANCE,
DECEMBER 31, CHARGED TO OTHER FROM DECEMBER 31,
DESCRIPTION 1990 TO INCOME ACCOUNTS RESERVES 1991
- ---------------------------------------- ------------ --------- -------- ---------- ------------
RESERVES DEDUCTED FROM ASSETS:
Reserves for doubtful accounts........ $ 6,263 $14,072 $ -- $ 10,315 $ 10,020
------------ --------- -------- ---------- ------------
------------ --------- -------- ---------- ------------
RESERVES NOT DEDUCTED FROM ASSETS:
Accumulated deferred income taxes..... $ 51,348 $ 4,373 $ -- $ -- $ 55,721
------------ --------- -------- ---------- ------------
Deferred investment tax credits....... $ 11,481 $ -- $ -- $ 692 $ 10,789
------------ --------- -------- ---------- ------------
Post-retirement benefit cost.......... $ 1,031(1) $ (156) $ 94,250 $ 5,414 $ 89,711
------------ --------- -------- ---------- ------------
Other reserves and deferred credits--
Reserve for self-insurance....... 3,815(1) 1,037 -- $ 1,653 $ 3,199
FAS 87 minimum liability......... 9,423 -- (9,423) -- --
Deferred net normalization
surplus....................... 7,433 -- -- 269 7,164
Other............................ 7,875 5,623 4,522 12,439 5,581
------------ --------- -------- ---------- ------------
Total other reserves and
deferred credits............ 28,546 6,660 (4,901) 14,361 15,944
------------ --------- -------- ---------- ------------
Total reserves not deducted
from assets................. $ 92,406 $10,877 $ 89,349 $ 20,467 $172,165
------------ --------- -------- ---------- ------------
------------ --------- -------- ---------- ------------
- ---------------
(1) Reclassified from other accounts
F-24
39
SCHEDULE IX
BOSTON GAS COMPANY AND SUBSIDIARY
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
(IN THOUSANDS)
WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE AMOUNT AMOUNT AVERAGE
BALANCE, INTEREST OUTSTANDING OUTSTANDING INTEREST RATE
YEAR CATEGORY END OF YEAR RATE DURING YEAR DURING YEAR(A) DURING YEAR(B)
- ------------ -------------- ----------- -------- -------------- -------------- --------------
1991........ Notes Payable $ 53,639 5.3% $ 55,050 $ 25,291 6.6%
1992........ Notes Payable $ 53,332 4.0% $ 70,750 $ 32,983 4.3%
1993........ Notes Payable $ 106,300 3.5% $108,100 $ 55,022 3.4%
- ---------------
(A) Average daily balances.
(B) Actual interest incurred divided by average amount outstanding during the
year.
F-25
40
SCHEDULE X
BOSTON GAS COMPANY AND SUBSIDIARY
SUPPLEMENTARY EARNINGS STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
Maintenance and repairs....................................... $27,091 $19,538 $17,612
Taxes, other than payroll and income:
Local property........................................... 8,837 4,865 4,309
Other.................................................... 186 236 162
F-26