<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 May 31, 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 (I.R.S.Identification #)
Employer incorporation or
organization)
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 registrant 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 May 31, 1996:
1,634,348
<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 normally
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 nine
months ended May 31, 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 SHEETS
May 31, 1996 August
(Unaudited) 31, 1995
ASSETS
Utility plant, at cost $95,772,707 $91,462,732
Less: accumulated depreciation 22,214,334 20,304,386
----------- -----------
Net utility plant 73,558,373 71,158,346
----------- -----------
Other property and investments 535,307 570,620
----------- -----------
Capitalized lease, net of
amortization 666,150 699,991
----------- -----------
Current assets:
Cash and cash equivalents 151,071 136,925
Accounts receivable, net
Customers 2,993,498 1,418,510
Other 258,702 280,889
Income tax refund receivable - 200,000
Supplemental fuel inventory 2,028,484 6,477,155
Material and supplies 567,416 594,817
Prepaid deferred income taxes 2,044,723 1,397,422
Prepayments and other 360,671 350,660
------------ -----------
Total current assets 8,404,565 10,856,378
------------ -----------
Deferred charges:
Unamortized debt expense
and other 1,574,785 1,028,319
Regulatory assets 2,068,237 2,267,954
----------- -----------
Total deferred charges 3,643,022 3,296,273
----------- -----------
$86,807,417 $86,581,608
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE> 4
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
May 31, 1996 August
(Unaudited) 31, 1995
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, no par (authorized
5,000,000 shares, issued and
outstanding 1,634,348 shares) $19,033,860 $ -
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 56,262 28,902
Retained earnings 14,469,746 12,576,695
ESOP shares purchased with debt (75,000) (225,000)
------------ ------------
Total common stock equity 33,484,868 30,709,276
------------ ------------
Redeemable preferred stock:
5.50% Series, $100 par value,
(authorized 7,000 shares, 3,360
shares issued and outstanding
at August 31, 1995) - 336,000
Long-term debt, less current ------------ ------------
portion 19,904,718 20,689,366
Non-current obligations under ------------ ------------
capital lease 617,605 654,390
------------ ------------
Current liabilities:
Current portion of long-term
debt 843,654 978,758
Current obligation under capital
lease 48,545 45,599
Obligations under supplemental fuel
inventory 1,746,573 5,131,153
Notes payable, banks 7,515,000 4,890,000
Accounts payable 2,828,379 2,986,307
Taxes payable 1,309,544 -
Accrued interest 483,585 825,322
Refundable gas costs 1,723,706 2,490,178
Accrued transition costs 681,835 858,715
Supplier refunds due customers 553,486 2,454,739
Other 654,675 850,404
------------ ------------
Total current liabilities 18,388,982 21,511,175
Deferred credits: ------------ ------------
Accumulated deferred income
taxes 10,068,018 9,092,349
Unamortized investment tax credit 1,228,345 1,280,680
Deferred directors' fees 953,121 879,009
Other 2,161,760 1,429,363
------------ ------------
Total deferred credits 14,411,244 12,681,401
------------ ------------
$86,807,417 $86,581,608
============ ============
See Notes to Consolidated Financial Statements
<PAGE> 5
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
May 31, 1996 May 31, 1995
(Unaudited) (Unaudited)
Operating revenues $15,546,131 $14,100,557
Less: Cost of gas 8,298,297 7,269,605
------------ ------------
Operating margin 7,247,834 6,830,952
------------ ------------
Operating expenses:
Operations and maintenance
expenses 3,718,563 3,786,017
Depreciation 790,760 732,760
Taxes, other than federal
income 516,493 489,476
Federal income taxes 488,555 197,474
------------ ------------
Total operating expenses 5,514,371 5,205,727
------------ ------------
Operating income 1,733,463 1,625,225
Other income (expense), net 17,448 (3,458)
------------ ------------
Income before interest charges 1,750,911 1,621,767
------------ ------------
Interest charges:
Interest on long-term debt 489,898 510,023
Amortization of debt expense 6,874 6,770
Other interest expense 201,957 142,059
Allowance for funds used during
construction (4,225) (7,605)
------------ ------------
Total interest charges 694,504 651,247
------------ ------------
Net income 1,056,407 970,520
Preferred dividend requirements (1,540) (4,813)
------------ ------------
Income available for common stock $ 1,054,867 $ 965,707
============ ============
Common shares outstanding
(weighted average) 1,631,666 1,595,746
--------- ---------
Earnings per common share $ .65 $ .61
Cash dividends declared per ------ ------
common share $ .40 $ .39
------ ------
See Notes to Consolidated Financial Statements
<PAGE> 6
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
MAY 31, 1996 MAY 31, 1995
(Unaudited) (Unaudited)
Operating revenues $45,140,603 $40,962,721
Less: Cost of gas 22,882,105 20,791,215
------------ ------------
Operating margin 22,258,498 20,171,506
------------ ------------
Operating expenses:
Operations and maintenance
expenses 10,173,908 10,215,150
Depreciation 2,464,280 2,283,280
Taxes, other than federal
income 1,649,971 1,534,027
Federal income taxes 1,998,665 1,291,422
------------ ------------
Total operating expenses 16,286,824 15,323,879
------------ ------------
Operating income 5,971,674 4,847,627
Other income (expense), net 7,802 (4,325)
------------ ------------
Income before interest charges 5,979,476 4,843,302
------------ ------------
Interest charges:
Interest on long-term debt 1,478,402 1,540,155
Amortization of debt expense 20,569 20,260
Other interest expense 674,799 505,772
Allowance for funds used during
construction (25,690) (27,516)
------------ ------------
Total interest charges 2,148,080 2,038,671
------------ ------------
Net income 3,831,396 2,804,631
Preferred dividend requirements (10,780) (14,438)
------------ ------------
Income available for common stock $ 3,820,616 $ 2,790,193
============ ============
Common shares outstanding
(weighted average) 1,621,836 1,586,832
--------- ---------
Earnings per common share $ 2.36 $ 1.76
Cash dividends declared per ------ ------
common share $ 1.19 $ 1.16
------ ------
See Notes to Consolidated Financial Statements
<PAGE> 7
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
MAY 31,1996 MAY 31,1995
(Unaudited) (Unaudited)
Operating activities:
Net income $ 3,831,396 $ 2,804,631
Adjustments to reconcile net income ------------- -------------
to net cash provided by operating activities
Depreciation and amortization 2,875,802 2,701,162
Provision for uncollectible accounts 1,975,676 1,961,930
Deferred income taxes 317,781 (1,526,324)
Non-cash compensation related to ESOP 150,000 225,000
Cash provided by (used in) working capital:
Increase in accounts receivable (3,528,477) (2,364,748)
Decrease in inventories including fuel 4,476,072 1,447,354
(Increase) decrease in prepayments
and other (10,011) 179,399
Increase (decrease) in accounts payable (157,928) (292,360)
(Decrease) increase in refundable gas costs (766,472) 3,057,363
Increase in taxes payable 1,369,241 2,637,435
(Decrease) increase in supplier refunds
due customers (1,901,253) 1,012,515
Other, net (88,950) 164,818
------------ ------------
Total adjustments 4,711,481 9,203,544
Net cash provided by operating ------------ ------------
activities 8,542,877 12,008,175
------------ ------------
Investing activities:
Capital expenditures (4,993,436) (4,201,798)
Cost of property retirements, net of
salvage (275,604) 9,696
------------ ------------
Net cash used in investing activities (5,269,040) (4,192,102)
------------ ------------
Financing activities:
Dividends paid (1,938,344) (1,850,556)
Net proceeds from issuance of common stock 666,625 609,680
Retirement of preferred stock (336,000) -
Principal retired on long-term debt (769,752) (801,058)
Decrease in supplemental fuel inventory
obligation (3,384,580) (2,349,645)
Principal payment on ESOP obligation (150,000) (225,000)
Increase (decrease) in notes payable, banks 2,625,000 (3,330,000)
Other 27,360 -
------------- ------------
Net cash used in financing activities (3,259,691) (7,946,579)
------------- ------------
Net increase (decrease) in cash and cash
equivalents 14,146 (130,506)
Cash and cash equivalents at beginning of
period 136,925 130,939
------------- ------------
Cash and cash equivalents at end of period $ 151,071 $ 433
============= ============
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $ 2,489,817 $ 2,395,991
Cash paid for income taxes $ 876,976 $ 1,350,697
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 $2,697,500 and $595,000 as of May 31,
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
$7,086,526 as of May 31, 1996, were unrestricted as to the
payment of cash dividends on Common Stock and the purchase,
redemption, or retirement of shares of capital stock.
D. Commitments and Contingencies
For information regarding commitments and contingencies, see Notes
to Consolidated Financial Statements in the Company's 1995 Annual
Report on Form 10-K.
E. Regulatory Filing
On May 17, 1996 the Company filed with the Massachusetts
Department of Public Utilities ("MDPU") a request for a rate
increase of approximately $3,400,000. As part of the request, the
Company is also submitting proposals relating to the transportation
of third party gas to customers. The ultimate amount of the
requested rate increase granted will not be known until the
completion of the regulatory process which is not expected to
be completed before December 1, 1996.
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months Ended May 31, 1996 and May 31, 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 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
<PAGE> 9
10% of gross profits. The amount retained in the three month
period ended May 31, 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
2,262 effective degree days during the three months ended May 31,
1996 as compared to 2,194 effective degree days during the three
months ended May 31, 1995. The Company's twenty year average for
the three months ended May 31, 1996 is 2,188 effective degree days.
As a result, the volume of firm sales increased 9.8% to 1,747,877
thousand cubic feet ("Mcf") for the three months ended May 31, 1996
from 1,592,183 Mcf for the three months ended May 31, 1995. The
Company's total operating revenues increased 10.3% to $15,546,131
for the three months ended May 31, 1996 from $14,100,557 for the
three months ended May 31, 1995. This increase was primarily due
to previously mentioned weather-related factors and a 0.6% increase
in the average unit price of gas sold to firm customers. The
average unit price per Mcf of firm gas sold was $8.33 for the three
months ended May 31, 1996 compared to $8.28 for the three months
ended May 31, 1995.
Total gas costs, including both firm and interruptible,
increased 14.2% to $8,298,297 for the three months ended May 31,
1996 from $7,269,605 for the three months ended May 31, 1995. The
increase in gas costs recovered includes the previously mentioned
increase in gas volumes sold and a 7.0% increase in the Company's
unit cost of gas. The unit cost of gas increased to $4.12 per Mcf
for the three months ended May 31, 1996 from $3.85 per Mcf for the
three months ended May 31, 1995. The increase was due to slightly
higher gas product costs collected from the Company's customers.
Operations and maintenance expenses decreased 1.8% to
$3,718,563 for the three months ended May 31, 1996 compared to
$3,786,017 for the three months ended May 31, 1995. This was due
primarily to lower maintenance expense.
Interest charges for the three months ended May 31, 1996 increased
by $43,257 compared to the three months ended May 31, 1995. The
increase was primarily related to higher short term borrowings and
amounts payable to customers on pipeline refunds received by the Company.
During the third quarter of 1995, the Company recorded a non-
recurring adjustment to its accrued income taxes which resulted in
a relatively low income tax provision for the period.
Income available for common stock increased 9.2% to $1,054,867
for the three months ended May 31, 1996 from $965,707 for the three
months ended May 31, 1995. Income per common share increased to
$0.65 for the three months ended May 31, 1996 from $0.61 per share
for the three months ended May 31, 1995. Dividends per common
share were $.40 per share for the three months ended May 31, 1996
compared to $.39 per share for the three months ended May 31, 1995.
In June 1996, the Company declared a dividend of $.40 per share
which was paid to shareholders on July 1, 1996.
For the Nine Months Ended May 31, 1996 and May 31, 1995
Operating revenues for the nine months ended May 31, 1996 were
$45,140,603 compared to $40,962,721 for the nine months
ended May 31, 1995. Firm gas revenues amounted to $43,089,630
compared to $38,987,208 for the same period in 1995, an increase of
10.5%. Firm gas volumes were 5,231,768 Mcf compared to 4,543,705
Mcf for the nine month period ended May 31, 1995. The increase is
due to significantly colder weather as degree days were 6,905
compared to 6,206 a year ago, representing a 11.3% increase. The
average selling price of firm gas was $8.24 for the nine months
ended May 31, 1996 compared to $8.58 for the same period last year.
The reduction is primarily as a result of returning pipeline
refunds to customers. Interruptible revenues for the nine months
ended May 31, 1996 and 1995 were $1,332,927 and $1,321,051,
respectively.
<PAGE> 10
Operations and maintenance expenses for the nine months ended
May 31, 1996 decreased to $10,173,908 from $10,215,150 for the
comparable period a year ago. The slight decrease was primarily
due to lower maintenance expenses.
Interest charges increased $109,409 for the nine months ended
May 31, 1996 compared to the nine months ended May 31, 1995. The
increase was primarily related to higher outstanding balances on
notes payable to banks and amounts payable to customers on pipeline
refunds received by the Company.
Income available for common stock increased by $1,030,423 to
$3,820,616 as compared to $2,790,193 for the same period
last year while earnings per share increased to $2.36 from $1.76.
Dividends were $1.19 and $1.16 per common share, respectively.
Liquidity and Capital Resources
Net cash provided by operating activities decreased $3,465,298
to $8,542,877 for the nine months ended May 31, 1996. The
decrease was due primarily to $2,900,000 in supplier refunds to
customers and a return of approximately $3,800,000 in refundable
gas costs which were offset by approximately $3,000,000 of cash
provided by a reduction in inventories, including fuel.
Occasionally the Company receives refunds 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 May 31, 1996, the Company's obligation was
$1,746,573.
During the quarter, the Company redeemed, at par, 100% of the
outstanding Preferred stock.
Net construction expenditures for the nine months ended May 31,
1996 were $4,993,436 as compared to $4,201,798 for the same period
a year ago. These expenditures were funded by cash flows from
operations and short-term bank borrowings. These expenditures were
funded principally from the previously above-mentioned sources of
financing. Historically, the third quarter of the Company's fiscal
year has been characterized by rising capital expenditures,
diminishing gas sendout and reduced operating revenues. Cash
requirements during this period have historically been satisfied
through operations and short-term borrowings. Planned construction
expenditures for the remainder of fiscal 1996 are currently
estimated at $1,850,000 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 the Company expects them to 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 debt financings.
<PAGE> 11
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
None.
Item 5 Other Information
None.
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 exhibit 3.1 to the Registrant's 10-k filed
for the fiscal year ended August 31, 1988 and is incorporated
herein by this reference.
(2) Previously filed as exhibit 3.2 to the Registrant's 10-Q filed
February 28, 1991 and is incorporated herein by this reference.
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 ________________
Philip H. Reardon
President and Chief Executive Officer
By_____________________________________________
James H. Hastings
Vice President and Treasurer
(Principal Financial Officer)
Date: July 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 nine
months ended May 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> MAY-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 73,558
<OTHER-PROPERTY-AND-INVEST> 535
<TOTAL-CURRENT-ASSETS> 8,405
<TOTAL-DEFERRED-CHARGES> 3,643
<OTHER-ASSETS> 666
<TOTAL-ASSETS> 86,807
<COMMON> 19,034
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 14,470
<TOTAL-COMMON-STOCKHOLDERS-EQ> 33,485
0
0
<LONG-TERM-DEBT-NET> 19,905
<SHORT-TERM-NOTES> 7,515
<LONG-TERM-NOTES-PAYABLE> 0
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<TOTAL-OPERATING-EXPENSES> 39,169
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11
<EARNINGS-AVAILABLE-FOR-COMM> 3,821
<COMMON-STOCK-DIVIDENDS> 1,924
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