<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
----------------------------------
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 18154
-----
ESSEX 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 No.)
ONE BEACON STREET, BOSTON, MASSACHUSETTS 02108
-----------------------------------------------
(Address of principal executive offices)
(Zip Code)
617-742-8400
--------------------------------------------------
(Registrant's telephone number, including area code)
NONE
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
---
Common stock of Registrant at the date of this report was 100 shares, all
held by Eastern Enterprises.
<PAGE>
FORM 10-Q
Page 2
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Company or group of companies for which report is filed:
ESSEX GAS COMPANY AND SUBSIDIARY ("Company")
CONSOLIDATED STATEMENTS OF EARNINGS
- -----------------------------------
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
------------------
March 31, February 28,
1999 1998
------- -------
<S> <C> <C>
OPERATING REVENUES $22,049 $22,986
Cost of gas sold 10,001 11,333
------- -------
Operating Margin 12,048 11,653
------- -------
OPERATING EXPENSES:
Operations and maintenance expense 2,403 3,245
Depreciation and amortization 1,946 1,815
Taxes, other than income 637 701
Income Taxes 2,501 1,948
------- -------
Total Operating Expenses 7,487 7,709
------- -------
OPERATING INCOME 4,561 3,944
OTHER INCOME, NET 141 94
------- -------
INCOME BEFORE INTEREST CHARGES 4,702 4,038
------- -------
INTEREST CHARGES:
Interest on long-term debt 616 626
Amortization of deferred debt expense 8 8
Other interest expense 110 165
Allowance for funds used during construction (1) (7)
------- -------
TOTAL INTEREST CHARGES 733 792
------- -------
Income available for common stock $ 3,969 $ 3,246
======= =======
Common Stock Dividends $ - $ 712
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 3
ESSEX GAS COMPANY AND SUBSIDIARY
- --------------------------------
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
March 31, December 31,
1999 1998
----------- -------------
<S> <C> <C>
ASSETS
GAS PLANT, AT COST $111,799 $111,416
Less: Accumulated depreciation 31,279 29,229
-------- --------
NET PLANT 80,520 82,187
-------- --------
Other property and investments 818 740
Capitalized Lease (net of accumulated amortization 517 532
Of $607 at March 31, 1999 and $592 at
December 31, 1998
CURRENT ASSETS:
Cash and cash equivalents 245 66
Accounts receivable (net of allowance 10,889 3,906
for uncollectible accounts of $845
at March 31, 1999 and $745 at
December 31, 1998)
Accrued utility margin 2,653 2,285
Supplemental fuel inventory 999 3,891
Materials and supplies (at average cost) 577 396
Prepayments and other 83 265
Current income taxes - 2,504
------ ------
TOTAL CURRENT ASSETS 15,446 13,313
------ ------
DEFERRED CHARGES:
Unamortized debt expense and other 1,283 1,169
-------- --------
TOTAL DEFERRED CHARGES 1,283 1,169
-------- --------
TOTAL ASSETS $98,584 $97,941
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 4
ESSEX GAS COMPANY AND SUBSIDIARY
- --------------------------------
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
(In Thousands)
MARCH 31, DECEMBER 31,
1999 1998
-------- -----------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES:
COMMON STOCK EQUITY $39,139 $35,137
LONG-TERM DEBT LESS CURRENT PORTION 27,599 27,599
------- -------
TOTAL CAPITALIZATION 66,738 62,736
------- -------
NON-CURRENT OBLIGATIONS UNDER CAPITAL LEASE 456 472
CURRENT LIABILITIES:
Current portion of long-term debt 600 600
Current obligations under capital lease 61 60
Obligations under supplemental fuel inventory 1,021 4,345
Notes payable 5,880 8,935
Accounts payable 2,372 2,576
Accrued interest 1,007 445
Accrued taxes 360 21
Accrued income taxes 578 -
Refundable gas costs 3,014 198
Supplier refund due customers 9 34
Other 471 553
------- -------
TOTAL CURRENT LIABILITIES 15,373 17,767
------- -------
DEFERRED CREDITS:
Accumulated deferred income taxes 7,183 7,359
Unamortized investment tax credit 1,030 1,048
Deferred directors' fees 250 977
Retirement benefit liability 5,609 5,500
Other reserves 1,945 2,082
------- -------
TOTAL DEFERRED CREDITS 16,017 16,966
------- -------
TOTAL CAPITALIZATION AND LIABILITIES $98,584 $97,941
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 5
<TABLE>
<CAPTION>
ESSEX GAS COMPANY AND SUBSIDIARY
- --------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
(In Thousands)
Three Months Ended
-------------------------
March 31, February 28,
1999 1998
---------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME: $ 3,969 $ 3,246
------- -------
Adjustments to reconcile net income to net cash:
Depreciation and amortization, including amounts
related to non-utility operations 2,049 2,015
Deferred income taxes (176) (574)
Other changes in assets and liabilities:
Accounts receivable (6,983) (3,995)
Inventories including fuel 2,711 1,600
Accounts payable (204) (2,038)
Supplier refund obligations (25) (845)
Taxes payable/receivable 3,422 2,061
Refundable gas costs 2,815 2,912
Other, net (628) 355
------- -------
Total Adjustments 2,981 1,491
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,950 4,737
------- -------
INVESTING ACTIVITIES:
Utility capital expenditures (382) (1,604)
Payments for retirements of property, plant and
equipment, net (10) (25)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (392) (1,629)
------- -------
FINANCING ACTIVITIES:
Dividends paid - (712)
Issuance of common stock - 857
Principal retired on long-term debt - (73)
Changes in supplemental fuel inventory (3,324) (660)
Changes in notes payable (3,055) (943)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (6,379) (1,531)
------- -------
Net increase in cash and cash equivalents 179 1,577
Cash and cash equivalents at beginning of period 66 369
------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 245 $ 1,946
======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the year for:
Interest (net of amount capitalized) $ 172 $ 143
======= =======
Income taxes $ (698) $ 120
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
FORM 10-Q
Page 6
ESSEX GAS COMPANY AND SUBSIDIARY
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
MARCH 31, 1999
--------------
1. ACCOUNTING POLICIES AND OTHER INFORMATION
-----------------------------------------
General
-------
It is the Company's opinion that the financial information contained in
this report reflects all normal, recurring adjustments necessary to present
a fair statement of results for the period reported, but such results are
not necessarily indicative of results to be expected for the year due to
the seasonal nature of the Company's business. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. However, the
disclosures herein, when read with the transition report for the period
ended December 31, 1998 filed on Form 10-K, are adequate to make the
information presented not misleading.
Certain prior year financial statement information has been reclassified to
be consistent with the current presentation.
Merger
------
On September 30, 1998, the Company merged with ECGC Acquisition Company, a
wholly owned subsidiary of Eastern Enterprises ("Eastern"), through the
exchange of all of the Company's stock for approximately 2,047,000 shares
of Eastern common stock. The merger was accounted for as a pooling of
interests by Eastern.
On December 7, 1998, the Company changed its fiscal year end from August 31
to December 31 to conform to Eastern's fiscal year end. Accordingly, a
transition period Form 10K has been filed reflecting the results of
operations and cash flows for the four months ended December 31, 1998. The
accompanying Consolidated Statements of Earnings and Cash Flow for the
three-month period ending March 31, 1999 have been compared to the three-
month period ending February 28, 1998 which represents the most comparable
quarter of the preceeding fiscal year. Recasting of the preceeding
quarters to a calendar basis for comparative purposes is not practical and
in management's opinion does not materially affect the comparison.
SEASONAL ASPECT
---------------
The amount of the Company's natural gas firm throughput for purposes of
space heating is directly related to the ambient air temperature.
Consequently, there is less gas throughput during the summer months than
during the winter months. In order to more properly match depreciation and
property tax expense with margin each month, the Company charges to
depreciation and property tax expense an amount equal to the percentage of
the annual volume of firm gas throughput forecasted for the month, applied
to the estimated annual depreciation and property tax expense.
<PAGE>
FORM 10-Q
Page 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS:
---------------------
RESULTS OF OPERATIONS
QUARTER-TO-QUARTER
A comparison of results for the three months ended March 31, 1999 to the
three months ended February 28, 1998 reflect comparative but not precise
periods.
Net earnings applicable to common stock for the quarter ended March 31,
1999 were $4.0 million, an increase of $.7 million over the quarter ended
February 28, 1998. The increase is due to colder weather ($.5 million) and
lower operating expenses ($.2 million). Weather for the three months ended
March 1999 was 9.2% colder than the three months ended February 1998. The
primary reason for the decrease in operating expenses was lower general and
administrative expenses and lower employee benefit costs. The decrease in
expenses is primarily attributable to merger related synergies.
YEAR 2000 ISSUE
On September 30, 1998, there was an Acquisition of the Company by Eastern,
the parent company of Boston Gas (See Note 1 of the Notes to Consolidated
Financial Statements). The Company's Year 2000 issues are being addressed
through the integration of its operations with those of its affiliate
Boston Gas. The Company has incurred a cost of approximately $1.4 million
to integrate various systems with those of Boston Gas. Boston Gas' Year
2000 plan is as follows:
STATE OF READINESS
Boston Gas has assessed the impact of the Year 2000 with respect to its
Information Technology ("IT") systems and embedded chip technology systems
as well as its potential exposure to significant third party risks.
Accordingly, Boston Gas has completed substantial portions of a plan to
replace or modify existing systems and technology as required and to assure
itself that major customers and critical vendors are also addressing these
issues.
With respect to IT systems, Boston Gas has tested and certified as Year
2000 ready, seven of its eleven "mission critical" business systems. Of the
remaining, one system was installed in the fourth quarter of 1998 with
certification testing to be completed by the end of April; and the
remaining three will be replaced by the second quarter of 1999. Eight of
sixteen "less than critical" application systems have completed
certification testing while the remaining eight will be tested and/or
upgraded by the second quarter of 1999. Conversion and testing of all
mainframe hardware and systems software has been completed and the
remaining non-compliant components of Boston Gas' client-server and
data/voice communications infrastructure are scheduled for completion by
the second quarter of 1999. Replacements or remediation of non-compliant
E-mail and desktop hardware and software systems are on schedule for
completion by the second quarter of 1999. An end-to-end integration test
plan has been developed to test all business systems supporting mission
critical processes. The test plan will be executed during the third
quarter of 1999.
<PAGE>
FORM 10-Q
Page 8
With respect to embedded chip systems, Boston Gas has completed an
inventory, assessment and remediation plan. Remediation, conversion and
testing are currently 50% complete and scheduled to be completed by the
third quarter of 1999.
Boston Gas has identified material third party relationships and has
completed a detailed survey of third party readiness. A readiness
assessment has been completed of all mission critical suppliers, with
selected testing and implementation of risk mitigation strategies for
significant vendors scheduled for completion by the second quarter of 1999.
However, there can be no assurance that third party systems, on which
Boston Gas' systems rely, will be timely converted or that any such failure
to convert by a third party would not have an adverse effect on Boston Gas'
operations.
COST OF YEAR 2000 REMEDIATION
Boston Gas expects the cost of Year 2000 compliance will approximate $13.5
million. Approximately 65% of these costs will be incurred under capital
projects that have or will result in added functionality while also
addressing Year 2000 issues. As of March 31, 1999 approximately $11.5
million has been incurred.
RISKS OF YEAR 2000 ISSUES
Boston Gas has assessed the most reasonably likely worst case Year 2000
scenario. Given the Company's efforts to minimize the risk of Year 2000
failure by its internal systems, Boston Gas believes the worst case
scenario would involve failures that impact our data and voice
communication providers, electricity provider or a pipeline supplier.
Detailed plans to accommodate any one or a combination of these worst case
scenarios will be developed and tested as part of the Company's business
contingency planning process.
CONTINGENCY PLANS
Boston Gas has initiated the development of a business contingency plan in
the event that one or more of its internal systems, its embedded chip
systems, or its mission critical suppliers' systems experience a Year 2000
failure. An impact analysis has been completed which identifies the six
major sources of risk and their impact on mission critical processes. By
the second quarter of 1999, contingency plans will be developed for each
mission critical process that could be impacted by a loss in data and/or
voice communications, loss of electricity, or major disruption of gas
supply. Testing of these plans is scheduled during the third quarter of
1999.
FORWARD-LOOKING INFORMATION
This report and other Company reports and statements issued or made from
time to time contain certain "forward-looking statements" concerning
projected future financial performance, expected plans or future
operations. The Company cautions that actual results and developments may
differ materially from such projections or expectations.
<PAGE>
FORM 10-Q
Page 9
Investors should be aware of important factors that could cause actual
results to differ materially from the forward-looking projections or
expectations. These factors include, but are not limited to: the effect of
the Acquisition by Eastern and other strategic initiatives on earnings and
cash flow, temperatures above or below normal in the Company's service
area, changes in economic conditions, including interest rates, the
timetable and cost for completing Year 2000 plans, the impact of third
party Year 2000 issues, regulatory and court decisions and developments
with respect to previously disclosed environmental liabilities. Most of
these factors are difficult to predict accurately and are generally beyond
the control of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that projected cash flow from operations, in
combination with currently available resources, is more than sufficient to
meet 1999 capital expenditures and working capital requirements, dividend
payments and normal debt repayments.
Capital expenditures for the year are projected to be in line with the
original estimate of $6.8 million.
<PAGE>
FORM 10-Q
Page 10
PART II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
There are no material pending legal proceedings involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) List of Exhibits
None.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
<PAGE>
FORM 10-Q
Page 11
SIGNATURES
----------
It is the Company's opinion that the financial information contained in
this report reflects all normal, recurring adjustments necessary to present
a fair statement of results for the period reported, but such results are
not necessarily indicative of results to be expected for the year due to
the seasonal nature of the business of the Company. Except as otherwise
herein indicated, all accounting policies have been applied in a manner
consistent with prior periods. Such financial information is subject to
year-end adjustments and an annual audit by independent public accountants.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Essex Gas Company
------------------------------------------------
(Registrant)
/s/ Joseph F. Bodanza
-------------------------------------------------
J.F. Bodanza, Senior Vice President and Treasurer
(Principal Financial and Accounting Officer)
Dated: May 3, 1999
----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 80,520
<OTHER-PROPERTY-AND-INVEST> 1,335
<TOTAL-CURRENT-ASSETS> 15,446
<TOTAL-DEFERRED-CHARGES> 1,283
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 98,584
<COMMON> 27,805
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 11,334
<TOTAL-COMMON-STOCKHOLDERS-EQ> 39,139
0
0
<LONG-TERM-DEBT-NET> 27,599
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 5,880
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 600
0
<CAPITAL-LEASE-OBLIGATIONS> 456
<LEASES-CURRENT> 61
<OTHER-ITEMS-CAPITAL-AND-LIAB> 24,849
<TOT-CAPITALIZATION-AND-LIAB> 98,584
<GROSS-OPERATING-REVENUE> 22,049
<INCOME-TAX-EXPENSE> 2,501
<OTHER-OPERATING-EXPENSES> 4,986
<TOTAL-OPERATING-EXPENSES> 7,487
<OPERATING-INCOME-LOSS> 4,561
<OTHER-INCOME-NET> 141
<INCOME-BEFORE-INTEREST-EXPEN> 4,702
<TOTAL-INTEREST-EXPENSE> 733
<NET-INCOME> 3,969
0
<EARNINGS-AVAILABLE-FOR-COMM> 3,969
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 616
<CASH-FLOW-OPERATIONS> 6,950
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
