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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
----------------
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
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BOSTON GAS COMPANY
D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND
-----------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1103580
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
52 SECOND AVENUE, WALTHAM, MASSACHUSETTS 02453
----------------------------------------------
(Address of principal executive offices)
(Zip Code)
781-398-7300
------------
(Registrant's telephone number, including area code)
One Beacon Street, Boston, Massachusetts 02108
----------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Common stock of Registrant at the date of this report was 514,184 shares,
all held by KeySpan New England, LLC.
The Registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is filing this Form with the reduced
disclosure format.
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
Company or group of companies for which report is filed:
BOSTON GAS COMPANY
STATEMENTS OF OPERATIONS
UNAUDITED
- -----------------------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31,
(In Thousands of Dollars) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Operating Revenues $ 402,506 $ 244,291
Cost of gas sold 287,052 133,487
----------------------- --------------------------
Operating Margin 115,454 110,804
Operating Expenses:
Operations and maintenance 30,218 33,532
Depreciation and amortization 14,676 14,378
Operating taxes 5,875 5,460
----------------------- --------------------------
Total Operating Expenses 50,769 53,370
----------------------- --------------------------
Operating Income 64,685 57,434
----------------------- --------------------------
Other Income (Expense) (87) 302
Interest Expense:
Long-term debt 4,192 4,197
Other, including amortization of debt expense 9,230 12,330
Less-Interest during construction 34 (198)
----------------------- --------------------------
Total Interest Expense 13,456 16,329
----------------------- --------------------------
Income Before Income Taxes 51,142 41,407
Income Taxes
Current 16,591 12,638
Deferred 2,939 3,257
----------------------- --------------------------
Total Income Tax Expense 19,530 15,895
----------------------- --------------------------
Net Income 31,612 25,512
Preferred stock dividends 226 250
----------------------- --------------------------
Net Income applicable for Common Stock $ 31,386 $ 25,262
======================= ==========================
Other Comprehensive Income - -
----------------------- --------------------------
Total Comprehensive Income $ 31,386 $ 25,262
======================= ==========================
2
The accompanying notes are an integral part of these financial statements.
BOSTON GAS COMPANY
BALANCE SHEETS
UNAUDITED
- -----------------------------------------------------------------------------------------------------------------
March 31, December 31,
(In Thousands of Dollars) 2003 2002
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Property:
Gas plant, at cost $ 1,194,581 $ 1,194,842
Construction in progress 32,711 10,415
Less-Accumulated depreciation (483,760) (470,556)
------------------------- -------------------------
743,532 734,701
------------------------- -------------------------
Current assets:
Cash and temporary cash investments 6,049 2,168
Accounts receivable 228,859 123,681
Allowance for uncollectible accounts (21,097) (14,666)
Accounts receivable-affiliates 163 4,195
Accrued utility revenue 70,724 66,619
Deferred gas costs 67,641 68,647
Natural Gas and other inventories, at average cost 26,246 74,549
Material and supplies, at average cost 5,179 4,754
Other 1,379 7,118
------------------------- -------------------------
385,143 337,065
------------------------- -------------------------
Other Assets:
Goodwill 790,285 790,285
Deferred postretirement cost 50,617 44,360
Deferred charges and other assets 91,600 96,378
------------------------- -------------------------
932,502 931,023
------------------------- -------------------------
Total Assets $ 2,061,177 $ 2,002,789
========================= =========================
The accompanying notes are an integral part of these financial statements.
3
BOSTON GAS COMPANY
BALANCE SHEETS
UNAUDITED
- ------------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
(In Thousands of Dollars) 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND CAPITALIZATION
Capitalization
Common stock, $100 par value-authorized and outstanding
514,184 shares $ 51,418 $ 51,418
Amounts in excess in par value 560,575 560,575
Retained earning / (Accumulated deficit) 8,575 (22,817)
Accumulated other comprehensive loss (9,823) (9,823)
----------------------------- ---------------------------
Total common stockholder's investment 610,745 579,353
Cumulative Preferred stock, $1 par value,
liquidation preference $25 per share-562,700 shares
outstanding at March 31, 2003 and December 2002, respectively 13,846 13,840
Long-term obligations, less current portion 222,563 222,563
----------------------------- ---------------------------
Total Capitalization 847,154 815,756
----------------------------- ---------------------------
Advance from KeySpan 650,000 650,000
----------------------------- ---------------------------
Total Capitalization and Advance from KeySpan 1,497,154 1,465,756
----------------------------- ---------------------------
Commitments and Contingencies(See Note 7)
Current Liabilities
Current portion of long-term obligations 840 840
Notes payable utility pool 127,910 67,174
Notes payable utility pool - gas inventory financing 31,209 83,907
Accounts payable 96,912 67,108
Accounts payable - affiliates 34,979 64,272
Accrued taxes 2,835 4,495
Accrued interest 8,582 4,334
Other 13,458 4,843
----------------------------- ---------------------------
316,725 296,973
----------------------------- ---------------------------
Deferred Credits and Other Liabilities
Deferred income tax 142,505 141,408
Unamortized investment tax credits 1,503 1,714
Postretirement benefits obligation 53,451 53,747
Environmental liability 28,831 28,831
Other 21,008 14,360
----------------------------- ---------------------------
247,298 240,060
----------------------------- ---------------------------
Total Capitalization and Liabilities $ 2,061,177 $ 2,002,789
============================= ===========================
The accompanying notes are an integral part of these financial statements.
4
BOSTON GAS COMPANY
STATEMENTS OF CASH FLOWS
UNAUDITED
- ------------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31,
(In Thousands of Dollars) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 31,612 $ 25,512
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 14,676 14,378
Deferred income tax 2,939 3,257
Changes in assets and liabilities
Accounts receivable and affiliates (94,715) (30,397)
Accrued utility revenue (4,105) 17,373
Natural Gas and other inventories 47,878 24,602
Deferred gas costs 1,006 (2,214)
Accounts payable and affiliates 512 6,514
Accrued taxes (1,660) 2,772
Accrued interest 4,248 8,532
Other 17,440 13,140
----------------------------------- -------------------------------
Net Cash Provided by Operating Activities 19,831 83,469
----------------------------------- -------------------------------
Investing Activities
Capital expenditures (22,296) (19,159)
Net cost of removal (1,472) (1,623)
----------------------------------- -------------------------------
Net Cash Used in Investing Activities (23,768) (20,782)
----------------------------------- -------------------------------
Financing Activities
Changes in notes payable - utility money pool 60,736 (25,430)
Changes in gas inventory financing - utility money pool (52,698) (21,372)
Dividends paid on common and preferred stock (220) (250)
Other - -
----------------------------------- -------------------------------
Net Cash Provided by (Used in) Financing Activities 7,818 (47,052)
----------------------------------- -------------------------------
Net Increase in Cash and Cash Equivalents $ 3,881 $ 15,635
=================================== ===============================
Cash and Cash Equivalents at Beginning of Period 2,168 3,104
----------------------------------- -------------------------------
Cash and Cash Equivalents at End of Period $ 6,049 $ 18,739
=================================== ===============================
The accompanying notes are an integral part of these financial statements.
5
BOSTON GAS COMPANY
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
---------
MARCH 31, 2003
--------------
1. Basis of Presentation and Other Information
-------------------------------------------
General
Boston Gas Company d/b/a KeySpan Energy Delivery New England (the
"Company", "we", "us" and "our") is a gas distribution company engaged in
the transportation and sale of natural gas to residential, commercial and
industrial customers. The Company's service territory includes Boston and
73 other communities in eastern and central Massachusetts. The Company is a
wholly-owned subsidiary of KeySpan New England, LLC ("KNE LLC") and an
indirect wholly-owned subsidiary of KeySpan Corporation ("KeySpan"), a
registered holding company under the Public Utility Holding Company Act of
1935, as amended.
Basis of Presentation
The accounting records are maintained in accordance with the Uniform System
of Accounts prescribed by the Massachusetts Department of
Telecommunications and Energy (the "Department"). The accounting policies
of the Company conform to generally accepted accounting principles and
reflect the effects of the rate-making process in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the
Effects of Certain Types of Regulation". This statement recognizes the
ability of regulators, through the ratemaking process, to create future
economic benefits and obligations affecting rate-regulated companies.
Accordingly, we record these future economic benefits and obligations as
Regulatory Assets and Regulatory Liabilities on the Balance Sheet,
respectively.
It is the Company's opinion that the accompanying financial statements
contain all adjustments necessary to present fairly its financial position
as of March 31, 2003, and the results of its operations for the three
months ended March 31, 2003 and March 31, 2002, as well as cash flows for
the three months ended March 31, 2003 and March 31, 2002. Interim results
are not necessarily indicative of results to be expected for the year, due
to the seasonal nature of the Company's operations.
Certain reclassifications were made to conform to prior period financial
statements with the current period financial statement presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
6
1. Basis of Presentation and Other Information (Continued)
-------------------------------------------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q. Therefore
these interim financial statements should be read in conjunction with the
Company's 2002 Annual Report filed on Form 10-K with the Securities and
Exchange Commission ("SEC"). The December 31, 2002 financial statement
information has been derived from the 2002 audited financial statements.
2. Accounting Policies
-------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
143, "Accounting for Asset Retirement Obligations." SFAS 143 requires an
entity to record a liability and corresponding asset representing the
present value of legal obligations associated with the retirement of
tangible, long-lived assets. SFAS 143 is effective for fiscal years
beginning after June 2002.
We have completed our assessment of SFAS 143. Our asset base is primarily
composed of storage, and distribution assets which we believe operate in
perpetuity and, therefore, have indeterminate cash flow estimates. A legal
obligation exists due to certain safety requirements at final abandonment.
In addition, a legal obligation may be construed to exist with respect to
our LNG storage tanks due to clean up responsibilities upon cessation of
use. Since that exposure is in perpetuity and cannot be measured, no
liability will be recorded. Our asset retirement obligation will be
re-evaluated annually.
The Company recovers certain asset retirement costs through rates charged
to customers as a portion of depreciation expense. When depreciable
properties are retired, the original cost plus cost of removal less
salvage, is charged to accumulated depreciation. As of March 31, 2003, we
had removal costs recovered in excess of removal costs incurred totaling
$188.4 million.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51." FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities created
or acquired after January 31, 2003. For variable interest entities created
or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period beginning after June 15,
2003. At the present time, we do not have any arrangements with variable
interest entities.
3. Seasonal Aspect
---------------
The gas distribution business is influenced by seasonal weather conditions.
Annual revenues are principally realized during the heating season
(November through April) as a result of the large proportion of heating
sales in these months. In addition, under its seasonal rate structure, the
rates charged to customers during the heating season are higher than the
rates charged during the rest of the year. Accordingly, results of
operations are most favorable in the first quarter of the Company's fiscal
year, followed by the fourth quarter. Losses are generally incurred in the
second and third quarters.
7
4. Gas Supply Contracts
--------------------
During the first quarter of 2003, we had a portfolio management contract
with Entergy-Koch, under which Entergy-Koch provided all of the city gate
supply requirements at market prices and managed certain upstream capacity,
underground storage and term supply contracts for the Company. The
agreement with Entergy-Koch expired on March 31, 2003 and was renewed
through March 31, 2006.
The Company recently renewed its long-term capacity contracts with
Tennessee Gas Pipeline for the transportation of natural gas to the
Company's distribution territory.
5. Regulation
----------
The Company's gas rates for local distribution service had been governed by
a five-year performance-based rate plan (the "Plan") approved by the
Department's 1996 order in D.P.U. 96-50. The Plan expired on October 31,
2002. However, the rates continue to be effective under this Plan. On April
16, 2003, we filed a base rate case and performance based-rate plan to be
effective in the fourth quarter of 2003. The filing requests an annual
revenue increase of approximately $61 million and a performance based-rate
plan term of five years.
The Company is subject to deferral accounting requirements, as previously
ordered by the Department, for other postretirement benefit costs. In
addition, per Department approval dated January 28, 2003, we will defer,
and record as either a regulatory asset or regulatory liability, the
difference between the level of pension expense that is included in rates
charged to gas customers and the actuarial determined amounts.
6. Securities and Exchange Commission Regulation
---------------------------------------------
The Company, as a wholly owned subsidiary of KeySpan, is subject to the
jurisdiction of the SEC under PUHCA. The rules and regulations under PUHCA
generally limit the operations of a registered holding company to a single
integrated public utility system, plus additional energy-related
businesses. In addition, the principal regulatory provisions of PUHCA: (i)
regulate certain transactions among affiliates within a holding company
system including the payment of dividends by such subsidiaries to a holding
company; (ii) govern the issuance, acquisition and disposition of
securities and assets by a holding company and its subsidiaries; (iii)
limit the entry by registered holding companies and their subsidiaries into
businesses other than electric and/or gas utility businesses; and (iv)
require SEC approval for certain utility mergers and acquisitions.
As a result of an order issued by the SEC on November 8, 2000, in
connection with KeySpan's acquisition of KNE LLC and another affiliate,
EnergyNorth, Inc., and as amended on December 6, 2002 and February 14,
2003, we are committed through December 31, 2003 to have common equity of
at least 30% of total capitalization, including affiliated debt. At March
31, 2002, our common equity was 36.9% of total capitalization, including
affiliated debt.
8
7. Commitments and Contingencies
-----------------------------
Environmental
The Company, like many other companies in the natural gas industry, is
party to governmental proceedings requiring investigation and possible
remediation of former manufactured gas plant ("MGP") operations, including
former operating plants, gas holder locations and satellite disposal sites.
We may have or share responsibility under applicable environmental laws for
the remediation of 19 such sites. A subsidiary of National Grid USA
(formerly New England Electric System) has assumed responsibility for
remediating 11 of these sites, subject to a limited contribution from the
Company. In addition, we are aware of 31 other former MGP related sites
within our service territory. The National Grid USA subsidiary has provided
full indemnification to the Company with respect to eight of the 31 sites.
At this time, there is substantial uncertainty as to whether we have or
share responsibility for remediating any of these sites. However, no notice
of responsibility has been issued to us for these sites from any
governmental environmental authority.
The Company has estimated its potential share of the costs of investigating
and remediating the former MGP related sites and the non-MGP site in
accordance with SFAS No. 5, "Accounting for Contingencies," and the
American Institute of Certified Public Accountants Statement of Position
96-1, "Environmental Remediation Liabilities." The Company estimates the
remaining cost of its MGP-related environmental cleanup activities will be
$28.8 million, which amount has been accrued by us as a reasonable estimate
of probable cost for known sites. However, there can be no assurance that
actual costs will not vary considerably from these estimates. Factors that
may bear on actual costs differing from estimates include, without limit,
changes in regulatory standards, changes in remediation technologies and
practices and the type and extent of contaminants discovered at the sites.
Expenditures incurred to date with respect to these MGP-related activities
total $17.7 million.
By a rate order issued on May 25, 1990, the Department approved the
recovery of all prudently incurred environmental response costs associated
with former MGP related sites over separate, seven-year amortization
periods, without a return on the unamortized balance. The Company has
recognized a regulatory asset of $37.0 million, representing the expected
rate recovery of environmental remediation costs. This amount is included
in Deferred Charges and Other Assets on the Balance Sheet.
Legal Matters
From time to time we are subject to various legal proceedings arising out
of the ordinary course of our business. We do not consider any of such
proceedings to be material to our business or likely to result in a
material adverse effect on our results of operations, financial condition
and cash flows.
8. Derivatives
-----------
Derivative contracts are primarily used to manage exposure to market risk
arising from changes in commodity prices. In the event of nonperformance by
a counterparty to a derivative contract, the desired impact may not be
achieved. The risk of counterparty nonperformance is generally considered
credit risk and is actively managed by assessing each counterparty credit
profile and negotiating appropriate levels of collateral and credit
support.
The utility tariffs associated with the Company's operations do not contain
a weather normalization adjustment. As a result, fluctuations from normal
weather may have a significant positive or negative effect on the results
of operations. To mitigate the effect of fluctuations from normal weather
on our financial position and cash flows, we sold heating degree-day call
options and purchased heating-degree day put options for the November
2002-March 2003 winter season.
9
8. Derivatives (Continued)
-----------------------
Based on the terms of such contracts, we account for such instruments
pursuant to the requirements of EITF 99-2, "Accounting for Weather
Derivatives." In this regard, we account for such instruments using the
"intrinsic value method" as set forth in such guidance. During the first
quarter of 2003, weather was 10% colder than normal and, as a result, $11.9
million has been recorded as a reduction to revenues with a corresponding
amount included in Other Current Liabilities on the Balance Sheet.
On April 1, 2002, we adopted Implementation Issue C16 of SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" as amended
and interpreted incorporating SFAS 137 and 138 and certain implementation
issues (collectively "SFAS 133"). Issue C16 establishes new criteria that
must be satisfied in order for contracts that combine a forward contract
and a purchased option contract to be exempted as normal purchases and
sales.
Based upon a review of our physical gas purchase commodity contracts, we
determined that certain contracts could no longer be exempted as normal
purchases from the requirements of SFAS 133. At March 31, 2003, the fair
value of these contracts was negligible. Since these contracts are for the
purchase of natural gas sold to firm gas sales customers, the accounting
for these contracts is subject to SFAS 71. Therefore, changes in the market
value of these contracts are recorded as a deferred asset or deferred
liability on the Balance Sheet.
9. Related Party Transactions
--------------------------
Financing for the Company for working capital and gas inventory needs is
obtained through the Company's participation in a utility money pool. The
money pool is funded by commercial paper and operating funds of net lenders
to the pool and is administered by KeySpan Corporate Services LLC ("KCS"),
a subsidiary service company of KeySpan.
At March 31, 2003, we had outstanding borrowings of $127.9 million and
$31.2 million for working capital and gas inventory, respectively. Interest
charged on outstanding borrowings is generally equal to KeySpan's short
term borrowing rate, plus a proportional share of the administrative costs
incurred in obtaining the required funds. All costs related to gas
inventory borrowings are recoverable from customers through the cost of gas
adjustment clause. The average interest rate for the three months ended
March 31, 2003 was 1.45%.
As part of the acquisition by KeySpan in November 2000, the Company has
recorded $650 million in advances payable to KeySpan. Interest charges
equal interest incurred by KeySpan on debt borrowings issued by KeySpan.
The weighted-average interest rate on these borrowings is 7.78%. Issuance
expense is charged to the Company from KeySpan equal to the amortization of
actual issuance costs incurred by KeySpan on its debt borrowings. KeySpan
amortizes these costs over the life of the related KeySpan borrowings.
KCS also provides the Company with services, including executive and
administrative, corporate affairs, customer services, environmental
services, financial services (including accounting, auditing, risk
management, tax, treasury/finance), human resources, information
technology, legal, materials management and purchasing, and strategic
planning. KCS also purchases and/or develops and implements software and
purchases hardware used by the Company. The costs of these services are
charged to the Company via intercompany billings and settled on a monthly
basis. At March 31, 2003, the net affiliate payable associated with these
services was approximately $17.2 million. In addition, the Company has an
affiliate receivable associated with our portion of federal income taxes of
$23.8 million and an affiliate payable associated primarily with pension
funding and accrued interest of $23.9 million.
10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003
Net income applicable to common stock for the three months ended March 31,
2003 was $31.4 million compared to net income of $25.3 million in the prior
year. The improvement of $6.1 million, or 24%, over the corresponding
period of the prior year is due primarily to an increase in operating
margin as a result of extremely cold weather and customer growth as well as
lower operating expenses.
Operating revenues for the three-month period ended March 31, 2003
increased $158.2 million, or 65%, from 2002. The increase was a result of a
33% increase in throughput and a 44% increase in the average commodity
price of gas. The increase in throughput was primarily due to significantly
colder weather (31%) versus the prior year.
The Company's gas rate structure includes a gas adjustment clause, pursuant
to which gas costs are recovered in revenues. Further, variations between
actual gas costs incurred and gas cost billed are deferred and refunded to
or collected from customers in a subsequent period. As a result,
fluctuations in the cost of gas sold have little or no impact on operating
margin.
Operating margin (revenues less cost of gas sold) for the three-months
ended March 31, 2003 increased $4.7 million, or 4%, from the three month
period ended March 31, 2002. Primarily contributing to the improvement was
an increase of $15.7 million due to the colder weather and $4.2 million due
to customer growth. These benefits to operating margin were partially
offset by an $11.9 million reduction to revenues as a result of a weather
derivative (See Note 8, "Derivatives") and the absence of a $3.9 million
favorable court decision recorded in the first quarter of 2002(See 2002
Form 10-K - Other Matters for further explanation).
Total operating expenses decreased $2.6 million, or 4.9% relative to the
prior year. This decline was due to a decrease in pension expense versus
2002 as a result of a regulatory deferral approved in 2003 (See Note 5 -
Regulation) as well as lower comparative allocated charges from KeySpan in
the first quarter of 2003 compared 2002. These declines were offset, in
part, by an increase in uncollectible expense associated with increased
revenues and receivables compared to 2002.
For the quarter ended March 31, 2003, interest expense on long term debt is
comparable to the prior year. Other interest expense declined $3.1 million,
or 25%, versus 2002. This decline is due to lower average working capital
borrowings relative to the prior year as a result of a $200 million capital
contribution by KNE LLC which was used to pay down borrowings at the end of
2002.
Income tax expense for the three-month period ended March 31, 2003
increased approximately $3.6 million, or 23% from 2002 primarily
attributable to higher taxable income.
11
LIQUIDITY AND CAPITAL RESOURCES
As discussed, the Company's revenues, earnings and cash flow are highly
seasonal. Since the majority of its revenues are billed during the heating
season, significant cash flows are generated from late winter to early
summer. Alternatively, in preparation for the heating season (i.e.
purchasing and storing gas), short-term borrowings are highest during the
late fall and early winter.
The Company believes that projected cash flow from operations, in
combination with currently available resources (i.e., utility money pool),
is sufficient to meet 2003 capital expenditures, working capital
requirements, preferred dividend payments and normal debt repayments.
The Company expects capital expenditures for 2003 to be approximately $100
million, including the costs of removal. Actual capital expenditures for
the three-month period ended March 31, 2003 were $22.3 million. Capital
expenditures are largely for system expansion associated with customer
growth and improvements to the distribution infrastructure.
12
FORWARD-LOOKING INFORMATION
Certain statements contained in this Form 10-Q concerning expectations,
beliefs, plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements that are other than
statements of historical facts, are "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Without limiting the foregoing, all statements relating to our future
outlook, anticipated capital expenditures, future cash flows and
borrowings, pursuit of potential future acquisition opportunities and
sources of funding, are forward-looking statements. Such forward-looking
statements reflect numerous assumptions and involve a number of risks and
uncertainties and actual results may differ materially from those discussed
in such statements. Among the factors that could cause actual results to
differ materially are: general economic conditions, especially in
Massachusetts; our ability to successfully contract for natural gas
supplies required to meet the needs of our firm customers; available
sources and cost of fuel; implementation of new accounting standards;
retention of key personnel; federal and state regulatory initiatives that
increase competition, threaten cost and investment recovery, and impact
rate structures; the ability of the Company to successfully reduce its cost
structure; inflationary trends and interest rates; changes in political
conditions, acts of war or terrorism; changes in rates of return on overall
debt and equity markets could have an adverse impact on the value of
pension assets; changes in accounting standards or GAAP which may require
adjustment to financial statements; and other risks detailed from time to
time in other reports and other documents filed by the Company with SEC.
For any of these statements, the Company claims the protection of the safe
harbor for forward-looking information contained in the Private Securities
Litigation Reform Act of 1995, as amended.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including its Chief Operating Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. The Company's disclosure
controls and procedures are designed to ensure that information required to
be disclosed by the Company in its periodic SEC filings is recorded,
processed and reported within the time periods specific in the SEC's rules
and forms. Based upon that evaluation, the Chief Operating Officer and
Chief Financial Officer concluded that the Company's disclosure controls
and procedures are effective in timely alerting them to material
information relating to the Company required to be included in its periodic
SEC filings.
Changes In Internal Controls
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation.
13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
10 Redacted Gas Resource Portfolio Management and Gas Sales Agreement
among Boston Gas Company, Colonial Gas Company and Essex Gas Company,
as Buyer and Entergy-Koch Trading, LP, as Seller, dated as of April 1,
2003
99.1 Certification of Chief Operating Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Boston Gas Company
D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND
(Registrant)
/s/ Joseph F. Bodanza
---------------------
J.F. Bodanza, Senior Vice President
and Chief Financial Officer
Dated: May 14, 2003
15
Certification Pursuant to Rule 13a-14 and 15d-14 of
the Securities and Exchange Act of 1934
I, Nickolas Stavropoulos, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Boston Gas Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in . Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/Nickolas Stavropoulos
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Nickolas Stavropoulos
President and Chief Operating Officer
16
Certification Pursuant to Rule 13a-14 and 15d-14 of
the Securities and Exchange Act of 1934
I, Joseph F. Bodanza, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Boston Gas Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Joseph F. Bodanza
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Joseph F. Bodanza
Senior Vice President
and Chief Financial Officer
17