1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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 periodthat the registrant was required to file
such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 and
15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a
plan confirmed by court. Yes No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of shares of Common Stock outstanding as of
November 30, 1995:
1,614,693
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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, 1995 (1995 10-K).
In the opinion of Management, all adjustments, consisting of
normally recurring adjustments considered necessary for a
fair presentation, have been included. Because of the
seasonal nature of the registrant's business, operating
results for the three months ended November 30, 1995, are not
necessarily indicative of the results that may be expected
for the fiscal year ending August 31, 1996.
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS
November
30, 1995 August
(Unaudited) 31, 1995
ASSETS
Utility plant $93,600,548 $91,462,732
Less: Accumulated depreciation 20,644,394 20,304,386
---------- ----------
Net utility plant 72,956,154 71,158,346
---------- ----------
Other property and investments
(at original cost) 570,620 570,620
---------- ----------
Capitalized lease 688,945 699,991
---------- ----------
Current assets:
Cash and cash equivalents 263,563 136,925
Accounts receivable, net
Customers 1,896,186 1,418,510
Other 239,299 280,889
Income tax refund receivable - 200,000
Supplemental fuel inventory trust 7,102,168 6,477,155
Material and supplies 889,021 594,817
Prepaid deferred income taxes 1,811,778 1,397,422
Prepayments and other 379,290 350,660
---------- ----------
Total current assets 12,581,305 10,856,378
---------- ----------
Deferred charges:
Unamortized debt expense and other 1,180,984 1,028,319
Regulatory assets 2,086,091 2,267,954
---------- ----------
Total deferred charges 3,267,075 3,296,273
---------- ----------
$90,064,099 $86,581,608
========== ==========
See Notes to Consolidated Financial Statements.
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
November
30, 1995 August
(Unaudited) 31, 1995
CAPITALIZATION AND LIABILITIES
Common stock equity:
Common stock, no par (authorized
5,000,000 shares, issued and
outstanding 1,614,693 shares) $18,525,669 $ -
Common stock, par value $2.50,
(authorized 5,000,000 shares,
issued and outstanding
1,607,061 shares) - 4,017,653
Additional paid-in capital - 14,311,026
Unrealized gain on investments
available for sale, net 28,902 28,902
Retained earnings 11,741,055 12,576,695
ESOP shares purchased with debt (75,000) (225,000)
---------- ----------
Total common stock equity 30,220,626 30,709,276
---------- ----------
Redeemable preferred stock
(3,360 shares, 5.50%, $100 par value) 336,000 336,000
---------- ----------
Long-term debt less current portion 20,008,607 20,689,366
---------- ----------
Non-current obligations under
capital lease 642,384 654,390
---------- ----------
Current liabilities:
Current portion of long-term debt 854,119 978,758
Current obligation under
capital lease 46,561 45,599
Obligations under supplemental
fuel inventory trust 5,696,511 5,131,153
Notes payable, banks 11,400,000 4,890,000
Accounts payable 3,100,617 2,986,307
Accrued interest 394,383 825,322
Refundable gas costs 1,024,623 2,490,178
Transition obligations 720,752 858,715
Supplier refund due customers 2,124,708 2,454,739
Other 741,394 850,404
---------- ----------
Total current liabilities 26,103,668 21,511,175
---------- ----------
Deferred credits:
Accumulated deferred income taxes 9,039,292 9,092,349
Unamortized investment tax credit 1,263,235 1,280,680
Deferred directors' fees 895,487 879,009
Other 1,554,800 1,429,363
---------- ----------
Total deferred credits 12,752,814 12,681,401
---------- ----------
$90,064,099 $86,581,608
=========== ===========
See Notes to Consolidated Financial Statements.
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
November November
30, 1995 30, 1994
(Unaudited) (Unaudited)
Operating revenues $ 6,962,014 $6,701,938
Less: Cost of gas 3,273,480 3,222,060
--------- ---------
Operating margin 3,688,534 3,479,878
Operating expenses: --------- ---------
Operations and maintenance
expenses 2,667,236 2,666,419
Depreciation 417,760 387,760
Taxes, other than federal income 212,741 207,206
Federal income taxes (145,445) (182,526)
--------- ---------
Total operating expenses 3,152,292 3,078,859
--------- ---------
Operating income 536,242 401,019
Other expense-net (16,873) (2,267)
--------- ---------
Income before interest charges 519,369 398,752
--------- ---------
Interest charges:
Interest on long-term debt 497,403 518,170
Amortization of debt expense 6,821 6,721
Other interest expense 230,556 157,634
Allowance for funds used during
construction (11,944) (9,921)
--------- ---------
Total interest charges 722,836 672,604
--------- ---------
Net loss (203,467) (273,852)
Preferred dividend requirements (4,620) (4,813)
--------- ---------
Loss attributable to common stock $ (208,087) $ (278,665)
========= =========
Common shares outstanding
(weighted average) 1,612,851 1,578,118
--------- ---------
Loss per common share $ (.13) $ (.18)
--------- ---------
Dividends per common share $ .39 $ .38
--------- ---------
See Notes to Consolidated Financial Statements.
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ESSEX COUNTY GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
November November
30, 1995 30, 1994
(Unaudited) (Unaudited)
Operating activities:
Net loss $ (203,467) $ (273,852)
Adjustments to reconcile net --------- ---------
income to net cash:
Depreciation and amortization 487,899 458,717
Provision for uncollectible
accounts 110,135 106,000
Deferred income taxes (1,193,427) 609,000
Non-cash compensation related
to ESOP 150,000 225,000
Cash provided by (used in)
working capital:
Increase in accounts receivable (546,221) (61,018)
Increase in inventories (919,217) (869,941)
(Increase)decrease in prepayments
and other (28,630) 76,006
Increase (decrease) in income and
other taxes 59,697 (843,000)
Decrease in refundable gas costs (1,465,555) (1,100,355)
Increase (decrease) in accounts
payable 114,310 (347,047)
Other, net 22,669 (506,695)
--------- ---------
Total adjustments (3,208,340) (2,253,333)
Net cash used in operating --------- ---------
activities (3,411,807) (2,527,185)
--------- ---------
Investing activities:
Capital expenditures (2,199,905) (1,538,363)
Cost of property retirements, net (83,574) (1,951)
Net cash used in investing --------- ---------
activities (2,283,479) (1,540,314)
--------- ---------
Financing activities:
Dividends paid (632,173) (603,078)
Issuance of common stock 184,137 193,300
Principal retired on long-term debt (655,398) (650,929)
Increase in fuel note payable 565,358 495,415
Principal payment on ESOP obligation (150,000) (225,000)
Increase in notes payable, banks 6,510,000 4,825,000
Net cash provided by financing --------- ---------
activities 5,821,924 4,034,708
--------- ---------
Net increase (decrease) in cash and
cash equivalents 126,638 (32,791)
Cash and cash equivalents at
beginning of period 136,925 130,939
Cash and cash equivalents at end -------- --------
of period $ 263,563 $ 98,148
======== ========
Supplemental disclosures:
Cash paid for interest
(net of amount capitalized) $1,153,775 $ 1,131,784
Cash paid for income taxes $ 250,000 $ 33,000
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 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 $726,000 and $595,000 as of
November 30, 1995 and August 31, 1995, respectively.
C. Restriction on Retained Earnings
Under the terms of the Indenture securing the First Mortgage
Bonds, retained earnings in the amount of $4,357,834 as of
November 30, 1995, were unrestricted as to the payment of
cash dividends on Common Stock and the purchase, redemption,
or retirement of shares of capital stock.
D. Change in Par Value
On September 15, 1995 the Massachusetts Department of Public
Utilities gave approval for the Company to change its Common
Stock from $2.50 par value to no par value. This change was
previously approved by Stockholders of the Company at the
1995 Annual Meeting.
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
For the Three Months Ended November 30, 1995 and
November 30, 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, unless interruptible volumes exceed a
certain threshold specified by the Massachusetts Department
of Public Utilities ("MDPU"), the Company must return all
gross profit on such sales directly to the Company's firm
customers. Once the threshold is attained, the Company may
retain 10% of gross profits. The threshold was not attained
in the three month period ended November 30, 1995. Since
most of the Company's firm customers utilize gas for space
heating purposes, the Company's sales are sensitive to the
severity of the weather. The Company measures weather
through the use of effective degree days. An effective
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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 907 effective degree days during the three
months ended November 30, 1995 as compared to 789 effective
degree days for the three months ended November 30, 1994.
The twenty-year average for the three months ended November
30 is 972 effective degree days. The colder weather in the
current fiscal quarter occurred primarily during the month
of November as the billing degree days for November 1995
were 586 compared to 407 for November of 1994. As a result,
the volume of firm sales increased 9.2% to 828,342 Mcf for
the three months ended November 30, 1995 from 758,216 Mcf
for the three months ended November 30, 1994. The Company's
interruptible sales increased from 278,144 Mcf to 296,927
Mcf and related interruptible revenues increased from
$562,872 to $591,886. The Company's total operating
revenues increased 3.9% to $6,962,014 for the three months
ended November 30, 1995 from $6,701,938 for the three months
ended November 30, 1994. This increase was due to the
previously mentioned weather-related increase in firm gas
volumes which was partially offset by a 4.7% decrease in
the average unit price of gas sold to firm customers. The
average unit price was $7.39 per Mcf of firm gas sold for
the three months ended November 30, 1995 compared to $7.76
per Mcf of firm gas sold for the three months ended November
30, 1994. The decrease in unit selling prices reflects a
return to firm customers of over collected gas costs as well
as pipeline supplier refunds.
Gas costs recovered decreased 1.6% to $3,273.480 for the
three months ended November 30, 1995 from $3,222,060 for the
three months ended November 30, 1994. The reason for the
decrease in gas costs recovered is due to a 7.7% decrease in
the Company's average cost of gas to $3.24 per firm Mcf for
the three months ended November 30, 1995 from $3.51 per firm
Mcf for the three months ended November 30, 1994. The
reduction in unit costs was partially offset by the
aforementioned increase in firm gas volumes sold.
Operations and maintenance expenses remained nearly constant
as the Company incurred $2,667,236 for the three months
ended November 30, 1995 compared to $2,660,419 for the three
months ended November 30, 1994.
Interest charges for the three months ended November 30,
1995 increased by $59,220. The increase was primarily
attributable to higher interest rates applicable to higher
outstanding amounts of short-term debt.
Loss attributable to common stock decreased 25.3% to
$208,087 for the three months ended November 30, 1995 from
$278,665 for the three months ended November 30, 1994. Loss
per common share decreased 27.8% to $0.13 for the three
months ended November 30, 1995 from $0.18 per share for the
three months ended November 30, 1994. Since the Company's
business is seasonal, losses are generally experienced
during the first quarter of the Company's fiscal year.
Dividends per common share were $.39 per share for the three
months ended November 30, 1995 compared to $.38 per share
for the three months ended November 30, 1994. In December,
the Company declared a dividend of $.40 per share which was
paid to shareholders on January 1, 1996.
9
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 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.
Effective December 12, 1995, the Company finances most of
its gas inventory with a bank through a special purpose
credit agreement having 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. Prior to December 12, 1995, the Company used a
variety of arrangements to provide financing for its
supplemental fuel inventories. As of November 30, 1995, the
Company's obligation was $5,696,511.
For the three months ended November 30, 1995, the Company's
construction expenditures totaled $2,199,905. These
expenditures were funded principally from short-term bank
borrowings. Historically, the first quarter of the Company's
fiscal year has been characterized by significant
construction expenditures, low gas sendout and low operating
revenues. Cash requirements during this period have
historically been satisfied through short-term bank
borrowings. Planned construction expenditures for the
remainder of fiscal 1996 are currently estimated at
$4,800,000 and planned construction expenditures for fiscal
1997 are currently estimated at $6,225,000. The Company's
planned construction expenditures and long-term debt
repayments have been and will continue to be funded through
cash generated by operations and short-term bank borrowings,
which the Company anticipates will be replaced from
time to time with equity and long-term debt financings.
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
1995.
Item 2 Changes in Securities
None.
Item 3 Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None.
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Item 5 Other Information
In December 1995, the Company received approval from the MDPU
for its new supplemental fuel agreement replacing the one that
expired October 31, 1995.
Item 6(a) Exhibits
Exhibit 4.5 Revolving Credit Agreement.
Item 6(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
ESSEX COUNTY GAS COMPANY
By /S/ Philip H. Reardon
Philip H. Reardon
President and Chief Executive Officer
By /S/ James H. Hastings
James H. Hastings
Vice President and Treasurer
(Principal Financial Officer)
Date: January 12, 1996