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, 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
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, 1995:
1,598,103
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. 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 nine
month periods ended May 31, 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
May 31, 1995
(Unaudited) Aug. 31, 1994
------------ -------------
ASSETS
Utility plant $88,931,064 $85,564,414
Less: Accumulated depreciation 20,388,901 18,519,429
---------- ----------
Net utility plant 68,542,163 67,044,985
---------- ----------
Other property and investments
(at original cost) 505,591 499,439
---------- ----------
Capitalized lease 710,808 741,939
---------- ----------
Current assets:
Cash and cash equivalents 433 130,939
Accounts receivable:
Customers 2,041,742 1,629,383
Other 397,982 407,523
Income tax refund - 688,000
Supplemental fuel inventory trust 5,148,001 6,783,404
Materials and supplies 771,471 583,422
Prepaid deferred income taxes 2,630,480 816,445
Prepayments and other 137,339 316,738
---------- ----------
Total current assets 11,127,448 11,355,854
---------- ----------
Deferred charges:
Regulatory assets 2,303,109 2,636,658
Unamortized debt expense 645,250 665,510
Other 620,364 566,179
---------- ----------
Total deferred charges 3,568,723 3,868,347
---------- ----------
$84,454,733 $83,510,564
============ ============
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
May 31, 1995
(Unaudited) Aug. 31, 1994
------------ -------------
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, par value $2.50
(authorized 5,000,000 shares:
issued and outstanding 1,598,103
shares at May 31, 1995, and
1,572,062 at August 31, 1994) $ 3,995,258 $ 3,930,155
Additional paid-in capital 14,116,123 13,532,990
Retained earnings 12,811,374 11,857,299
ESOP shares purchased with debt (225,000) (450,000)
----------- -----------
Total common stock equity 30,697,755 28,870,444
----------- -----------
Redeemable preferred stock (3,500
shares, 5.50%, $100 par value) 350,000 350,000
----------- -----------
Long-term debt less current portion 20,898,372 21,713,124
----------- -----------
Non-current obligations under capital lease 666,150 699,991
----------- -----------
Current liabilities:
Current portion of long-term debt 823,998 1,035,304
Current obligation under capital lease 44,658 41,948
Obligations under supplemental
fuel inventory trust 4,079,125 6,428,770
Notes payable, banks 1,170,000 4,500,000
Accounts payable 2,638,218 2,930,578
Taxes payable 1,949,435 -
Accrued interest 268,464 625,784
Refundable gas costs 3,827,547 770,184
Transition obligations 858,715 1,018,531
Supplier refund due customers 2,674,327 1,661,812
Other 846,944 852,259
----------- -----------
Total current liabilities 19,181,431 19,865,170
----------- -----------
Deferred credits:
Accumulated deferred income taxes 8,681,724 8,452,562
Unamortized investment tax credit 1,298,201 1,350,779
Deferred directors' fees and compensation 831,208 777,871
Regulatory liability 874,994 -
Other 974,898 1,430,623
----------- -----------
Total deferred credits 12,661,025 12,011,835
----------- -----------
$84,454,733 $83,510,564
============ ============
<FN>
See notes to consolidated financial statements.
5
ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS END
May 31, 1995 May 31, 1994
(Unaudited) (Unaudited)
------------ ------------
Operating revenues $14,100,557 $13,990,718
Less: Cost of gas 7,269,605 7,188,803
----------- -----------
Operating margin 6,830,952 6,801,915
Operating expenses: ----------- -----------
Operations and maintenance expenses 3,786,017 3,106,973
Depreciation 732,760 682,064
Taxes, other than federal income 489,476 465,403
Federal income taxes 197,474 1,019,300
----------- ------------
Total operating expenses 5,205,727 5,273,740
----------- ------------
Operating income 1,625,225 1,528,175
Other income (expense) - net (3,458) 15,342
----------- -----------
Income before interest charges 1,621,767 1,543,517
Interest charges: ----------- -----------
Interest on long-term debt 510,023 530,518
Amortization of debt expense 6,770 6,673
Other interest expense 142,059 97,274
Allowance for funds used during
construction (7,605) (3,446)
----------- -----------
Total interest charges 651,247 631,019
----------- -----------
Net income 970,520 912,498
Preferred dividend requirements (4,813) (5,005)
----------- -----------
Income available for common stock $ 965,707 $ 907,493
============ ============
Common shares outstanding (weighted average) 1,595,746 1,561,985
----------- -----------
Earnings per common share $ .61 $ .58
----------- -----------
Dividends per common share $ .39 $ .38
----------- -----------
<FN>
See notes to consolidated financial statements.
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
May 31, 1995 May 31, 1994
(Unaudited) (Unaudited)
------------ ------------
Operating revenues $40,962,721 $44,286,709
Less: Cost of gas 20,791,215 23,092,840
----------- -----------
Operating margin 20,171,506 21,193,869
Operating expenses: ----------- -----------
Operations and maintenance expenses 10,215,150 10,353,050
Depreciation 2,283,280 2,234,484
Taxes, other than federal income 1,534,027 1,396,595
Federal income taxes 1,291,422 2,363,900
----------- -----------
Total operating expenses 15,323,879 16,348,029
----------- -----------
Operating income 4,847,627 4,845,840
Other income - net (4,325) 10,500
----------- -----------
Income before interest charges 4,843,302 4,856,340
Interest charges: ----------- -----------
Interest on long-term debt 1,540,155 1,594,579
Amortization of debt expense 20,260 19,976
Other interest expense 505,772 274,000
Allowance for funds used during
construction (27,516) (9,331)
----------- -----------
Total interest charges 2,038,671 1,879,224
----------- -----------
Net income 2,804,631 2,977,116
Preferred dividend requirements (14,438) (15,015)
------------ ------------
Income available for common stock $ 2,790,193 $ 2,962,101
============ ============
Common shares outstanding (weighted average) 1,586,832 1,554,619
------------ ------------
Earnings per common share $ 1.76 $ 1.91
------------ ------------
Dividends per common share $ 1.16 $ 1.13
------------ ------------
<FN>
See notes to consolidated financial statements.
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
May 31, 1995 May 31, 1994
(Unaudited) (Unaudited)
------------ ------------
Operating activities:
Net income $ 2,804,631 $ 2,977,116
Adjustments to reconcile net income to net cash: ----------- -----------
Depreciation and amortization 2,701,162 2,572,269
Provision for uncollectible accounts 1,961,930 1,648,400
Decrease in deferred income taxes (1,526,324) (1,926,906)
Non-cash compensation related to ESOP 225,000 150,000
Cash provided by (applied to) working capital:
Increase in accounts receivable (2,364,748) (4,241,238)
Decrease in inventories including fuel 1,447,354 900,258
Decrease in prepaid expenses 179,399 196,132
Increase in refundable gas costs 3,057,363 1,827,259
Increase (decrease) in accounts payable (292,360) 287,369
Increase in taxes payable 2,637,435 2,816,251
Increase in supplier refund due customers 1,012,515 -
Other, net 164,818 789,307
----------- -----------
Total adjustments 9,203,544 5,019,101
----------- -----------
Net cash provided by operating
activities 12,008,175 7,996,217
----------- -----------
Investing activities:
Capital expenditures (4,201,798) (3,607,205)
Cost of property retirements, net 9,696 (184,355)
----------- -----------
Net cash applied to investing activities (4,192,102) (3,791,560)
----------- -----------
Financing activities:
Dividends paid (1,850,556) (1,767,788)
Net proceeds from issuance of common stock 609,680 548,759
Principal retired on long-term debt (801,058) (143,470)
Decrease in fuel trust (2,349,645) (934,494)
Principal payment on ESOP obligation (225,000) (150,000)
Decrease in notes payable, banks (3,330,000) (1,650,000)
Net cash applied to financing activities (7,946,579) (4,096,993)
----------- -----------
Net increase in cash and cash equivalents (130,506) 107,664
Cash and cash equivalents at beginning of
period 130,939 67,830
----------- -----------
Cash and cash equivalents at end of period $ 433 $ 175,494
============ ============
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $ 2,395,991 $ 2,380,893
Cash paid for income taxes $ 1,350,697 $ 1,275,360
<FN>
See notes to consolidated financial statements.
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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 more properly
match expenses with gas revenues each month, the Company
charges to certain expenses, primarily depreciation, an
amount equal to the percentage of the annual volume of firm
gas sales forecasted for the month, applied to the estimated
annual expenses.
B. Accounts Receivable
Accounts Receivable - Customers are shown net of allowance
for uncollectible accounts of $2,414,000 and $804,000 as of
May 31, 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 $9,026,472 as of May 31, 1995, were unrestricted
as to the payment of cash dividends on Common Stock and the
purchase, redemption, or retirement of shares of capital
stock.
Item 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations
Three Months Ended May 31, 1995 and May 31, 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. Because at least 90% of the profit earned
on interruptible sales is required to be returned to firm
customers, changes in the level of interruptible sales do not
significantly impact earnings. The Company's sales are
responsive to colder weather as the majority of its firm
customers use natural gas for space heating purposes. The
Company measures weather through the use of effective degree
days. An effective degree day is calculated by subtracting the
average temperature for the day, adjusted for wind and cloud
cover, from 65 degrees Fahrenheit. The Company's service
territory experienced 2,194 effective degree days during the
three months ended May 31, 1995 as compared to 2,094 effective
degree days for the three months ended May 31, 1994. The
twenty-year average for the three months ended May 31 is 2,146
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effective degree days. As a result, the volume of firm sales
increased 1.2% to 1,592,183 thousand cubic feet ("Mcf") for the
three months ended May 31, 1995 from 1,573,391 Mcf for the three
months ended May 31, 1994. The Company's interruptible sales
increased 205.6% to 296,152 Mcf for the three months ended May
31, 1995 compared to the 96,903 Mcf for the same period ended
May 31, 1994. This increase was due to the fact the Company was
able to purchase spot gas at a price that compared favorably to
competing oil, which induced the Company's major interruptible
customer to use natural gas for its energy needs. The Company's
total operating revenues remained approximately level at
$14,100,557 for the three months ended May 31, 1995 compared to
$13,990,718 for the three months ended May 31, 1994. This small
increase in operating revenues was primarily due to an increase
in the above-mentioned interruptible sales during the quarter
ended May 31, 1995.
Total gas costs, including both firm and interruptible,
increased 1.12% to $7,269,605 for the three months ended May 31,
1995 from $7,188,803 for the three months ended May 31, 1994.
The increase in gas costs recovered was attributable to the
previously mentioned increase in gas volumes sold but was
partially offset by a 10.47% decrease in the Company's unit cost
of gas. The unit cost of gas decreased to $3.85 per Mcf for the
three months ended May 31, 1995 from $4.30 per Mcf for the three
months ended May 31, 1994. The reason for the decrease was due
to generally lower purchase prices and the ability to purchase
large interruptible volumes on the spot market.
Operations and maintenance expenses increased 21.86% to
$3,786,017 for the three months ended May 31, 1995 from
$3,106,973 for the three months ended May 31, 1994. This
increase was due primarily to increased allowance for
uncollectible accounts. During the third quarter of 1995, the
Company recorded a non-recurring adjustment to its accrued
income taxes which resulted in a relatively low income tax
provision for the period.
Interest charges for the three months ended May 31, 1995
increased by $20,228. The increase was primarily attributable
to the higher interest rates including interest payable to
customers on pipeline refunds received by the Company.
Income available for common stock increased 6.41% to $965,707
for the three months ended May 31, 1995 from $907,493 for the
three months ended May 31, 1994. Income per common share
increased 5.17% to $0.61 for the three months ended May 31, 1995
from $0.58 per share for the three months ended May 31, 1994.
Dividends per common share were $.39 per share for the three
months ended May 31, 1995 compared to $.38 per share for the
three months ended May 31, 1994. In June 1995, the Company
declared a dividend of $.39 per share which was paid to shareholders
on July 1, 1995.
Results of Operations
Nine Months Ended May 31, 1995 and May 31, 1994
Operating revenues for the nine months ended May 31, 1995
were $40,962,721 compared to $44,286,709 for the nine months
ended May 31, 1994. Firm gas revenues amounted to $38,987,208
10
compared to $43,326,315 for the same period in 1994, a decrease
of 10.01%. Firm gas volumes were 4,543,705 Mcf compared to
5,000,889 Mcf for the nine month period ended May 31, 1994, a
decrease of 9.14%. These decreases are due to warmer weather as
degree days were 6,206 compared to 6,986 a year ago,
representing an 11.17% decrease. Normal weather in the Company's
service area for the nine month period is 6,684 degree days.
The average selling price of firm gas was $8.58 for the nine
months ended May 31, 1995 compared to $8.66 for the same period
last year. Interruptible revenues were $1,321,051 and $231,648
for May 31, 1995 and May 31, 1994, respectively, as
interruptible volumes increased 516.20% to 602,456 Mcf.
Operations and maintenance expenses for the nine months ended
May 31, 1995 decreased to $10,215,150 from $10,353,050 for the
comparable period a year ago. Reasons for the decrease are
primarily related to lower costs of production and employee
benefits offset by higher allowance for uncollectible accounts.
Interest expense increased $159,447 as a result of higher
interest rates including interest payable to customers on
pipeline refunds received by the Company.
Income available to common shareholders decreased by $171,908
to $2,790,193 as compared to $2,962,101 for the same nine month
period in fiscal 1994. Earnings per common share decreased to
$1.76 from $1.91. Dividends were $1.16 and $1.13, 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. Historically, between 30% and
35% of the Company's annual construction expenditures consist of
renewal and upgrade of the existing system. The remaining
expenditures are typically for expansion to serve new customers,
equipment and rental appliances. 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 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 commitment
under this financing arrangement is $7,000,000. As of May 31,
1995, the Company's repurchase obligation to the trust was
$4,079,125. The Company expects new financing to be in place on
or before the October expiration date.
For the three months ended May 31, 1995, the Company's
construction expenditures were approximtely $1,345,000. These
expenditures were funded principally from the previously
mentioned sources of financing. Historically, the third quarter
of the Company's fiscal year has been characterized by rising
capital expenditures, diminishing gas sendout and reduced
operating revenues. Cash requirements during this period have
historically been satisfied through operations and short-term
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borrowings. Planned construction expenditures for the remainder
of fiscal 1995 are currently estimated at $2,456,000 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 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.
Construction expenditures for the nine months ended May 31,
1995 were $4,333,525 as compared to $3,628,000 for the same
period a year ago. These expenditures were funded by cash flows
from operations and short-term bank borrowings.
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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
Amendments to Restated Articles of Organization
At the Company's annual meeting on January 17, 1995,
the shareholders of the Company approved the
amendment of the Restated Articles of Organization
of the Company in two respects:
1. the number of authorized common capital
stock, $2.50 par value, has been increased from
3,100,000 shares to 5,000,000, and
2. the par value of the Company's authorized
common capital stock has been decreased from
$2.50 to no par value.
These amendments will provide the Company with
flexibility for possible future actions such as
stock dividends, splits or financings, because any
or all of the authorized shares of Common Stock
could be issued without further action by the stock-
holders and without first offering such shares to
stockholders for subscription. Although the
issuance of Common Stock on an other than pro rata
basis would reduce the current stockholders'
proportionate interest, stockholders wishing to
maintain their interest may be able to do so through
normal market purchases. Further, the change in the
par value of the Company's authorized common capital
stock from $2.50 to no par value eliminates the
necessity of obtaining shareholder approval for the
change in par value in the event of a future stock
split.
The Company is a regulated public utility and, as
such, is subject to regulations proscribed by the
Massachusetts Department of Public Utilities
("MDPU"). The Amendment concerning no par value is
contingent upon receiving necessary approval from
the MDPU, which has not yet been received.
Amendments to By-laws
At the Company's annual meeting on January 17, 1995,
the shareholders of the Company approved changes to
the Company's By-laws. A summary of major proposed
changes is presented below.
1. The Amended and Restated By-laws now allow
the number of Directors to be amended by a
majority vote of the Board of Directors.
Previously, the By-laws only allowed the number
of Directors to be changed by vote of the
stockholders.
13
2. Previously, the By-laws contained an
ambiguous provision which allows the stockholders
to fill a vacancy on the Board of Directors if
the directors have not filled such vacancy during
an unspecified period of time. The Amended and
Restated By-laws clarify that provision by
requiring the Board of Directors to fill any
vacancy for the unexpired term.
3. The Amended and Restated By-laws contain a
new section allowing action by the Board of
Directors to be taken without meeting if consent
in writing is signed by all Directors before such
action.
4. The Amended and Restated By-laws contain a
new section establishing that a Director's assent
to any action at a meeting shall be presumed
unless the Director specifically states his or
her objection or abstention.
5. The Amended and Restated By-laws provide
that the Board of Directors shall elect the
Company's Treasurer and Clerk. Previously, the
By-laws required that the Treasurer and Clerk be
elected at the annual meeting of the stockholders.
6. Previously, the By-laws provided that
Directors shall not receive any stated salary,
but by resolution or vote of the Board they may
receive a fixed sum and expenses for attendance
at meetings. The Amended and Restated By-laws
simplify the provision to provide that all
Directorsshall receive such compensation as is
determined by resolution of the Board. The
Amended and Restated By-laws retain the provision
that makes Director compensation subject to revi-
sion or amendment by the stockholders.
7. Previously, the provisions concerning
indemnification of Directors and Officers in the
By-laws did not provide them with indemnification
to the maximum extent allowed by Massachusetts
law. The Amended and Restated By-laws permit
such expanded indemnification by providing
indemnification for Directors and Officers if
such Director or Officer acted in good faith in
reasonable belief that his or her action was in
the best interests of the Corporation.
Indemnification, if deemed appropriate, is also
available for an employee or agent of the
Corporation provided such person acted in good
faith in reasonable belief that his or her action
was in the bestinterests of the Corporation.
Indemnification agreements with individual
directors and advance payment of indemnification
expenses are also authorized.
8. The previous By-laws stated generally that
the Board may prescribe the terms for issuing new
stock certificates. The Amended and Restated
By-laws contain detailed provisions with respect
to transfer of shares and replacement of lost or
stolen shares.
14
9. The Amended and Restated By-laws contain a
new section which establishes a procedure for
shareholders to give advance, specific notice of
shareholder nominations of Directors and
shareholder proposals.
10. In addition to the foregoing, the Amended
and Restated By-laws correct several punctuation
and spelling errors and similar matters contained
in the previous By-laws.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
Item 5 Other Information
None.
Item 6(a)Exhibits
Exhibit 3.1 Restated Articles of Organization
(previously filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the Quarter ending
February 28, 1995 and incorporated herein by this
reference).
Exhibit 3.2 Amended and Restated Bylaws (previously
filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the Quarter ending February
28, 1995 and incorporated herein by this reference).
Item 6(b)Reports on Form 8-K
None
15
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
Date: July 11, 1995
By /s/ Philip H. Reardon,
Philip H. Reardon, President
Date: July 11, 1995
By /s/ James H. Hastings
James H. Hastings, Vice President and Treasurer