1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 28, 1995
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________________
Commission File Number 0-1166
ESSEX COUNTY GAS COMPANY
(Exact name of registrant as specified in its charter)
Massachusetts 04-1427020
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
7 North Hunt Road, Amesbury, Massachusetts 01913
(Address of principal executive offices) (Zip Code)
(508) 388-4000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the reg-
istrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by court. Yes No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding as of February 28, 1995:
1,589,282
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, 1994 (1994 10-K). In the opinion of Management,
all adjustments, consisting of normally recurring accruals considered
necessary for a fair presentation, have been included. Because of the
seasonal nature of the registrant's business, operating results for the
three month and six month periods ended February 28, 1995, are not
necessarily indicative of the results that may be expected for the fiscal
year ending August 31, 1995.
3
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS
February
28, 1995 August
(Unaudited) 31, 1994
ASSETS ----------- --------
Utility plant $87,773,283 $85,564,414
Less: accumulated depreciation 19,694,445 18,519,429
----------- -----------
Net utility plant 68,078,838 67,044,985
----------- -----------
Other property and investments
(at original cost) 505,591 499,439
----------- -----------
Capitalized lease 721,403 741,939
----------- -----------
Current assets:
Cash 755,057 130,939
Accounts receivable:
Customers 5,915,843 1,629,383
Other 336,480 407,523
Income tax refund - 688,000
Supplemental fuel inventory trust 5,357,067 6,783,404
Materials and supplies 512,080 583,422
Prepaid deferred income taxes 1,501,466 816,445
Prepayments and other 98,310 316,738
----------- -----------
Total current assets 14,476,303 11,355,854
----------- -----------
Deferred charges:
Regulatory assets 2,191,649 2,636,658
Unamortized debt expense 652,020 665,510
Other 602,470 566,179
----------- -----------
Total deferred charges 3,446,139 3,868,347
----------- -----------
$87,228,274 $83,510,564
============ ============
4
ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
February
28, 1995 August
(Unaudited) 31, 1994
----------- --------
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, par value $2.50,
authorized 5,000,000 shares
Issued and outstanding 1,589,282
shares at February 28, 1995, and
1,572,062 at August 31, 1994 $ 3,973,204 $ 3,930,155
Additional paid-in capital 13,930,465 13,532,990
Retained earnings 12,466,356 11,857,299
ESOP shares purchased with debt (225,000) (450,000)
------------ ------------
Total common stock equity 30,145,025 28,870,444
------------ ------------
Redeemable preferred stock, 3,500
shares, 5.50%, $100 par value 350,000 350,000
------------ ------------
Long-term debt, less current portion 20,746,150 21,713,124
------------ ------------
Noncurrent obligations under capital lease 677,667 699,991
------------ ------------
Current liabilities:
Current portion of long-term debt 1,044,337 1,035,304
Current obligation under capital lease 43,736 41,948
Obligations under supplemental
fuel inventory trust 5,657,175 6,428,770
Notes payable, banks 5,135,000 4,500,000
Accounts payable 2,217,182 2,930,578
Taxes payable 2,092,822 -
Accrued interest 693,725 625,784
Refundable gas costs 1,832,718 770,184
Transition obligations 683,318 1,018,531
Supplier refund due customers 2,871,843 1,661,812
Other 745,650 852,259
------------ ------------
Total current liabilities 23,017,506 19,865,170
------------ ------------
Deferred credits:
Accumulated deferred income taxes 8,380,583 8,452,562
Unamortized investment tax credit 1,315,727 1,350,779
Deferred directors' fees 818,738 777,871
Regulatory liabilities 874,994 874,994
Other 901,884 1,430,623
------------ ------------
Total deferred credits 12,291,926 12,011,835
------------ ------------
$87,228,274 $83,510,564
============ ============
<FN>
See notes to consolidated statements.
5
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
February February
28, 1995 28, 1994
(Unaudited) (Unaudited)
----------- -----------
Operating revenues $20,160,226 $23,698,796
Less: Cost of gas 10,299,550 12,667,177
------------ ------------
Operating margin 9,860,676 11,031,619
------------ ------------
Operating expenses:
Operations and maintenance expense 3,762,714 4,589,281
Depreciation 1,162,760 1,217,801
Taxes, other than federal income 837,345 781,394
Federal income taxes 1,276,474 1,514,300
------------ ------------
Total operating expenses 7,039,293 8,102,776
------------ ------------
Operating income 2,821,383 2,928,843
Other income - net 10,388 12,822
------------ ------------
Income before interest charges 2,831,771 2,941,665
------------ ------------
Interest charges:
Interest on long-term debt 511,962 531,532
Amortization of debt expense 6,769 6,674
Other interest expense 215,067 93,983
Allowance for funds used during
construction (9,990) (3,160)
------------ ------------
Total interest charges 723,808 629,029
------------ ------------
Net income 2,107,963 2,312,636
red dividend requirements (4,812) (5,005)
------------ ------------
Income available for common stock $ 2,103,151 $ 2,307,631
============ ============
Common shares outstanding (weighted average) 1,587,080 1,554,396
------------ ------------
Earnings per common share $ 1.33 $ 1.48
------- -------
Dividends per common share $ .39 $ .38
------- -------
<FN>
See notes to consolidated financial statements.
6
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
February February
28, 1995 28, 1994
(Unaudited) (Unaudited)
----------- -----------
Operating revenues $26,862,164 $30,295,991
Less: Cost of gas 13,521,610 15,904,036
------------ ------------
Operating margin 13,340,554 14,391,955
------------ ------------
Operating expenses:
Operations and maintenance expenses 6,429,133 7,246,077
Depreciation 1,550,520 1,552,420
Taxes, other than federal income 1,044,551 931,192
Federal income taxes 1,093,948 1,344,600
------------ ------------
Total operating expenses 10,118,152 11,074,289
Operating income 3,222,402 3,317,666
Other - net (867) (4,842)
------------ ------------
Income before interest charges 3,221,535 3,312,824
------------ ------------
Interest charges:
Interest on long-term debt 1,030,132 1,064,061
Amortization of debt expense 13,490 13,303
Other interest expense 363,713 176,726
Allowance for funds used during
construction (19,911) (5,885)
------------ ------------
Total interest charges 1,387,424 1,248,205
------------ ------------
Net income 1,834,111 2,064,619
Preferred dividend requirements (9,625) (10,010)
------------ ------------
Income available for common stock $ 1,824,486 $ 2,054,609
============ ============
Common shares outstanding (weighted average) 1,582,311 1,550,883
------------ ------------
Earnings per common share $ 1.15 $ 1.32
------- -------
Dividends per common share $ .77 $ .75
------- -------
<FN>
See notes to consolidated financial statements.
7
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
February February
28, 1995 28, 1994
(Unaudited) (Unaudited)
----------- -----------
Operating activities:
Net income $ 1,834,111 $ 2,064,619
Adjustments to reconcile net income to net cash: ---------- -----------
Depreciation and amortization 1,833,484 1,782,407
Provision for uncollectible accounts 915,000 1,530,400
Deferred income taxes (757,000) (1,347,907)
Non-cash compensation related to ESOP 225,000 150,000
Cash provided by (used in) working capital:
Increase in accounts receivable (5,130,417) (8,942,653)
Decrease in inventories including fuel 1,497,679 2,298,345
Decrease in prepaid expenses
and other current assets 218,428 256,859
Increase in refundable gas costs 1,062,534 272,568
Increase (decrease) in accounts payable (713,396) 569,024
Increase in taxes payable 2,780,822 2,237,442
Increase in supplier refund due customers 1,210,031 -
Other, net 415,807 987,373
---------- ----------
Total adjustments 3,557,972 (206,142)
---------- ----------
Net cash provided by operating activities 5,392,083 1,858,477
---------- ----------
Investing activities:
Capital expenditures (2,947,325) (2,688,282)
Cost of property retirements, net of salvage 84,130 (65,258)
---------- ----------
Net cash used in investing activities (2,863,195) (2,753,540)
---------- ----------
Financing activities:
Dividends paid (1,225,054) (1,170,651)
Net proceeds from issuance of common stock 414,820 319,144
Principal retired on long-term debt (732,941) (94,637)
Decrease in fuel trust (771,595) (722,343)
Principal payment on ESOP obligation (225,000) (150,000)
Increase in notes payable, banks 635,000 2,975,000
---------- ----------
Net cash provided by financing activities (1,904,770) 1,156,513
---------- ----------
Net increase in cash 624,118 261,450
Cash at beginning of period 130,939 67,830
---------- ----------
Cash at end of period $755,057 $329,280
========== ==========
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $ 1,319,483 $ 1,246,326
---------- -----------
Cash paid for income taxes $ 84,000 $ 160,000
---------- -----------
<FN>
See notes to consolidated financial statements.
8
Notes to Consolidated Financial Statements:
A. Interim Accounting Policies
Since most firm customers utilize gas for space heating purposes,
the Company's sales are highly sensitive to the severity of the
weather. 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 $1,460,600 and $804,000 as of
February 28, 1995 and August 31, 1994, respectively.
C. Restriction on Retained Earnings
Under the terms of the Twelfth Supplemental Indenture of First
Mortgage Bonds dated as of December 1, 1990, retained earnings in
the amount of $5,083,136 were unrestricted as to the payment of cash
dividends on Common Stock and the purchase, redemption, or retirement
of shares of capital stock as of February 28, 1995.
Item 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Three Months Ended February 28, 1995 and February 28, 1994.
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 the Company must return all
operating margin on such sales directly to the Company's firm
customers unless interruptible volumes exceed a certain threshold
specified by the Massachusetts Department of Public Utilities
("MDPU"). Once the threshold is attained, the Company may retain 10%
of gross profits. The threshold was not attained in the three month
period ended February 28, 1995. 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.
9
The Company's service territory experienced 3,158 effective degree
days during the three months ended February 28, 1995 as compared to
3,746 effective degree days for the three months ended
February 28, 1994. The twenty-year average is 3,481 effective
degree days. As a result, the volume of firm sales decreased
14.4% to 2,192,806 Mcf for the three months ended February 28, 1995
from 2,562,364 Mcf for the three months ended February 28, 1994.
During the winter months the Company typically has no interruptible
sales. The Company's total operating revenues decreased 14.9% to
$20,160,226 for the three months ended February 28, 1995 from
$23,698,796 for the three months ended February 28, 1994.
This decrease was primarily due to previously mentioned
weather-related factors and a 1.1% decrease in the average unit price
of gas sold to firm customers. The average unit selling price per
Mcf of firm gas sold was $9.08 for the three months ended
February 28, 1995 compared to $9.19 for the three months ended
February 28, 1994. The decrease in unit selling price is related to
the Company returning to its customers savings in gas costs as well
as refunds received from its pipeline suppliers.
Gas costs decreased 18.7% to $10,299,550 for the three months ended
February 28, 1995 from $12,667,177 for the three months ended
February 28, 1994. The decrease in gas costs recovered was
attributable to the previously mentioned decrease in firm gas
volumes sold and a 5.0% decrease in the Company's average cost of gas
to $4.70 per Mcf for the three months ended February 28, 1995 from
$4.94 per Mcf for the three months ended February 28, 1994.
Operations and maintenance expenses decreased 18.0% to $3,762,714 for
the three months ended February 28, 1995 from $4,589,281 for the
three months ended February 28, 1994. This decrease was due
primarily to reduced gas production and related costs which were
related to reduced demand for gas and reduced bad debt expense.
In the previous year the Company incurred additional outside services
relating to gas supply and regulatory items which were no longer
issues in the current fiscal year.
Interest charges for the three months ended February 28, 1995
increased by $94,779. The increase was primarily attributable to
higher interest rates including the interest payable to customers on
pipeline refunds received by the Company.
Income attributable to common stock decreased 8.9% to $2,103,151 for
the three months ended February 28, 1995 from $2,307,631 for the
three months ended February 28, 1994. Income per common share
decreased 10.1% to $1.33 for the three months ended February 28, 1995
from $1.48 per share for the three months ended February 28, 1994.
Dividends per common share were $.39 per share for the three months
ended February 28, 1995 compared to $.38 per share for the three
months ended February 28, 1994. In March 1995, the Company declared
a dividend of $.39 per share which was paid to shareholders on
April 1, 1995.
Six Months Ended February 28, 1995 and February 28, 1994
Operating revenues for the six months ended February 28, 1995
were $26,862,164 compared to $30,295,991 for the six months ended
February 28, 1994. Firm gas volumes were 2,051,022 Mcf compared
to 3,427,498 Mcf for the six month period ended February 28, 1994.
These decreases are due to significantly warmer weather as degree
days were 3,947 compared to 4,757 a year ago, representing a
17.0% decrease. Normal weather in the Company's service area for the
six month period is equivalent to 4,461 effective degree days. The
average selling price of firm gas was $8.74 for the six months ended
February 28, 1995 compared to $8.71 for the same period last year.
Interruptible revenues for the six months ended February 28, 1995 and
1994 were $642,565 and $2,468, respectively as the Company was able
to obtain, on an interruptible basis, competitively priced spot gas
for sale to its largest interruptible customer.
Operations and maintenance expenses for the six months ended
February 28, 1995 decreased to $6,429,133 from $7,246,077 for the
comparable period a year ago. Reasons for this decrease are similar
to those mentioned for the quarter ended February 28, 1995.
10
Interest expense increased $139,219 as a result of higher interest
rates.
Income available to common shareholders decreased by $230,122 to
$1,824,486 as compared to $368,328 for the same six month period last
year while earnings per share decreased to $1.15 from $1.32.
Dividends were $.77 and $.75, respectively.
Liquidity and Capital Resources
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 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 needs.
The Company finances most of its gas inventory through a trust which
purchases gas with funds loaned by a bank. The Company is obligated
to repurchase gas from the trust at prices based on original product
cost, financing charges and trust fees. The credit agreement between
the trust and the bank extends through October 1, 1995, and the
maximum financing commitment is $7,000,000. As of February 28, 1995,
the Company's repurchase obligation to the trust was $5,657,175.
For the three months ended February 28, 1995, the Company's
construction expenditures totaled $1,435,313. These expenditures
were funded principally from operations. Historically, the second
quarter of the Company's fiscal year has been characterized by
minimal construction expenditures, high gas sendout and high
operating revenues. Cash requirements during this period have
historically been satisfied through operations. Construction expenditures
for the six months ended February 28, 1995 were $2,947,000 as compared
to $2,688,000 for the same period a year ago. These were funded by cash
flows from operations and short-term bank borrowings. The six-month period
ended February 28, 1995 is characterized by higher receivables associated
with peak season billing and higher gas purchases which results in
increased short-term borrowings. Although the Company anticipates a
reduction of short-term borrowings as winter receivables are collected,
the onset of renewed construction activity in the subsequenty quarter
may require additional short-term borrowings under exsisting lines of
credit. Planned construction expenditures for the remainder of fiscal 1995
are currently estimated at $3,800,000 and planned construction expenditures
for fiscal 1996 are currently estimated at $7,000,000. The Company's planned
construction expenditures and long-term debt repayments have been and
will continue to be funded through cash generated by operations and
short-term bank borrowings, which the Company anticipates will be
replaced from time to time with equity and long-term debt financings.
11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
The information called for is unchanged from that filed in the
Company's Annual Report on Form 10-K for fiscal 1994.
Item 2 Changes in Securities
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on
January 17, 1995. For a description of the meeting and the matters
voted on thereat, see the Company's Notice of Annual Meeting and
Proxy Statement (the "Proxy Statement"), filed with the Securities
and Exchange Commission on December 6, 1994, 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.
The votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes as to each matter voted on at the
Annual Meeting is as follows:
1. To fix the number of members of the Board of Directors at
twelve as provided in the Proxy Statement.
Number of Shares
For 1,229,198
Against 6,131
Abstain/Broker non-votes 13,417
12
2.Election of Directors Number of Shares
For Against
C.E. Billups 1,378,030 21,123
B.C. Bixby 1,382,648 16,506
D.A. Burkhardt 1,381,969 17,184
E.J. Curtis 1,382,128 17,026
D.J. Dotson 1,380,748 18,405
R.P. Hamel 1,378,035 21,118
R.S. Jackson 1,381,626 17,526
E.H. Jostrom 1,382,648 16,506
R.L. Meade 1,382,648 16,506
K.L. Paul 1,382,648 16,506
P.H. Reardon 1,382,648 16,506
R.L. Wellman 1,382,128 17,026
3. Election of James H. Hastings, as Treasurer of the Company.
Number of Shares
For 1,291,187
Against 3,214
Abstain/Broker non-votes 16,634
4. Election of Cathy E. Brown, as Clerk of the Company.
Number of Shares
For 1,285,803
Against 8,084
Abstain/Broker non-votes 17,149
5. To amend the Restated Articles of Organization to increase the
Company's authorized shares of Common Stock and to reduce the
par value of the Company's Common Stock.
Number of Shares
For 1,230,054
Against 56,085
Abstain/Broker non-votes 24,892
6. To adopt Amended and Restated By-laws.
Number of Shares
For 929,095
Against 99,968
Abstain/Broker non-votes 27,086
7. To adopt the 1994 Stock Option Plan.
Number of Shares
For 972,170
Against 42,889
Abstain/Broker non-votes 34,471
13
Item 5 Other Information
None
Item 6(a) Exhibits
3.1 Restated Articles of Organization
3.2 Amended and Restated By-laws
10.34 1994 Stock Option Plan
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
Date: April 12, 1995 By /s/ James H. Hastings
James H. Hastings
Vice President and Treasurer
[ARTICLE] UT
LEGEND>
This schedule contains summary financial information extracted from the
balance sheet, statement of income and statement of cash flows contained in
Form 10-Q of Essex County Gas Company for the six months ended
February 28, 1995 and is qualified in its entirety by reference to such
financial statements.
/LEGEND>
[CIK] 0000046189
[NAME] ESSEX COUNTY GAS COMPANY
[MULTIPLIER] 1,000
[PERIOD-TYPE] 6-MOS
FISCAL-YEAR-END> AUG-31-1994
[PERIOD-END] FEB-28-1995
[BOOK-VALUE] PER-BOOK
[TOTAL-NET-UTILITY-PLANT] 68,079
[OTHER-PROPERTY-AND-INVEST] 506
[TOTAL-CURRENT-ASSETS] 14,476
[TOTAL-DEFERRED-CHARGES] 3,446
[OTHER-ASSETS] 721
[TOTAL-ASSETS] 87,228
[COMMON] 3,973
[CAPITAL-SURPLUS-PAID-IN] 13,705
[RETAINED-EARNINGS] 12,467
[TOTAL-COMMON-STOCKHOLDERS-EQ] 30,145
[PREFERRED-MANDATORY] 350
[PREFERRED] 0
[LONG-TERM-DEBT-NET] 20,746
[SHORT-TERM-NOTES] 5,135
[LONG-TERM-NOTES-PAYABLE] 0
[COMMERCIAL-PAPER-OBLIGATIONS] 0
[LONG-TERM-DEBT-CURRENT-PORT] 1,044
[PREFERRED-STOCK-CURRENT] 0
[CAPITAL-LEASE-OBLIGATIONS] 678
[LEASES-CURRENT] 43
[OTHER-ITEMS-CAPITAL-AND-LIAB] 29,087
[TOT-CAPITALIZATION-AND-LIAB] 87,228
[GROSS-OPERATING-REVENUE] 26,862
[INCOME-TAX-EXPENSE] 1,094
[OTHER-OPERATING-EXPENSES] 22,546
[TOTAL-OPERATING-EXPENSES] 23,640
[OPERATING-INCOME-LOSS] 3,222
[OTHER-INCOME-NET] 0
[INCOME-BEFORE-INTEREST-EXPEN] 3,222
[TOTAL-INTEREST-EXPENSE] 1,388
[NET-INCOME] 1,834
<PREFERRED-STOCK-DIVIDEND> 10
[EARNINGS-AVAILABLE-FOR-COMM] 1,824
[COMMON-STOCK-DIVIDENDS] 1,215
[TOTAL-INTEREST-ON-BONDS] 1,030
[CASH-FLOW-OPERATIONS] 5,329
[EPS-PRIMARY] 1.15
[EPS-DILUTED] 1.15