-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GriDwvkZnttklMqGEx6BRFTf3GS8lL/1z9OsjP0S4PtsT7PeyU72GpYj01KBpswr zjzIVkNp4dvtgNiSH8vxqQ== 0000927016-99-002731.txt : 19990802 0000927016-99-002731.hdr.sgml : 19990802 ACCESSION NUMBER: 0000927016-99-002731 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESSEX GAS CO CENTRAL INDEX KEY: 0000046189 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 041427020 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-01166 FILM NUMBER: 99674167 BUSINESS ADDRESS: STREET 1: C/O BOSTON GAS CO STREET 2: ONE BEACON STREET CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 5083884000 MAIL ADDRESS: STREET 1: C/O BOSTON GAS CO STREET 2: ONE BEACON STREET CITY: BOSTON STATE: MA ZIP: 02108 FORMER COMPANY: FORMER CONFORMED NAME: ESSEX COUNTY GAS COMPANY DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HAVERHILL GAS CO DATE OF NAME CHANGE: 19830420 10-Q 1 FORM 10-Q 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 June 30, 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. 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 - ----------------------------------- (In Thousands) Three Months Ended Six Months Ended ------------------ ----------------
June 30, May 31, June 30, May 31, 1999 1998 1999 1998 -------- -------- --------- -------- OPERATING REVENUES $ 4,411 $14,020 $26,460 $37,006 Cost of gas sold 1,704 6,753 11,705 18,086 ------- ------- ------- ------- Operating Margin 2,707 7,267 14,755 18,920 ------- ------- ------- ------- OPERATING EXPENSES: Operations and maintenance expense 3,448 3,260 5,851 6,505 Depreciation and amortization 707 1,136 2,653 2,950 Taxes, other than income 301 474 938 1,175 Income Taxes (890) 814 1,611 2,762 ------- ------- ------- ------- Total Operating Expenses 3,566 5,684 11,053 13,392 ------- ------- ------- ------- OPERATING INCOME (LOSS) (859) 1,583 3,702 5,528 OTHER INCOME, NET 223 125 364 218 ------- ------- ------- ------- INCOME (LOSS) BEFORE INTEREST CHARGES (636) 1,708 4,066 5,746 ------- ------- ------- ------- INTEREST CHARGES: Interest on long-term debt 616 626 1,232 1,251 Amortization of deferred debt expense 8 8 17 16 Other interest expense 87 80 197 245 Allowance for funds used during construction (1) (6) (2) (12) ------- ------- ------- ------- TOTAL INTEREST CHARGES 710 708 1,444 1,500 ------- ------- ------- ------- Income (Loss) applicable to common stock $(1,346) $ 1,000 $ 2,622 $ 4,246 ======= ======= ======= ======= Common Stock Dividends $ - $ 723 $ - $ 1,435 ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. FORM 10-Q Page 3 ESSAY GAS COMPANY AND SUBSIDIARY - -------------------------------- CONSOLIDATED BALANCE SHEETS - --------------------------- (In Thousands) June 30, December 31, 1999 1998 ----------- -------------
ASSETS GAS PLANT, AT COST $112,485 $111,416 Less: Accumulated depreciation 32,050 29,229 -------- -------- NET PLANT 80,435 82,187 -------- -------- Other property and investments 841 740 Capitalized Lease (net of accumulated amortization 502 532 Of $622 at June 30, 1999 and $592 at December 31, 1998 CURRENT ASSETS: Cash and cash equivalents 92 66 Accounts receivable (net of allowance 6,689 3,906 for uncollectible accounts of $939 at June 30, 1999 and $745 at December 31, 1998) Accrued utility margin 238 2,285 Supplemental fuel inventory 933 3,891 Materials and supplies (at average cost) 593 396 Prepayments and other 105 265 Current income taxes 2,110 2,504 ------- ------- TOTAL CURRENT ASSETS 10,760 13,313 ------- ------- DEFERRED CHARGES: Unamortized debt expense and other 1,366 1,169 ------- ------- TOTAL DEFERRED CHARGES 1,366 1,169 ------- ------- TOTAL ASSETS $93,904 $97,941 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. FORM 10-Q Page 4 ESSEX GAS COMPANY AND SUBSIDIARY - -------------------------------- Consolidated Balance Sheets - ---------------------------
(In Thousands) JUNE 30, DECEMBER 31, 1999 1998 ------- ------- CAPITALIZATION AND LIABILITIES: COMMON STOCK EQUITY $37,804 $35,137 LONG-TERM DEBT LESS CURRENT PORTION 27,599 27,599 ------- ------- TOTAL CAPITALIZATION 65,403 62,736 ------- ------- NON-CURRENT OBLIGATIONS UNDER CAPITAL LEASE 439 472 CURRENT LIABILITIES: Current portion of long-term debt 600 600 Current obligations under capital lease 63 60 Obligations under supplemental fuel inventory 895 4,345 Notes payable 4,000 8,935 Accounts payable 1,699 2,576 Accrued interest 277 445 Accrued taxes 212 21 Refundable gas costs 2,135 198 Supplier refund due customers - 34 Other 340 553 ------- ------- TOTAL CURRENT LIABILITIES 10,221 17,767 ------- ------- DEFERRED CREDITS: Accumulated deferred income taxes 7,640 7,359 Unamortized investment tax credit 1,013 1,048 Deferred directors' fees 176 977 Retirement benefit liability 7,031 5,500 Other reserves 1,981 2,082 ------- ------- TOTAL DEFERRED CREDITS 17,841 16,966 ------- ------- TOTAL CAPITALIZATION AND LIABILITIES $93,904 $97,941 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. FORM 10-Q Page 5 ESSEX GAS COMPANY AND SUBSIDIARY - -------------------------------- Consolidated Statements of Cash Flows - -------------------------------------
(In Thousands) Six Months Ended ------------------- June 30, May 31, 1999 1998 --------- -------- OPERATING ACTIVITIES: NET INCOME: $ 2,622 $ 4,246 Adjustments to reconcile net income to net cash: Depreciation and amortization, including amounts related to non-utility operations 2,862 3,276 Deferred income taxes 281 (812) Other changes in assets and liabilities: Accounts receivable (2,783) (552) Inventories including fuel 2,761 1,033 Accounts payable (877) (2,454) Accrued Interest (168) (601) Supplier refund obligations (34) (1,277) Taxes payable/receivable 585 443 Refundable gas costs 2,101 4,293 Other, net 2,198 23 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,548 7,618 ------- ------- INVESTING ACTIVITIES: Utility capital expenditures (1,069) (2,862) Payments for retirements of property, plant and equipment, net (68) (36) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (1,137) (2,898) ------- ------- FINANCING ACTIVITIES: Dividends paid - (1,435) Issuance of common stock - 1,073 Principal retired on long-term debt - (146) Changes in supplemental fuel inventory (3,450) (1,522) Changes in notes payable (4,935) (2,233) ------- ------- NET CASH USED IN FINANCING ACTIVITIES (8,385) (4,263) ------- ------- Net increase in cash and cash equivalents 26 457 Cash and cash equivalents at beginning of period 66 369 ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 92 $ 826 ======= ======= SUPPLEMENTAL DISCLOSURES: Cash paid during the year for: Interest (net of amount capitalized) $ 1,259 $ 1,466 ======= ======= Income taxes $ 555 $ 3,204 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. FORM 10-Q Page 6 ESSEX GAS COMPANY AND SUBSIDIARY -------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 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 periods 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 Flows for the three and six month periods ending June 30, 1999 have been compared to the three and six month periods ending May 31, 1998 which represents the most comparable periods of the preceding fiscal year. Recasting of the preceding periods 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. FORM 10-Q Page 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ----------------------------------------------------------------------- RESULTS OF OPERATIONS: --------------------- RESULTS OF OPERATIONS A comparison of results for the three and six month periods ended June 30, 1999 to the three and six month periods ended May 31, 1998 reflect comparable but not precisely matched periods. QUARTER-TO-QUARTER Results for the quarter ended June 30, 1999 reflect a net loss of $1.3 million compared to net earnings applicable to common stock of $1.0 million for the quarter ended May 31, 1998. This decrease in earnings reflects the effect of the accounting change for revenue recognition, the use of fiscal period ending May 31, 1998 and a non-recurring pension charge ($.8 million) related to early retirement and severance programs for union employees. This decline was partially mitigated by merger related synergies that resulted in lower general and administrative expenses and employee benefits. YEAR TO DATE Net earnings applicable to common stock for the six months ended June 30, 1999 were $2.6 million compared to earnings of $4.2 million for the six months ended May 31, 1998. This decrease in earnings was primarily due to the same reasons described in the quarter-to-quarter results. 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 substantially completed the replacement or modification of existing systems and technology as required and assured itself that major customers and critical vendors are also addressing these issues. In addition, Boston Gas is finalizing and testing its contingency plans to address major external and internal risk that could potentially impact business operations. With respect to internal information systems, Boston Gas has tested and certified as Year 2000 ready, all eleven "mission critical" business systems. Installation of an upgrade and replacement to two of these mission critical systems scheduled for the third quarter of 1999 will include Year 2000 re-certification testing. The Company has completed certification testing of fifty percent of less than critical business systems, and the remaining are scheduled for testing during the third quarter of 1999. An FORM 10-Q Page 8 integration test plan designed to re-certify interfaces between mission critical systems has been developed and will be executed during the third quarter of 1999. Conversion and certification testing of all technology infrastructure components has been completed, including mainframe and client-server hardware and software, data/voice communications and e-mail systems. All telephone components have been certified as Year 2000 ready with the exception of an upgrade to the call management server that is scheduled for the third quarter. Eighty percent of Boston Gas' desktop hardware, operating system software and applications have been certified as Year 2000 ready with the remaining desktops scheduled to be certified as part of the rollout of an upgraded application in the third quarter of 1999. To minimize the risk of corruption of previously certified information systems, Boston Gas will impose a freeze on changes to information systems and technology components, effective October 1, 1999. With respect to embedded chip systems, Boston Gas has completed its inventory, assessment, remediation and certification testing of all date sensitive components containing embedded chips. 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 and risk mitigation plans have been developed. Boston Gas has begun testing electronic interfaces with suppliers where practicable, and implemented risk mitigation strategies as required. However, there can be no assurance that third party systems, on which Boston Gas relies, 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 $13.9 million. Approximately 65% of these costs will be incurred under capital projects that have resulted in added functionality while also addressing Year 2000 issues. As of June 30, 1999 approximately $12.4 million has been incurred. RISKS OF YEAR 2000 ISSUES Boston Gas has assessed the most reasonably likely worst case Year 2000 scenario. Given Boston Gas' 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 data and voice communication providers, its electricity provider or a pipeline supplier. Detailed plans to accommodate any one or a combination of these worse case scenarios are addressed as part of Boston Gas' 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 identified voice/data communications, electricity and gas supply as the three major sources of external risk and their impact on mission critical processes. Draft plans have been developed and desk tested for each of these risk areas. During the third quarter of 1999, all plans will be finalized and tested via live drills. FORM 10-Q Page 9 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. 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. 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. 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, Sr Vice President and Treasurer (Principal Financial and Accounting Officer) Dated: July 30, 1999 ------------------ EX-27 2 FINANCIAL DATA SCHEDULE
UT 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 PER-BOOK 80,435 1,343 10,760 1,366 0 93,904 27,805 0 9,999 37,804 0 0 27,599 4,000 0 0 600 0 439 63 23,399 93,904 26,460 1,611 9,442 11,053 3,702 364 4,066 1,444 2,622 0 2,622 0 1,232 9,548 0 0
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