<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: November 30, 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 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 November 30, 1996:
1,651,180
<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, 1996 (1996 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 three months ended November 30,
1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending August 31, 1997.
<PAGE> 3
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS
November
30, 1996 August
(Unaudited) 31, 1996
ASSETS
Utility plant $100,291,233 $98,603,784
Less: accumulated depreciation 22,561,943 22,290,175
------------ -----------
Net utility plant 77,729,290 76,313,609
------------ -----------
Other property and investments
(at original cost) 688,015 633,515
------------ -----------
Capitalized lease 642,384 654,391
------------ -----------
Current assets:
Cash and cash equivalents 1,071,267 303,526
Accounts receivable, net
Customers 2,278,353 1,654,808
Other 254,292 229,189
Income tax refund receivable 377,000 874,000
Supplemental fuel inventory 5,231,286 4,047,421
Material and supplies 659,724 512,330
Prepaid deferred income taxes 2,093,574 328,066
Prepayments and other 86,551 622,502
Recoverable gas costs 2,378,740 470,766
------------ -----------
Total current assets 14,430,787 9,042,608
------------ -----------
Deferred charges:
Regulatory assets 2,721,941 2,464,691
Unamortized debt expense 604,001 610,931
Other 294,797 52,188
------------ -----------
Total deferred charges 3,620,739 3,127,810
------------ -----------
$ 97,111,215 $89,771,933
============ ===========
See Notes to Consolidated Financial Statements
<PAGE> 4
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
November
30, 1996 August
(Unaudited) 31, 1996
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, no par value,
5,000,000 authorized shares.
Issued and outstanding 1,651,180
shares at November 30, 1996, and
1,642,490 shares at August 31, 1996 $19,464,187 $19,234,915
Unrecognized gain on investments
available for sale, net 61,042 29,265
Retained earnings 12,915,279 13,833,767
----------- -----------
32,440,508 33,097,947
Less: ESOP shares purchased with debt _ 75,000
----------- -----------
Total common stock equity 32,440,508 33,022,947
----------- -----------
Long-term debt less current portion 19,093,987 19,765,535
Non-current obligations under ----------- -----------
capital lease 591,770 604,823
----------- -----------
Current liabilities:
Current portion of long-term debt 854,118 923,831
Current obligation under capital lease 50,614 49,568
Obligations under supplemental
fuel inventory 4,750,797 3,358,010
Notes payable, banks 18,385,000 11,940,000
Accounts payable 4,025,607 4,063,829
Accrued interest 476,974 937,988
Accrued transition costs 1,126,836 890,432
Supplier refund due customers 468 275,644
Other 136,794 188,513
----------- -----------
Total current liabilities 29,807,208 22,627,815
----------- -----------
Deferred credits:
Accumulated deferred income taxes 11,177,332 9,951,085
Unamortized investment tax credit 1,193,454 1,210,896
Deferred directors' fees and
compensation 1,003,590 991,503
Other 1,803,366 1,597,329
----------- -----------
Total deferred credits 15,177,742 13,750,813
----------- -----------
$97,111,215 $89,771,933
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE> 5
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
November November
30, 1996 30, 1995
(Unaudited) (Unaudited)
Operating revenues $ 8,142,501 $ 6,962,014
Less: Cost of gas 4,130,103 3,273,480
------------ ------------
Operating margin 4,012,398 3,688,534
------------ ------------
Operating expenses:
Operations and maintenance expenses 3,004,376 2,667,236
Depreciation 497,760 417,760
Taxes, other than federal income 228,547 212,741
Federal income taxes (189,442) (145,445)
------------ ------------
Total operating expenses 3,541,241 3,152,292
------------ ------------
Operating income 471,157 536,242
Other income (loss) - net (21,073) (16,873)
------------ ------------
Income before interest charges 450,084 519,369
------------ ------------
Interest charges:
Interest on long-term debt 477,167 497,403
Amortization of debt expense 6,930 6,821
Other interest expense 231,383 230,556
Allowance for funds used
during construction (4,727) (11,944)
------------ ------------
Total interest charges 710,753 722,836
------------ ------------
Net loss (260,669) (203,467)
Preferred dividend requirements - (4,620)
------------ ------------
Loss attributable to common stock $ (260,669) $ (208,087)
============ ============
Common shares outstanding
(weighted average) 1,647,616 1,612,851
---------- ----------
Loss per common share $ (.16) $ (.13)
------- -------
Dividends per common share $ .40 $ .39
------- -------
See Notes to Consolidated Financial Statements
<PAGE> 6
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
November November
30, 1996 30, 1995
(Unaudited) (Unaudited)
Operating activities:
Net loss $ (260,669) $ (203,467)
Adjustments to reconcile net income ------------ ------------
to net cash:
Depreciation and amortization 554,477 487,899
Provision for uncollectible accounts 130,013 110,135
Deferred income taxes (536,805) (1,193,427)
Non-cash compensation related to ESOP 75,000 150,000
Cash provided by (used in) working capital:
Increase in accounts receivable (778,661) (546,221)
Increase in inventories (1,331,259) (919,217)
Decrease (increase) in prepayments
and other 535,951 (28,630)
Increase (decrease) in income
and other taxes payable 492,395 59,697
Increase in refundable gas costs (1,907,974) (1,465,555)
Decrease (increase) in accounts
payable (38,222) 114,310
Other, net (853,803) 22,669
------------ -----------
Total adjustments (3,658,888) (3,208,340)
Net cash used in operating ------------ -----------
activities (3,919,557) (3,411,807)
------------ -----------
Investing activities:
Capital expenditures (1,987,021) (2,199,905)
Cost of property retirements, net 15,669 (83,574)
------------ -----------
Net cash used in investing activities (1,971,352) (2,283,479)
------------ -----------
Financing activities:
Dividends paid (657,830) (632,173)
Issuance of common stock 219,954 184,137
Principal retired on long-term debt (666,261) (655,398)
Increase in fuel note payable 1,392,787 565,358
Principal payment on ESOP obligation (75,000) (150,000)
Increase in notes payable, banks 6,445,000 6,510,000
------------ ------------
Net cash provided by financing
activities 6,658,650 5,821,924
------------ ------------
Net increase (decrease) in cash
and cash equivalents 767,741 126,638
Cash and cash equivalents at
beginning of period 303,526 136,925
------------ ------------
Cash and cash equivalents at end
of period $ 1,071,267 $ 263,563
============ ============
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $ 1,171,767 $ 1,153,775
============ ============
Cash paid for income taxes $ 0 $ 250,000
============ ============
<PAGE> 7
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 $808,000 and $653,000 as of November 30, 1996
and August 31, 1996, 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 Fourteen,
retained earnings in the amount of $5,528,936 as of November 30, 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 1996 Annual Report on
Form 10-K.
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
For the Three Months Ended November 30, 1996 and November 30, 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, generally during colder months, may 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
<PAGE> 8
gross profits. The threshold was not attained in the three month period
ended November 30, 1996. Since most of the Company's firm customers
utilize gas for space heating purposes, the Company's sales are sensitive
to the severity of the weather. The Company measures weather through the
use of effective degree days. The Company's service territory experienced
978 effective degree days during the three months ended November 30, 1996
as compared to 907 effective degree days for the three months ended
November 30, 1995. The twenty-year average is 955 effective degree days
for the three months ended November 30, 1996. As a result, the volume
of firm sales increased 8.8% to 901,267 Mcf for the three months ended
November 30, 1996 from 828,342 Mcf for the three months ended
November 30, 1995. For the same periods, the Company's interruptible sales
volume decreased by 16,525 Mcf to 280,402 Mcf but, due to an increase of
$0.44 in the average unit cost of interruptible gas sold, interruptible
revenues increased from $591,886 to $683,735. The increase in the sales
price reflects an increase in the cost of purchased gas. The Company's
total operating revenues increased 16.9% to $8,142,501 for the three
months ended November 30, 1996 from $6,962,014 for the three months ended
November 30, 1995. This increase was due to the previously mentioned
weather-related increase in firm gas volumes as well as an 8.5% increase
in the average unit price of gas sold to firm customers. The average unit
price was $8.02 per Mcf of firm gas sold for the three months ended
November 30, 1996 compared to $7.39 per Mcf of firm gas sold for the three
months ended November 30, 1995.
Gas costs recovered, including both firm and interruptible, increased
26.1% to $4,130,103 for the three months ended November 30, 1996 from
$3,273,480 for the three months ended November 30,1995. The reason for
the increase in gas costs recovered is due to the above mentioned increase
in volumes sold as well as a 17.9% increase in the Company's average cost
of gas to $3.82 per Mcf for the three months ended November 30, 1996 from
$3.24 per Mcf for the three months ended November 30, 1995. For the period
ended November 30, 1995, gas costs were lower due to a return of previously
overcollected gas costs and the availability of pipeline supplier refunds.
Operations and maintenance expenses increased 12.6% to $3,004,376 for the
three months ended November 30, 1996 compared to $2,667,236 for the three
months ended November 30, 1995. Increases from the prior year were due to pre-
planned maintenance costs for a gas main river crossing of approximately
$95,000; a $20,000 increase in the allowance for uncollectible accounts due to
higher revenues; additional marketing expenses of $38,000 as the Company
increased its marketing activity to attract new customers; and additional
administrative and general salaries of $48,000 as the Company filled several
vacant positions. The remainder of the increase was due to a general increase
in operation and maintenance costs.
Interest charges for the three months ended November 30, 1996 decreased by
$12,083 compared to the three months ended November 30, 1995. The decrease
was primarily attributable to principal paydown on long-term debt as well as
lower interest rates on short-term debt.
Loss attributable to common stock increased 20.2% to $260,669 for the three
months ended November 30, 1996 from $208,087 for the three months ended
<PAGE> 9
November 30, 1995. Loss per common share increased 23.1% to $0.16 for the
three months ended November 30, 1996 from $0.13 per share for the three months
ended November 30, 1995. Since the Company's business is seasonal, losses are
generally experienced during the first quarter of the Company's fiscal year.
Dividends per common share were $.40 per share for the three months ended
November 30, 1996 compared to $.39 per share for the three months ended
November 30, 1995. In December 1996, the Company declared a dividend of $.41
per share which was paid to shareholders on January 1, 1997.
Liquidity and Capital Resources
Net cash used in operating activities increased $507,750 to
$3,919,557 for the three months ended November 30, 1996. The increase was
due primarily to a $412,042 increase in inventories; a $442,419 increase in
deferred gas costs; as well as increases of $497,871 and $134,179, in
deferred credits and other current obligations, respectively. The above
items were offset primarily by an increase in deferred taxes of $656,622 and
an increase of $254,579 in deferred credits.
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 expected 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 the issuance of additional shares of common stock through a Dividend
Reinvestment Plan. Management anticipates that these and other sources will
remain available and will continue to adequately serve the Company's needs.
The Company finances its gas inventory with a bank through a
special purpose credit agreement of $10,000,000 with a floating interest rate.
This credit agreement is through December 31, 2000. As of November 30, 1996,
the Company's repurchase obligation to the loan was $4,750,797.
For the three months ended November 30, 1996, the Company's construction
expenditures totaled $1,987,021. These expenditures were funded principally
from short-term bank borrowings. Historically, the first quarter of the
Company's fiscal year has been characterized by significant construction
expenditures, low gas sendout and low operating revenues. Cash requirements
during this period have historically been satisfied through short-term bank
borrowings. Planned construction expenditures for the remainder of fiscal 1997
are currently estimated at $4,483,074 and planned construction expenditures for
fiscal 1998 are currently estimated at $6,225,000. 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
<PAGE> 10
borrowings, which the Company anticipates will be replaced from time to time
with equity and long-term debt financings. The Company has received MDPU
approval of the private placement of First Mortgage Bonds in the amount of
approximately $10,000,000 and is currently negotiating the placement.
Regulatory and Accounting Issues
The Company's revenues are based on rates regulated by the MDPU. These
rates are designed to allow the Company to recover its operating costs and
provide an opportunity to earn a reasonable rate of return on investor supplied
funds. Once approved, the Company's rates are adjusted by a CGA which, subject
to approval by the MDPU, permits the Company to change rates to recover its gas
costs and certain other costs on a dollar-for-dollar basis. The CGA is also
used as the mechanism to reduce charges to firm customers by the margin earned
on sales to interruptible customers. In September 1996 the Company received
approval for a rate increase of $2,100,000 which was effective December 1,
1996. As part of a settlement approved by the MDPU, the Company will increase
its depreciation rate to an average rate of 3.7% effective December 1, 1996
based on a depreciation study. The effect of the change in the depreciation
rate is to increase, on an annual basis, depreciation expense in 1997 by
approximately $600,000.
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 1996.
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.
<PAGE> 11
Item 5 Other Information
None.
Item 6(a) Exhibits
None.
Item 6(b) Reports on Form 8-K
None.
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: January 13, 1997
<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 three months ended November 30,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
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<S> <C>
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<PERIOD-END> NOV-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 77,729
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<TOTAL-CURRENT-ASSETS> 14,431
<TOTAL-DEFERRED-CHARGES> 3,621
<OTHER-ASSETS> 642
<TOTAL-ASSETS> 97,111
<COMMON> 19,464
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 12,915
<TOTAL-COMMON-STOCKHOLDERS-EQ> 32,441
0
0
<LONG-TERM-DEBT-NET> 19,094
<SHORT-TERM-NOTES> 18,385
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