<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, 1998
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 Identification #)
incorporation or organization)
7 North Hunt Road, Amesbury, Massachusetts 01913
(Address of principal executive offices) (Zip Code)
(978) 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, 1998:
1,725,644
<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, 1997. 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, 1998, are not
necessarily indicative of the results that may be expected for the
fiscal year ending August 31, 1998.
<PAGE> 3
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS
May 31, 1998 August
(Unaudited) 31, 1997
ASSETS
Utility plant $108,612,657 $104,540,111
Less: accumulated depreciation 28,171,704 25,021,795
------------ ------------
Net utility plant 80,440,953 79,518,316
------------ ------------
Other property and investments 792,080 718,838
------------ ------------
Capitalized lease 564,835 604,822
------------ ------------
Current assets:
Cash and cash equivalents 827,714 434,930
Accounts receivable, net
Customers 3,422,198 2,275,005
Other 204,096 389,526
Supplemental fuel inventory 3,250,351 4,131,520
Material and supplies 621,885 560,493
Prepaid deferred income taxes 629,371 100,105
Prepayments and other 532,137 622,024
Recoverable gas costs - 320,909
------------ ------------
Total current assets 9,487,752 8,834,512
------------ ------------
Deferred charges:
Regulatory assets 1,243,395 1,790,966
Unamortized debt expense and other 2,188,960 1,278,367
------------ ------------
Total deferred charges 3,432,355 3,069,333
------------ ------------
$ 94,717,975 $ 92,745,821
============ ============
See Notes to Consolidated Financial Statements
<PAGE> 4
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
May 31, 1998 August
(Unaudited) 31, 1997
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, no par, (authorized
5,000,000 shares, issued and outstanding
1,725,644 shares at May 31, 1998
and 1,685,318 shares at
August 31, 1997 $21,649,107 $20,320,890
Unrealized gain (loss) on investments
available for sale, net 13,600 (6,253)
Retained earnings 17,389,845 15,094,008
----------- -----------
Total common stock equity 39,052,552 35,408,645
----------- -----------
Long-term debt less current portion 28,199,000 28,799,000
----------- -----------
Non-current obligations under
capital lease 507,471 550,939
----------- -----------
Current liabilities:
Current portion of long-term debt 748,570 960,535
Current obligation under capital lease 57,364 53,883
Obligations under supplemental
fuel inventory 2,799,195 3,807,788
Notes payable, banks 4,125,000 3,313,000
Accounts payable 2,550,206 3,092,859
Taxes payable 448,346 157,098
Accrued interest 202,524 803,237
Refundable gas costs 1,924,227 -
Transition obligations 30,398 401,465
Supplier refund due customers 290,762 1,567,364
Other 132,074 320,308
----------- -----------
Total current liabilities 13,308,666 14,477,537
----------- -----------
Deferred credits:
Accumulated deferred income taxes 8,886,556 8,941,079
Unamortized investment tax credit 1,088,806 1,141,132
Deferred directors' fees 899,058 1,106,358
Other 2,775,866 2,321,131
----------- -----------
Total deferred credits 13,650,286 13,509,700
----------- -----------
$94,717,975 $92,745,821
=========== ===========
See Notes to Consolidated Financial Statements
<PAGE> 5
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
May 31, 1998 May 31, 1997
(Unaudited) (Unaudited)
Operating revenues $14,154,192 $16,659,598
Less: Cost of gas 6,753,434 8,704,179
----------- -----------
Operating margin 7,400,758 7,955,419
----------- -----------
Operating expenses:
Operations and maintenance expenses 3,294,018 3,792,907
Depreciation 1,135,685 1,035,685
Taxes, other than federal income 589,001 567,762
Federal income taxes 698,680 587,558
----------- -----------
Total operating expenses 5,717,384 5,983,912
----------- -----------
Operating income 1,683,374 1,971,507
Other income - net 24,536 71,984
----------- -----------
Income before interest charges 1,707,910 2,043,491
----------- -----------
Interest charges:
Interest on long-term debt 625,595 636,588
Amortization of debt expense 8,161 8,059
Other interest expense 80,099 147,686
Allowance for funds used
during construction (5,595) (4,967)
----------- -----------
Total interest charges 708,260 787,366
----------- -----------
Income available for common stock $ 999,650 $ 1,256,125
=========== ===========
Common shares outstanding
(weighted average):
Basic 1,723,701 1,671,636
--------- ---------
Diluted 1,779,022 1,720,800
Earnings per common share: --------- ---------
Basic $ 0.58 $ 0.75
------- ------
Diluted $ 0.57 $ 0.74
------- ------
Dividends per common share $ 0.42 $ 0.41
------- ------
See Notes to Consolidated Financial Statements
<PAGE> 6
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED
May 31, 1998 May 31, 1997
(Unaudited) (Unaudited)
Operating revenues $46,216,514 $48,022,939
Less: Cost of gas 22,278,575 24,505,502
----------- -----------
Operating margin 23,937,939 23,517,437
----------- -----------
Operating expenses:
Operations and maintenance expenses 9,657,864 10,348,444
Depreciation 3,497,054 3,182,127
Taxes, other than federal income 1,896,127 1,776,301
Federal income taxes 2,361,039 1,953,674
----------- -----------
Total operating expenses 17,412,084 17,260,546
----------- -----------
Operating income 6,525,855 6,256,891
Other income - net 174,392 195,737
----------- -----------
Income before interest charges 6,700,247 6,452,628
----------- -----------
Interest charges:
Interest on long-term debt 1,889,572 1,688,116
Amortization of debt expense 24,368 21,890
Other interest expense 381,108 631,881
Allowance for funds used
during construction (17,437) (16,153)
----------- -----------
Total interest charges 2,277,611 2,325,734
----------- -----------
Income available for common stock $ 4,422,636 $ 4,126,894
=========== ===========
Common shares outstanding
(weighted average):
Basic 1,705,907 1,659,474
--------- ---------
Diluted 1,761,564 1,708,614
--------- ---------
Earnings per common share
Basic $ 2.59 $ 2.49
------ ------
Diluted $ 2.53 $ 2.44
------ ------
Dividends per common share $ 1.25 $ 1.22
------ ------
See Notes to Consolidated Financial Statements
<PAGE> 7
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
May 31, 1998 May 31, 1997
(Unaudited) (Unaudited)
Operating activities:
Net income $ 4,422,636 $ 4,126,894
Adjustments to reconcile net income ----------- -----------
to net cash:
Depreciation and amortization 3,882,783 3,388,567
Provision for uncollectible accounts 916,698 1,509,573
Deferred income taxes (595,769) (1,175,801)
Non-cash compensation related to ESOP - 75,000
Changes in current assets and liabilities:
Accounts receivable (1,878,461) (4,470,558)
Inventories 819,777 1,227,413
Prepayments and other 89,887 467,708
Accounts payable (542,653) (1,345,633)
Refundable gas costs 2,245,136 1,311,320
Accrued interest (600,713) (756,875)
Taxes payable 291,248 1,877,509
Supplier refunds due customers (1,276,602) 1,291,720
Other, net (740,665) 904,018
----------- -----------
Total adjustments 2,610,666 4,303,961
----------- -----------
Net cash used in operating activities 7,033,302 8,430,855
----------- -----------
Investing activities:
Capital expenditure (4,735,655) (4,834,244)
Cost of property retirements,
net of salvage (69,769) (112,482)
----------- -----------
Net cash used in investing activities (4,805,424) (4,946,726)
Financing activities:
Dividends paid (2,126,799) (2,018,904)
Net proceeds from issuance of common stock 1,300,263 806,925
Proceeds from issuance of long-term debt - 10,000,000
Principal retired on long-term debt (811,965) (790,648)
Decrease in supplemental fuel inventory
obligation (1,008,593) (1,019,155)
Principal payment on ESOP obligation - ( 75,000)
Net borrowings (repayment) of
short-term debt 812,000 (10,325,000)
Net cash used in financing ----------- -----------
activities (1,835,094) (3,421,782)
----------- -----------
Net increase in cash and cash equivalents 392,784 62,347
Cash and cash equivalents at beginning
of period 434,930 303,526
----------- -----------
Cash and cash equivalents at end of period $ 827,714 $ 365,873
=========== ============
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $ 2,878,324 $ 3,062,609
----------- ------------
Cash paid for income taxes $ 3,423,822 $ 2,082,465
----------- ------------
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 $1,717,484 and $772,000 as of
May 31, 1998 and August 31, 1997, 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 Fifteen, retained earnings in the
amount of $7,556,058 as of May 31, 1998, 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
Annual Report on Form 10-K for the fiscal year ended August
31, 1997.
E. Merger Agreement
The Company has agreed, subject to the terms and conditions
of the Agreement and Plan of Merger dated as of December 19,
1997 (the "Merger Agreement") with Eastern Enterprises
("Eastern"), to merge with a wholly-owned subsidiary of
Eastern. Upon consummation of the proposed merger, the
Company would become a wholly-owned subsidiary of Eastern,
and each share of the Company's stock would be converted
into the right to receive a number of shares of Eastern
common stock equal to the exchange ratio provided for in the
Merger Agreement. On June 24, 1998 the Company held a
Special Meeting of Stockholders and received stockholder
approval for the proposed merger. The proposed merger is
still subject to regulatory approvals, required consents and
other conditions.
Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months Ended May 31, 1998 and May 31, 1997
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
<PAGE> 9
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 margins exceed a certain threshold specified by the
Massachusetts Department of Telecommunications and Energy
("MDTE"), the Company must return all margins on such sales
directly to the Company's firm customers. Once the threshold is
attained, the Company may retain 25% of the margin above the
threshold. The amount retained in the three month period ended
May 31, 1998 was approximately $4,400.
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 and compares to both prior year and
"normal" weather as determined by a twenty year average. For the
three months ended May 31, 1998 the weather was 15.0% warmer than
the same time period in 1997. As a result, the volume of firm
sales decreased 11.7% to 1,566,593 Dekatherms ("DKT") for the
three months ended May 31, 1998 from 1,774,661 DKT for the three
months ended May 31, 1997. The Company's total operating revenues
decreased 15.0% to $14,154,192 for the three months ended May 31,
1998 from $16,659,598 for the three months ended May 31, 1997.
This decrease was primarily due to warmer weather resulting in a
lower volume of firm sales and a 2.0% decrease in the average
unit price of gas sold to firm customers. For the three months
ended May 31, 1998, firm sales decreased by $2,178,021 (13.5%)
and interruptible sales decreased by $341,177 (98.8%) as compared
to the three months ended May 31, 1997. The average unit price
per DKT of firm gas sold was $8.90 for the three months ended May
31, 1998 compared to $9.08 for the three months ended May 31,
1997.
Total gas costs, including both firm and interruptible,
decreased 22.4% to $6,753,434 for the three months ended May 31,
1998 from $8,704,179 for the three months ended May 31, 1997.
The decrease in gas costs is attributable to the decrease in
volume of sales as well as a 4.6% decrease in the Company's unit
cost of gas. The unit cost of gas decreased to $4.31 per DKT for
the three months ended May 31, 1998 from $4.52 per DKT for the
three months ended May 31, 1997. The decrease was due to
slightly lower gas product costs billed by suppliers.
Operations and maintenance expenses decreased 13.2% to
$3,294,018 for the three months ended May 31, 1998 compared to
$3,792,907 for the three months ended May 31, 1997. The decrease
was due primarily to a decrease in injuries and damages costs of
$53,163, a decrease in expenses for meter and house regulators in
the amount of $51,009, a decrease in outside service costs in the
amount of $72,344, a reduction of uncollectible accounts and bad
debt expense of $364,090 offset by an increase in selling
expenses of $54,272.
Depreciation expense increased $100,000 (9.7%) for the three
months ended May 31, 1998 compared to the three months ended May
31, 1997. This increase was primarily due to an increase in the
Company's utility plant.
Interest charges for the three months ended May 31, 1998
decreased by $79,109 (10.0%) compared to the three months ended
May 31, 1997. The decrease was primarily related to interest due
customers on pipeline refunds returned to customers.
Income available for common stock decreased 20.4% to $999,650
for the three months ended May 31, 1998 from $1,256,125 for the
three months ended May 31, 1997. Income per common share
<PAGE> 10
decreased to $.58 for the three months ended May 31, 1998 from
$0.75 per share for the three months ended May 31, 1997. On a
diluted basis the per share amounts were $0.57 and $0.74,
respectively. Dividends per common share were $.42 per share for
the three months ended May 31, 1998 compared to $.41 per share
for the three months ended May 31, 1997 (such dividends were paid
April 1, 1998 and 1997, respectfully). In June 1998, the Company
declared a dividend of $.42 per share which was paid to share
holders on July 1, 1998.
For the Nine Months Ended May 31, 1998 and May 31, 1997
Operating revenues for the nine months ended May 31, 1998
decreased 3.8% to $46,216,514 compared to $48,022,939 for the
nine months ended May 31, 1997. Firm gas revenues amounted to
$45,383,187 for the nine months ended May 31, 1998 compared to
$46,371,321 for the same period in 1997, a decrease of 2.1%.
Firm gas volumes decreased 2.2% to 5,075,114 DKT for the nine
months ended May 31, 1998 compared to 5,187,401 DKT for the nine
month period ended May 31, 1997. The decrease in operating
revenues is primarily due to the warmer weather discussed above.
The average selling price of firm gas was $8.94 for both the nine
month period ended ended May 31, 1998 and May 31, 1997.
Interruptible revenues for the nine months ended May 31, 1998 and
1997 were $160,085 and $1,029,411, respectively.
Operations and maintenance expenses for the nine months ended
May 31, 1998 decreased to $9,657,864 from $10,348,444 for the
comparable period a year ago. The decrease was due primarily to
maintenance cost for gas mains of approximately $95,696, a
decrease in outside services of $159,112, a reduction of
uncollectible accounts and bad debt expense of $592,875, offset
by an increase in selling expenses of $99,860.
Interest charges decreased $48,122 (2.1%) for the nine months
ended May 31, 1998 compared to the nine months ended May 31,
1997. The decrease was primarily related to interest due
customers on pipeline refunds returned to the customers which was
offset by higher balances on long-term debt.
Income available for common stock increased by $295,712 to
$4,422,636 for the nine months ended May 31, 1998 as
compared to $4,126,894 for the same period last year while
earnings per share increased to $2.59 ($2.53 diluted) from $2.49
($2.44 diluted). Dividends were $1.25 and $1.22 per common
share, respectively, for these periods.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine months
ended May 31, 1998 was $7,033,302. Cash flows were generated
primarily from net income of $4,422,636, depreciation and
amortization of $3,882,783, a decrease in inventory of $819,777,
refundable gas cost of $2,245,136 and a provision of
uncollectable accounts of $916,698. These sources of cash were
offset by a decrease in accounts payable of $542,653, an increase
in accounts receivable of $1,878,461, a decrease in supplier
refund due customers of $1,276,602 and a decrease in deferred
taxes of $595,769. The increase in accounts receivable is due to
the seasonal nature of the Company's business. The decrease in
inventories also resulted from the seasonal nature of the
Company's business whereby inventories decrease during the winter
months. The cash used for refundable gas costs to customers
represents savings in gas costs which are returned to the
Company's firm customers as discussed below.
<PAGE> 11
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 did
not receive any supplier refunds during the nine months ended May
31, 1998.
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, 1998, the Company's obligation under
this credit agreement was $2,799,195.
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 the Company's Dividend Reinvestment and Common Stock
Purchase Plan. During the nine months ended May 31, 1998, the
Company raised $996,148 of common stock through its Dividend
Reinvestment and Common Stock Purchase Plan (including $100,691
from the cash infusion portion of the Plan) and $451,912.88 of
common stock issued to the Company's qualified employee plans.
Management anticipates that these and other sources will remain
available and will continue to adequately serve the Company's
needs.
Net construction expenditures for the nine months ended May
31, 1998 were $4,917,632 as compared to $4,834,244 for the same
period a year ago. Historically, the third quarter of the
Company's fiscal year including the three months ended May 31,
1998 has been characterized by increasing 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 1998 are
currently estimated at $1,750,000 and planned construction
expenditures for fiscal 1999 are currently estimated at
$8,000,000. 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.
Merger Agreement
The Company has agreed, subject to the terms and conditions
of the Agreement and Plan of Merger dated as of December 19, 1997
(the "Merger Agreement") with Eastern Enterprises ("Eastern"), to
merge with a wholly-owned subsidiary of Eastern. Upon
consummation of the proposed merger, the Company would become a
wholly-owned subsidiary of Eastern, and each share of the
Company's common stock would be converted into the right to
receive a number of shares of Eastern common stock equal to the
exchange ratio provided for in the Merger Agreement. On June 24,
1998 the Company held a Special Meeting of Stockholders and
received Stockholder approval for the proposed merger. The
proposed merger is still subject to regulatory approvals,
required consent and other conditions.
Eastern is an unincorporated voluntary association, commonly
referred to as a "Massachusetts business trust." Eastern's
principal subsidiaries are Boston Gas Company ("Boston Gas") and
Midland Enterprises, Inc. ("Midland"). Boston Gas is a regulated
<PAGE> 12
utility that distributes natural gas in and around Boston,
Massachusetts. Midland is engaged in barge transportation,
principally on the Ohio and Mississippi river systems. A copy of
the Merger Agreement has been filed on Form 8-K dated January 9,
1998.
Regulatory and Accounting Issues
The Company's revenues are based on rates regulated by the
MDTE. 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 Cost of Gas
Adjustment ("CGA") which, subject to approval by the MDTE,
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.
Net earnings per share amounts have been computed using the
weighted average number of common and common equivalent shares
outstanding during each year. For the period ended February 28,
1998, the Company adopted the provisions of SFAS No. 128,
Earnings Per Share. This statement was issued by the FASB in
March 1997 and establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly
held common stock or potential common stock. This statement
replaces the presentation of primary EPS with a presentation of
basic EPS. It requires dual presentation of basic and diluted
EPS on the face of the statement of operations for all entities.
This statement also requires a restatement of all prior-period
EPS data presented.
The American Institute of Certified Public Accountants issued
a Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. The SOP's objective is to make the timing of the
recognition of environmental obligations more uniform by
discussing the estimation process and providing benchmarks to aid
in determining when to recognize environmental liabilities. The
SOP is effective for the Company in fiscal 1998. The adoption of
SOP 96-1 did not have a material effect on the Company's
financial statements.
The "Year 2000" Issue
The Company has assessed the impact of the Year 2000 issue on
its computer system and is in the process of modifying its
computer system to address this issue. It currently anticipates
completing these modifications by January 1999. The costs of
these modifications are not expected to be material to the
Company's business, operations or financial condition or to have
any material impact on the Company's results of operations,
liquidity or capital resources.
Forward Looking Statements
The statements contained in the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" which are not historical facts are
"forward looking statements" (as that term is defined in the
Private Securities Litigation Reform Act of 1995) that involve
risks and uncertainties. Management wishes to caution the reader
that such forward-looking statements, which include but are not
limited to its statements with regard to the impact of transportation
customers on the Company's profitability, the impact of changes in
the cost of gas and of the CGA mechanism on total margin, its projected
<PAGE> 13
capital expenditures and its sources of cash to fund
expenditures, its estimated costs of environmental remediation
and anticipated regulatory approval of recovery mechanisms, and
its treatment of the Year 2000 issue, are only predictions and
estimates regarding future events and circumstances. No
assurance can be given that such predictions and estimates will
be achieved; actual events or results may differ materially as a
result of risks facing the Company. Such risks include, but are
not limited to, uncertainty as to the precise rates for
transportation of gas that will be allowed by the regulators and
the transportation-only customers, as to the regulatory allowance
of recovery charges in the cost of gas, as to demands for capital
expenditures and the availability of cash from various sources,
and as to the regulatory approval of the full recovery of
environmental costs, transition costs and other regulatory
assets.
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 year ended August 31, 1997 filed
November 26, 1997.
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 Special Meeting of Shareholders was held
on June 24, 1998. For a description of the meeting
and the matters voted thereat, see the Company's
Notice of Special Meeting of Stockholders and Proxy
Statement ("Proxy Statement"), filed with the
Securities and Exchange Commission on May 6, 1998,
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> 14
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 Special Meeting of
Stockholders, is as follows:
1. Election of Directors
Number of Shares
For Withhold
C.E. Billups 1,464,053 59,897
B.C. Bixby 1,496,734 27,218
D.A. Burkhardt 1,496,734 27,218
E.J. Curtis 1,496,734 27,218
D.J. Dotson 1,496,734 27,218
R.P. Hamel 1,496,734 27,218
R.S. Jackson 1,496,834 27,118
E.H. Jostrom 1,496,420 27,531
R.L. Meade 1,496,834 27,118
K.L. Paul 1,496,734 27,218
P.H. Reardon 1,496,268 27,682
R.L. Wellman 1,496,320 27,631
2. Approval of Agreement and Plan of Merger, dated as
of December 19, 1997, by and between Essex County Gas
Company and Eastern Enterprises.
Number of Shares
For Against Abstain
1,253,377 46,201 16,814
3. Approval of the adoption of the 1997 Performance and
Equity Incentive Plan.
Number of Shares
For Against Abstain
1,156,810 116,769 43,308
Item 5 Other Information
None.
<PAGE> 15
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
A. Form 8-K filed on June 29, 1998
1 Previously filed as an exhibit 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 an exhibit to the Registrant's 10-Q filed
February 28, 1991 and is incorporated herein by this reference.
<PAGE> 16
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: July 14, 1998
<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, 1998 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-31-1998
<PERIOD-END> MAY-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 80,441
<OTHER-PROPERTY-AND-INVEST> 792
<TOTAL-CURRENT-ASSETS> 9,488
<TOTAL-DEFERRED-CHARGES> 3,432
<OTHER-ASSETS> 565
<TOTAL-ASSETS> 94,718
<COMMON> 21,649
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 17,390
<TOTAL-COMMON-STOCKHOLDERS-EQ> 39,053
0
0
<LONG-TERM-DEBT-NET> 28,199
<SHORT-TERM-NOTES> 4,125
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 749
0
<CAPITAL-LEASE-OBLIGATIONS> 507
<LEASES-CURRENT> 57
<OTHER-ITEMS-CAPITAL-AND-LIAB> 22,028
<TOT-CAPITALIZATION-AND-LIAB> 94,718
<GROSS-OPERATING-REVENUE> 46,217
<INCOME-TAX-EXPENSE> 2,571
<OTHER-OPERATING-EXPENSES> 37,120
<TOTAL-OPERATING-EXPENSES> 39,691
<OPERATING-INCOME-LOSS> 6,526
<OTHER-INCOME-NET> 174
<INCOME-BEFORE-INTEREST-EXPEN> 6,700
<TOTAL-INTEREST-EXPENSE> 2,277
<NET-INCOME> 4,423
0
<EARNINGS-AVAILABLE-FOR-COMM> 4,423
<COMMON-STOCK-DIVIDENDS> 2,127
<TOTAL-INTEREST-ON-BONDS> 1,890
<CASH-FLOW-OPERATIONS> 7,033
<EPS-PRIMARY> 2.59
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