<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 29, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission File Number 0-1166
ESSEX COUNTY GAS COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1427020
(State or other jurisdiction of (I.R.S.
Employer incorporation or
organization) Identification #)
7 North Hunt Road, Amesbury,
Massachusetts 01913
(Address of principal executive offices) (Zip Code)
(508) 388-4000
(Registrant's telephone number, including area code)
(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 Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the reg-
istrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by court. Yes No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding as of February 29, 1996:
1,623,580
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They
do not include information and footnotes required by generally
accepted accounting principles for complete financial statements.
For further information, refer to the notes to consolidated
financial statements included in the registrant's Annual Report
on Form 10-K for the year ended August 31, 1995 (1995 10-K). In
the opinion of Management, all adjustments, consisting of normal
ly recurring adjustments considered necessary for a fair
presentation, have been included. Because of the seasonal nature
of the registrant's business, operating results for the six
months ended February 29, 1996, are not necessarily indicative of
the results that may be expected for the year ending August 31,
1996.
<PAGE> 3
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEET
February
29, 1996 August
(Unaudited) 31, 1995
ASSETS
Utility plant $94,764,961 $91,462,732
Less: accumulated depreciation 21,483,061 20,304,386
---------- ----------
Net utility plant 73,281,900 71,158,346
---------- ----------
Other property and investments 615,874 570,620
---------- ----------
Capitalized lease 680,072 699,991
---------- ----------
Current assets:
Cash and cash equivalents 680,144 136,925
Accounts receivable, net
Customers 6,946,784 1,418,510
Other 1,264,605 280,889
Income tax refund receivable - 200,000
Supplemental fuel inventory 2,957,097 6,477,155
Material and supplies 524,806 594,817
Prepaid deferred income taxes 1,315,474 1,397,422
Prepayments and other 207,390 350,660
---------- ----------
Total current assets 13,896,300 10,856,378
---------- ----------
Deferred charges:
Unamortized debt expense
and other 1,250,647 1,028,319
Regulatory assets 1,996,806 2,267,954
----------- -----------
Total deferred charges 3,247,453 3,296,273
----------- -----------
$91,721,599 $86,581,608
=========== ===========
See Noted to Consolidated Financial Statements.
<PAGE> 4
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
February
29, 1996 August
(Unaudited) 31, 1995
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, no par (authorized
5,000,000 shares, issued and
outstanding 1,623,580 shares) $18,751,456 $ -
Common stock, par value $2.50,
(authorized 5,000,000 shares:
issued and outstanding 1,607,061 shares) - 4,017,653
Additional paid-in capital - 14,311,026
Unrealized gain on investments
available for sale, net 51,312 28,902
Retained earnings 14,068,662 12,576,695
ESOP shares purchased with debt (75,000) (225,000)
----------- -----------
Total common stock equity 32,796,430 30,709,276
----------- -----------
Redeemable preferred stock
(5.50% Series, $100 par value
authorized 7,000 shares and
outstanding 3,360 shares) 336,000 336,000
Long-term debt less current ----------- -----------
portion 19,480,000 20,689,366
Non-current obligations under ----------- -----------
capital lease 622,703 654,390
----------- -----------
Current liabilities:
Current portion of long-term
debt 1,326,150 978,758
Current obligation under capital
lease 57,368 45,599
Obligations under supplemental fuel
inventory 4,713,137 5,131,153
Notes payable, banks 10,064,917 4,890,000
Accounts payable 3,160,394 2,986,307
Taxes payable 1,557,586 -
Accrued interest 927,319 825,322
Refundable gas costs 1,056,416 2,490,178
Transition obligations 681,835 858,715
Supplier refund due customers 1,137,638 2,454,739
Other 676,799 850,404
----------- -----------
Total current liabilities 25,359,559 21,511,175
Deferred credits: ----------- -----------
Accumulated deferred income
taxes 9,082,893 9,092,349
Unamortized investment tax credit 1,245,790 1,280,680
Deferred directors' fees 920,047 879,009
Other 1,878,177 1,429,363
------------ ------------
Total deferred credits 13,126,907 12,681,401
------------ ------------
$91,721,599 $86,581,608
============ ============
See Notes to Consolidated Financial Statements.
<PAGE> 5
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
February February
29, 1996 28, 1995
(Unaudited) (Unaudited)
Operating revenues $22,632,458 $20,160,226
Less: Cost of gas 11,310,328 10,299,550
----------- -----------
Operating margin 11,322,130 9,860,676
----------- -----------
Operating expenses:
Operations and maintenance
expenses 3,788,109 3,762,714
Depreciation 1,255,760 1,162,760
Taxes, other than federal
income 920,737 837,345
Federal income taxes 1,655,555 1,276,474
----------- -----------
Total operating expenses 7,620,161 7,039,293
----------- -----------
Operating income 3,701,969 2,821,383
Other income - net 7,227 10,388
----------- -----------
Income before interest charges 3,709,196 2,831,771
----------- -----------
Interest charges:
Interest on long-term debt 491,101 511,962
Amortization of debt expense 6,874 6,769
Other interest expense 242,286 215,067
Allowance for funds used during
construction (9,521) (9,990)
----------- -----------
Total interest charges 730,740 723,808
----------- -----------
Net income 2,978,456 2,107,963
Preferred dividend requirements (4,620) (4,812)
------------ ------------
Income available for common stock $ 2,973,836 $ 2,103,151
============ ============
Common shares outstanding
(weighted average) 1,620,911 1,587,080
Earnings per common share $ 1.83 $ 1.33
Dividends per common share $ .40 $ .39
See Notes to Consolidated Financial Statements.
<PAGE> 6
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
February February
29, 1996 28, 1995
(Unaudited) (Unaudited)
Operating revenues $29,594,472 $26,862,164
Less: Cost of gas 14,583,808 13,521,610
------------ ------------
Operating margin 15,010,664 13,340,554
------------ ------------
Operating expenses:
Operations and maintenance
expenses 6,455,345 6,429,133
Depreciation 1,673,520 1,550,520
Taxes, other than federal
income 1,133,478 1,044,551
Federal income taxes 1,510,110 1,093,948
------------ ------------
Total operating expenses 10,772,453 10,118,152
------------ ------------
Operating income 4,238,211 3,222,402
Other expense- net (9,646) (867)
------------ ------------
Income before interest charges 4,228,565 3,221,535
------------ ------------
Interest charges:
Interest on long-term debt 988,504 1,030,132
Amortization of debt expense 13,695 13,490
Other interest expense 472,842 363,713
Allowance for funds used during
construction (21,465) (19,911)
------------ ------------
Total interest charges 1,453,576 1,387,424
------------ ------------
Net income 2,774,989 1,834,111
Preferred dividend requirements (9,240) (9,625)
------------ -----------
Income available for common stock $ 2,765,749 $ 1,824,486
============ ============
Common shares outstanding
(weighted average) 1,616,852 1,582,311
Earnings per common share $ 1.71 $ 1.15
Dividends per common share $ 0.79 $ 0.77
See Notes to Consolidated Financial Statements.
<PAGE> 7
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
February February
29, 1996 28, 1995
(Unaudited) (Unaudited)
Operating activities:
Net income $ 2,774,989 $ 1,834,111
Adjustments to reconcile net income ---------- ----------
to net cash:
Depreciation and amortization 1,953,850 1,833,484
Provision for uncollectible accounts 1,063,435 915,000
Deferred income taxes 61,905 (757,000)
Non-cash compensation related to ESOP 150,000 225,000
Cash provided by (used in) working capital:
Increase in accounts receivable (7,575,425) (5,130,417)
Decrease in inventories including fuel 3,590,069 1,497,679
Decrease in prepaid expenses and
other current assets 143,270 218,428
(Decrease) increase in refundable
gas costs (1,433,762) 1,062,534
Increase (decrease) in accounts payable 174,087 (713,396)
Increase in taxes payable 1,617,285 2,780,822
(Decrease) increase in supplier refund
due customers (1,317,101) 1,210,031
Other, net 382,124 415,807
---------- ----------
Total adjustments (1,190,263) 3,557,972
Net cash provided by operating ---------- ----------
activities 1,584,726 5,392,083
---------- ----------
Investing activities:
Capital expenditures (3,863,713) (2,947,325)
Cost of property retirements, net of
salvage (209,183) 84,130
Net cash used in investing ---------- ----------
activities (4,072,896) (2,863,195)
---------- ----------
Financing activities:
Dividends paid (1,283,021) (1,225,054)
Net proceeds from issuance of common stock 397,073 414,820
Principal retired on long-term debt (711,974) (732,941)
Decrease in fuel (418,016) (771,595)
Principal payment on ESOP obligation (150,000) (225,000)
Increase in notes payable, banks 5,174,917 635,000
Other 22,410 -
Net cash provided by financing ---------- ----------
activities 3,031,389 (1,904,770)
---------- ----------
Net increase in cash 543,219 624,118
Cash at beginning of period 136,925 130,939
---------- ----------
Cash at end of period $ 680,144 $ 755,057
=========== ===========
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $1,315,579 $1,319,483
Cash paid for income taxes $ 325,000 $ 84,000
See Notes to Consolidated Financial Statements
<PAGE> 8
Notes to Consolidated Financial Statements:
A. Interim Accounting Policies
The amount of natural gas sold for purposes of central and
space heating, and to a lesser extent, water heating, is
directly related to the ambient air temperature. Consequently,
less gas is sold during the summer months than is sold during
the winter months. In order to match its costs more properly
with gas sales revenue each month, the Company charges to
certain expenses, primarily depreciation, an amount equal to
the percentage of the annual volume of firm gas sales
forecasted for the month, applied to the estimated annual
expenses.
B. Accounts Receivable
Accounts Receivable - Customers are shown net of allowance for
uncollectible accounts of $1,752,500 and $595,000 as of
February 29, 1996 and August 31, 1995, respectively.
C. Restriction on Retained Earnings
Under the terms of the Indenture of First Mortgage Bonds dated
October 1, 1955, as updated by Supplemental Indentures numbered
One through Thirteen, retained earnings in the amount of
$6,776,981 as of February 29, 1996, were unrestricted as to the
payment of cash dividends on Common Stock and the purchase,
redemption, or retirement of shares of capital stock.
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months Ended February 29, 1996 and February 28, 1995
The Company's gas sales are divided into two categories: firm,
whereby the Company must supply gas to customers on demand; and
interruptible, whereby the Company may, generally during colder
months, discontinue service to high volume industrial customers.
Sales of gas to interruptible customers do not materially affect
the Company's operating income because, unless interruptible
volumes exceed a certain threshold specified by the Massachusetts
Department of Public Utilities ("MDPU"), the Company must return
all gross profit on such sales directly to the Company's firm
customers. Once the threshold is attained, the Company may retain
10% of gross profits. The amount retained in the three month
period ended February 29, 1996 was less than $10,000. The Company's
sales are responsive to colder weather as the majority of its firm
customers use natural gas for space heating purposes. The Company
measures weather through the use of effective degree days. An
effective degree day is calculated by subtracting the average
temperature for the day, adjusted for wind and cloud cover, from 65
degrees Fahrenheit. The company's service territory experienced
3,655 effective degree days during the three months ended February
29, 1996. The Company's twenty year average for the three months
ended February 29, 1996 is 3,158 effective degree days. As a
result the volume of firm sales increased 21.1% to 2,655,549
Thousand cubic feet ("Mcf") for the three months ended February 29,
1996 from 2,192,806 for the three months ended February 28, 1995.
The Company's total operating revenues increased 12.3% to
$22,632,458 for the three months ended February 29, 1996 from
$20,160,226 for the three months ended February 28, 1995. This
increase was primarily due to previously mentioned weather-related
factors offset by a 7.0% decrease in the average unit price of gas
<PAGE> 9
sold to firm customers. The average unit price per Mcf of firm gas
sold was $8.44 for the three months ended February 29, 1996
compared to $9.08 for the three months ended February 28, 1995.
The decrease in unit selling prices is related to the Company
returning to its customers savings in gas costs as well as refunds
received from its pipeline suppliers.
Gas costs recovered increased 9.8% to $11,310,325 for the three
months ended February 29, 1996 from $10,299,550 for the three
months ended February 28, 1995. The increase in gas costs
recovered is attributable to the previously mentioned increase in
gas volumes sold offset by an 8.2% decrease in the Company's
average cost of gas to $4.26 per firm Mcf for the three months ended
February 29, 1996 from $4.64 per firm Mcf for the three months
ended February 28, 1995.
Operations and maintenance expenses totaled $3,788,109 for the
three months ended February 29, 1996 compared to $3,762,714 for the
three months ended February 28, 1995. The change was due to
inflationary increases offset by reduced in professional outside
services.
Interest charges for the three months ended February 29, 1996
increased by less than $7,000 compared to the three months ended
February 28, 1995. The change was primarily attributable to
interest payable to customers on pipeline refunds received by the
Company.
Income available for common stock increased by $870,685 to
$2,973,836 for the three months ended February 29, 1996 from
$2,103,151 for the three months ended February 28, 1995. Income
per common share increased $0.50 to $1.83 for the three months
ended February 29, 1996 from $1.33 per share for the three months
ended February 28, 1995. Dividends per common share were $.40 per
share for the three months ended February 29, 1996 compared to $.39
per share for the three months ended February 28, 1995. In March
1996 the Company declared a dividend of $.40 per share which was
paid to shareholders on April 1, 1996.
For the six Months Ended February 29, 1996 and February 28, 1995
Operating revenues for the six months ended February 29, 1996
were $29,594,472 compared to $26,862,164 for the six months ended
February 28, 1995. Firm gas volumes were 3,483,891 Mcf compared to
2,951,028 Mcf for the six month period ended February 28, 1995.
The increase is due to significantly colder weather as degree days
were 4,562 compared to 3,947 a year ago, representing a 15.6%
increase. Average weather in the Company's service area for the six
month period is equivalent to 4,461 effective degree days. The
average selling price of firm gas was $8.19 for the six months
ended February 29, 1996 compared to $8.74 for the same period last
year. Interruptible revenues for the six months ended February 29,
1996 and 1995 were $591,886 and $643,088, respectively.
Operations and maintenance expenses for the six months ended
February 29, 1996 increased to $6,455,345 from $6,429,133 for the
comparable period a year ago. The slight increase was due to the factors
mentioned above for the three month period ended February 29, 1996.
Interest expense increased $66,152 for the six months ended
February 29, 1996 compared to the six months ended February 28, 1995.
The increase was primarily related to higher outstanding balances on
notes payable to banks.
Income available for common stock increased by $941,262 to
$2,765,749 as compared to $1,824,486 for the same period last year
while earnings per share increased to $1.71 from $1.15. Dividends
were $.79 and $.77 per share, respectively.
<PAGE> 10
Liquidity and Capital Resources
Net cash provided by operating activities decreased $3,807,357 to
$1,584,726 for the six months ended February 29, 1996. The decrease was
due primarily to $2,445,000 in higher accounts receivable, a return of
nearly $2,500,000 in refundable gas costs as well as a return of
approximately $2,500,000 in supplier refunds to customers. These uses
of cash were offset by approximately $2,000,000 of cash provided by a
reduction in inventories, including fuel.
Occasionally the Company received frfunds from its pipeline supplier
as a result of regulatory action by the Federal Energy Regulatory
Commission. The supplier refunds are returned by the Company to
customers over a twelve month period.
The Company continues to invest a significant amount of capital
in its distribution system to satisfy current and future customer
demand. Funding has traditionally been generated from operations,
short-term bank borrowings, issuance of long-term debt and the
issuance of additional equity, including additional shares of
common stock through a Dividend Reinvestment Plan. Management
anticipates that these and other sources will remain available and
continue to adequately serve the Company's need.
The Company finances its gas inventory with a bank through a
special purpose credit agreement which has a maximum financing
commitment of $10,000,000 with a floating interest rate. This
credit agreement extends from December 12, 1995 through December
31, 2000. As of February 29, 1996 the Company's obligation
was $4,713,137.
For the three months ended February 29, 1996, the Company's
construction expenditures totaled $1,740,000. These expenditures
were funded principally from short-term bank borrowings.
Historically, the second quarter of the Company's fiscal year has
been characterized by minimal construction expenditures, high gas
sendout and high operating revenues. Cash requirements during this
period have historically been satisfied through operations.
Construction expenditures for the six months ended February 29,
1996 were $3,865,000 as compared to $2,947,000 for the same period
a year ago. These were funded by cash flow from operations and
short-term bank borrowings. The six-month period ended February
29, 1996 is characterized by higher receivables associates with
peak season billing and higher gas purchases which results in
increased short-term borrowings. Although the Company anticipates
a reduction of short-term borrowings as winter receivables are
collected, the onset of renewed construction activity in the
subsequent quarter may require additional short-term borrowings
under existing lines of credit. Planned construction expenditures
for the remainder of fiscal 1996 are currently estimated at
$3,000,000 and planned construction expenditures for fiscal 1997
are currently estimated at $6,000,000. The Company's planned
construction expenditures and long-term debt repayments have been
and will continue to be funded through cash generated by operations
and short-term bank borrowings which the Company anticipates will
be replaced from time to time with equity and long-term financings.
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
The information called for by this item is unchanged
from that filed in the Company's Annual Report on Form
10-K for fiscal 1995.
Item 2 Changes in Securities
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on
January 16, 1996. For a description of the meeting and the matters
voted thereat, see the Company's Notice of Annual Meeting and
Proxy Statement ("Proxy Statement"), filed with the
Securities and Exchange Commission on December 5, 1995, which
is incorporated herein by reference. There was no solicitation
in opposition to the management's nominees as listed in the
Proxy Statement, and all such nominees were selected.
<PAGE> 11
The votes cast for, against or withheld, as well as the
number of abstentions and broker non-votes as to each
matter voted on at the Annual Meeting, is as follows:
1. Election of Directors
Number of Shares
For Against
C.E. Billups 1,362,937 12,594
B.C. Bixby 1,367,328 8,203
D.A. Burkhardt 1,366,316 9,214
E.J. Curtis 1,366,203 9,327
D.J. Dotson 1,366,991 8,539
R.P. Hamel 1,362,822 12,709
R.S. Jackson 1,367,091 8,539
E.H. Jostrom 1,367,213 8,318
R.L. Meade 1,367,213 8,318
K.L. Paul 1,367,213 8,318
P.H. Reardon 1,367,213 8,318
R.L. Wellman 1,367,091 8,439
Item 5 Other Information
On April 1, 1996 the Company redeemed, at par, all of the
outstanding shares of its Redeemable Preferred Stock, 5.50% Series,
$100 par value.
Item 6(a) Exhibits
3.1 Restated Articles of Organization of Essex County Gas
Company.(1)
3.2 By Laws of Essex County Gas Company.(2)
27 Financial Data Schedule.
Item 6(b) Reports on Form 8-K
None.
(1) Previously filed as an exhibit to the Registrant's 10-K for the
fiscal year ended August 31, 1988 and is incorporated herein by
this reference.
(2) Previously filed as an exhibit to the Registrant's 10-Q filed
February 28, 1991 and is incorporated herein by this reference.
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ESSEX COUNTY GAS COMPANY
By /S/ Philip H. Reardon
Philip H. Reardon
President and Chief Executive Officer
By /S/ James H. Hastings
James H. Hastings
Vice President and Treasurer
(Principal Financial Officer)
Date: April 11, 1996
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from
the balance sheet, statement of income and statement of cash flows
contained in Form 10-Q of Essex County Gas Company for the six
months ended February 29, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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<PERIOD-END> FEB-29-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 73,282
<OTHER-PROPERTY-AND-INVEST> 616
<TOTAL-CURRENT-ASSETS> 13,896
<TOTAL-DEFERRED-CHARGES> 3,247
<OTHER-ASSETS> 680
<TOTAL-ASSETS> 91,722
<COMMON> 18,727
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 14,069
<TOTAL-COMMON-STOCKHOLDERS-EQ> 32,796
336
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<LONG-TERM-DEBT-NET> 19,480
<SHORT-TERM-NOTES> 10,065
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<EARNINGS-AVAILABLE-FOR-COMM> 2,766
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