FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File Number 1-11441
ENERGYNORTH NATURAL GAS, INC.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0209312
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1260 Elm Street, P.O. Box 329, Manchester, NH 03105
(Address and zip code of principal executive offices)
(603) 625-4000
(Registrant's telephone number, including area code)
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 [ ]
EnergyNorth Natural Gas, Inc. had 120,000 shares of $25.00 par
value common stock outstanding on April 29, 1998, the filing date
of this report.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Assets
(Unaudited, except for September 30, 1997 data)
(Thousands of dollars)
March 31, September 30,
1998 1997 1997
-------------------- -------------
<S> <C> <C> <C>
Property:
Utility plant, at cost $151,551 $139,963 $146,799
Accumulated depreciation and amortization 50,084 46,700 47,811
-------------------- -------------
Net utility plant 101,467 93,263 98,988
-------------------- -------------
Current assets:
Cash and temporary cash investments 5,905 676 2,753
Accounts receivable (net of allowances of
$1,186, $1,282 and $1,309 respectively) 12,164 14,700 2,997
Unbilled revenues 1,454 1,638 602
Deferred gas costs - 1,228 -
Inventories, at average cost:
Materials and supplies 1,639 1,542 1,650
Supplemental gas supplies 4,401 3,543 8,929
Prepaid and deferred taxes 1,138 660 1,180
Recoverable FERC 636 transition costs 757 1,305 1,261
Prepaid expenses and other 595 601 1,088
-------------------- -------------
Total current assets 28,053 25,893 20,460
-------------------- -------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 5,003 6,140 6,546
Other deferred charges 1,922 317 1,948
-------------------- -------------
Total deferred charges 9,326 8,858 10,895
-------------------- -------------
Total assets $138,846 $128,014 $130,343
==================== =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Stockholder's Equity and Liabilities
(Unaudited, except for September 30, 1997 data)
(Thousands of dollars except for per share amount and shares outstanding)
March 31, September 30,
1998 1997 1997
------------------- -------------
<S> <C> <C> <C>
Capitalization:
Common stockholder's equity:
Common stock - par value of $25 per
share 120,000 shares authorized;
issued and outstanding $ 3,000 $ 3,000 $ 3,000
Amount in excess of par 22,538 22,538 22,538
Retained earnings 25,374 23,338 18,155
------------------- -------------
Total common stockholder's equity 50,912 48,876 43,693
Long-term debt 42,488 26,785 42,913
------------------- -------------
Total capitalization 93,400 75,661 86,606
------------------- -------------
Current liabilities:
Notes payable to banks - 9,500 -
Current portion of long-term debt 473 1,658 484
Current portion of capital lease obligations - 4 -
Inventory purchase obligation 5,311 4,930 7,852
Accounts payable 6,840 6,532 5,333
Accounts payable to affiliates 983 600 2,433
Deferred gas costs 1,908 - 1,300
Accrued interest 252 385 303
Accrued and deferred taxes 4,202 3,873 82
Accrued FERC 636 transition costs 757 1,305 1,261
Customer deposits, environmental and other 2,246 2,136 1,950
------------------- -------------
Total current liabilities 22,972 30,923 20,998
------------------- -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 17,215 16,018 17,401
Unamortized investment tax credits 1,672 1,802 1,734
Regulatory liability - income taxes 1,197 1,314 1,254
Contributions in aid of construction and other 2,390 2,296 2,350
------------------- -------------
Total deferred credits 22,474 21,430 22,739
------------------- -------------
Total stockholder's equity and liabilities $138,846 $128,014 $130,343
=================== =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended March 31
(Unaudited)
(Thousands of dollars)
Three Months Six Months Twelve Months
1998 1997 1998 1997 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues $37,479 $43,401 $64,614 $68,761 $88,830 $89,033
---------------- ---------------- ----------------
Operating expenses:
Cost of gas sold 21,484 26,561 34,638 38,985 50,285 51,226
Operations and maintenance 4,432 4,612 9,316 9,253 18,460 18,184
Depreciation and amortization 1,440 1,319 2,794 2,545 5,217 4,775
Taxes other than income taxes 942 902 1,947 1,799 2,738 3,583
Federal and state income taxes 3,068 3,433 5,294 5,415 3,356 3,287
---------------- ---------------- ----------------
Total operating expenses 31,366 36,827 53,989 57,997 80,056 81,055
---------------- ---------------- ----------------
Operating income 6,113 6,574 10,625 10,764 8,774 7,978
---------------- ---------------- ----------------
Other income 244 203 667 419 1,040 775
Interest expense:
Interest on long-term debt 906 659 1,820 1,325 3,152 2,684
Other interest 187 226 382 558 888 742
---------------- ---------------- ----------------
Total interest expense 1,093 885 2,202 1,883 4,040 3,426
---------------- ---------------- ----------------
Net income $ 5,264 $ 5,892 $ 9,090 $ 9,300 $ 5,774 $ 5,327
================ ================ ================
See accompanying notes to condensed financial statements.
<PAGE> 5
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the six months ended March 31
(Unaudited)
(Thousands of dollars)
1998 1997
-------- ---------
Cash flows from operating activities:
Net income $ 9,090 $ 9,300
Noncash items:
Depreciation and amortization 3,025 2,775
Deferred taxes and investment tax credits, net (305) 271
Changes in:
Accounts receivable, net (9,167) (12,869)
Unbilled revenues (852) (1,056)
Inventories 4,539 5,193
Prepaid expenses and other 493 497
Deferred gas costs 608 2,555
Accounts payable 1,507 1,245
Accounts payable to affiliates (1,450) 11
Accrued liabilities (258) (655)
Accrued/prepaid taxes 4,162 3,158
Payments for environmental costs and other 1,604 (628)
-------- ---------
Net cash provided by operating activities 12,996 9,797
-------- ---------
Cash flows from investing activities:
Additions to property (5,039) (4,057)
Cash flows from financing activities:
Issues of long-term debt - 97
Change in notes payable to banks - (35)
Increase in inventory purchase obligation 2,602 2,604
Change in customer deposits and other 42 (296)
Cash dividends on common stock (1,870) (1,781)
Refunding requirements:
Repayment of long-term debt (436) (402)
Repayment of capital lease obligations - (21)
Repayment of inventory purchase obligation (5,143) (5,541)
-------- ---------
Net cash used for financing activities (4,805) (5,375)
-------- ---------
Net increase in cash and temporary cash investments 3,152 365
Cash and temporary cash investments, beginning of period 2,753 311
-------- ---------
Cash and temporary cash investments, end of period $ 5,905 $ 676
======== =========
See accompanying notes to condensed financial statements.
<PAGE> 6
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
March 31, 1998
(Unaudited)
EnergyNorth Natural Gas, Inc. (the "Company") is a wholly-owned
subsidiary of EnergyNorth, Inc., operating in southern and
central New Hampshire. Its principal business is the purchase,
transportation and sale of natural gas for residential,
commercial and industrial use in New Hampshire. The Company's
rates charged to customers are regulated by the State of New
Hampshire Public Utilities Commission (the "Commission"). The
Commission is required by New Hampshire law to allow the Company
to charge rates that are just and reasonable, such that the
Company is compensated for the cost of providing service and
allowed a reasonable rate of return on its investment.
Note 1. Basis of Presentation
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the U. S. Securities and Exchange Commission.
Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to such
rules and regulations, although the Company believes that the
disclosures, when read in conjunction with the condensed financial
statements and notes thereto contained in the Company's Form 10-K
for the year ended September 30, 1997, are adequate to make the information
not misleading. In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments, which
include only normal recurring adjustments, necessary to present
fairly the financial position as of March 31, 1998 and 1997 and
the results of operations for the three, six and twelve months
then ended and statements of cash flows for the six months ended
March 31, 1998 and 1997. All accounting policies and practices
have been applied in a manner consistent with prior periods.
The business of the Company is influenced by seasonal weather
conditions. The amount of gas sold and transported for central
and space heating purposes and, to a lesser extent, water heating
is directly related to the ambient air temperature.
Consequently, more gas is sold and transported during the winter
months than is sold and transported during the summer months.
Therefore, the results of operations for the interim periods
presented are not indicative of the results to be expected for
all or any part of the balance of the current fiscal year.
Reclassifications are made periodically to previously issued
financial statements to conform to the current year's
presentation.
<PAGE> 7
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the six
months ended March 31, are as follows (in thousands):
1998 1997
- ------------------------------------------------------------------
Cash paid during the period for:
Interest (net of amount capitalized) $1,936 $2,019
Income taxes 1,824 2,252
In preparing the accompanying condensed statements of cash flows,
all highly liquid investments having maturities of three months
or less when acquired were considered to be cash equivalents and
classified as cash and temporary cash investments.
Note 3. Commitments and Contingencies
For a discussion of commitments and contingencies, please refer
to Footnote 8 in the Company's Form 10-K for the year ended
September 30, 1997.
<PAGE> 8
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1998
Results of Operations
Net income for the three months ended March 31, 1998 was
$5,264,000 compared to $5,892,000 in 1997. For the six months
ended March 31, 1998, net income decreased to $9,090,000 from
$9,300,000 in 1997. Net income for the twelve months ended March
31, 1998 increased to $4,040,000 compared to $3,426,000 in the
prior period. Included in the current twelve-month period
results was a one-time, after-tax credit of $649,000 which was
the result of a property tax settlement.
Temperatures for the current three, six and twelve-month periods
were significantly warmer than the prior comparable periods and
had a major impact on the results of operations for the periods
presented. The table below discloses degree day data as recorded
at the U.S. weather station in Concord, New Hampshire, comparing
actual degree days to the previous period and to normal. Due to
the size and topographical variations of the Company's service
territory, weather conditions vary. Concord, New Hampshire
weather data is considered to be representative of the territory.
Actual Actual Change vs. Change vs.
03-31-98 03-31-97 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,981 3,440 3,602 (13.3)% (17.2)%
6 months 5,539 5,993 6,205 (7.6)% (10.7)%
12 months 6,919 7,228 7,500 (4.3)% (7.7)%
Quarterly Comparison
Total operating revenues decreased $5.9 million, or 13.6%, for
the quarter ended March 31, 1998. Although the average number of
customers increased 2.4% for the quarter, the weather was 13.3%
warmer and firm sendout, including transportation, decreased
5.3%. Also contributing to the decrease in revenues were lower
purchased gas costs of $1.2 million that were passed through the
cost of gas adjustment ("CGA") to firm customers. Although
changes in the CGA rates affect operating revenues, they do not
affect total margin because the CGA is a tariff mechanism
designed to provide dollar-for-dollar recovery of gas costs.
Margin decreased 5% for the quarter.
Operations and maintenance expenses for the three months ended
March 31, 1998 decreased $180,000. Maintenance expenses were
lower than the prior period, since repair work associated with
cold temperatures was kept to a minimum. In addition, bad debt
expense was approximately $70,000 lower than the prior period.
The 9.2% increase in depreciation and amortization expenses was
the result of capital additions. Total interest expense
increased $208,000, or 23.5%, due mostly to the $22 million of
7.4% First Mortgage Bonds issued in September 1997.
<PAGE> 9
Six-Month Comparison
Total operating revenues decreased $4.2 million, or 6%, for the
six months ended March 31, 1998. The decrease included lower
purchased gas costs of $2.9 million that were passed through the
CGA to firm customers. In addition, revenues decreased as customers
switched from sales gas to transportation sales. The average number of
customers increased 2.5% and firm sendout increased 1.2%, despite the
warmer weather. Margin increased only slightly for the six months.
Operations and maintenance expenses were essentially unchanged
from the prior period, as wage rates were offset by less overtime
and reduced maintenance costs. Continued capital additions to
the distribution system was the primary reason for the 9.8%
increase in depreciation and amortization expense. The increase
in other income was due mostly to interest on refunds received
from federal income tax settlements. The primary reason for the
16.9% increase in total interest expense was the September 1997
new debt issuance.
Twelve-Month Comparison
Although the average number of customers increased 2.4% and firm
sendout increased nearly 3.2%, total operating revenues decreased
slightly to $88.8 million from $89 million in the prior period.
Included in the current period revenues were lower gas costs of
$600,000 that were passed through the CGA. In addition, revenues
resulting from the increase in firm sendout were offset by
customers switching from sales gas to transportation
sales. Total margin from operations increased 2%.
Increases in wage rates and bad debt expense were the primary
reasons for the 1.5% increase in operations and maintenance
expenses for the twelve-month period. Higher depreciation and
amortization charges were the direct result of plant additions
and amortization of environmental remediation costs. Taxes other
than income taxes decreased as a result of favorable property tax
settlements. The increase in other income included interest on
refunds received from federal income tax settlements.
Capital Resources and Liquidity
Cash flow patterns reflect the seasonality of the Company's
business. The greatest demand for cash is in the fall and early
winter as construction projects are brought to completion and
during the winter as accounts receivable balances grow. The net
accounts receivable balance at March 31, 1998 is $12.2 million
and reflects lower revenues resulting from the warmer
temperatures and from lower purchased gas costs being passed
through the CGA. During the spring and early summer months, a
positive cash flow stream is created as accounts receivable
balances are collected. At this time, inventories have been
utilized and prepaid amounts, mostly insurance, are
being amortized. The overcollected deferred gas cost amounts at
March 31, 1998 will be returned to customers through the CGA
mechanism in future periods.
<PAGE> 10
The Company's major capital requirements result from efforts to serve
additional customers and from normal replacements and
efficiency improvements to the existing plant. For the six
months ended March 31, 1998, capital expenditures totaled more
than $5 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At March 31, 1998, the Company had
unsecured bank lines of credit of $15 million, none of which was
outstanding.
Construction expenditures for fiscal 1998 are expected to total
approximately $11.1 million. Construction expenditures, payment
of dividends, long-term debt repayments, environmental
remediation and working capital requirements will continue to be
funded through cash generated by operations supplemented by
available lines of credit.
Federal Energy Regulatory Commission Order 636
Federal Energy Regulatory Commission Order 636 allows interstate
pipeline companies to recover transition costs created as they
buy out of long-term, fixed-price gas contracts. Since the
Company's pipeline supplier, Tennessee Gas Pipeline Company,
began billing these costs on September 1, 1993 as a component of
demand charges, $8.4 million has been billed through March 31,
1998. The Company has recorded additional transition costs of
approximately $757,000 that are expected to be billed over a
period of nine months. The Company is recovering transition
costs through the CGA.
Environmental Matters
The Company and certain of its predecessors owned or operated
several facilities for the manufacture of gas from coal, a
process used through the mid-1900s that produced by-products that
may be considered contaminated or hazardous under current law,
and some of which may still be present at such facilities.
The estimated cost of remedial action required by the New Hampshire
Department of Environmental Services for a portion of a former gas
manufacturing site in Concord, New Hampshire ranges from $2 million to
$3.3 million. The Company has recorded $2 million at March 31, 1998 in
deferred charges. In a proceeding before the Commission, the Company
and the Commission Staff have reached an agreement that provides for
recovery from ratepayers, over a seven-year period, of substantially
all costs of investigation, remediation and recovery efforts through
March 31, 1998. The recovery amount is net of recoveries from third parties
and does not include recovery of carrying costs. The agreement is subject
to approval by the Commission.
Through March 31, 1998, the Company had reached settlements with certain
of the defendants in suits brought by the Company against numerous parties
to recover the costs of investigation and remediation of the Concord site,
in an aggregate amount of $2.1 million and further payment to the Company
of a portion of future Concord site remediation costs.
<PAGE> 11
In suits brought by the Company against numerous insurers seeking recovery
of investigation and remediation expenses in connection with a former
manufactured gas plant in Laconia, New Hampshire, the Company had reached
settlements with defendants in an aggregate amount of $150,000, through
March 31, 1998.
Factors that May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes forward-
looking statements concerning the impact of changes in the cost
of gas and of the CGA mechanism on total margin; projected
capital expenditures and sources of cash to fund expenditures;
and estimated costs of environmental remediation and anticipated
regulatory approval of recovery mechanisms. The Company's future
results, generally and with respect to such forward-looking
statements, may be affected by many factors, among which are
uncertainty as to the regulatory allowance of recovery of changes
in the cost of gas; uncertain demands for capital expenditures
and the availability of cash from various sources; uncertainty as
to whether transportation rates will be reduced in future
regulatory proceedings with resulting decreases in transportation
margins; and uncertainty as to environmental costs and as to regulatory
approval of the full recovery of environmental costs, transition
costs and other regulatory assets.
<PAGE> 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A description of pending legal proceedings is contained in the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1997.
The Company reached settlements totalling $550,000 in suits for recovery
of investigation and remediation at former manufactured gas plant sites,
described in Part I, Management's Discussion and Analysis of Financial
Condition and Results of Operations. No further material legal
proceedings or material developments occurred in the quarter.
Items 2-5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(Submitted only in electronic format to the
Securities and Exchange Commission)
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during
the quarter ended March 31, 1998.
<PAGE> 13
ENERGYNORTH NATURAL GAS, INC.
SIGNATURE
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.
EnergyNorth Natural Gas, Inc.
(Registrant)
Date: April 29, 1998 /s/ DAVID A. SKRZYSOWSKI
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
EnergyNorth Natural Gas, Inc. condensed balance sheet as of March 31, 1998 and
condensed statement of income and statement of cash flows for the six months
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 101,467<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 28,053
<TOTAL-DEFERRED-CHARGES> 9,326
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 138,846
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 25,374
<TOTAL-COMMON-STOCKHOLDERS-EQ> 50,912
0
0
<LONG-TERM-DEBT-NET> 42,488
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 473
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 44,973
<TOT-CAPITALIZATION-AND-LIAB> 138,846
<GROSS-OPERATING-REVENUE> 64,614
<INCOME-TAX-EXPENSE> 5,294
<OTHER-OPERATING-EXPENSES> 48,695
<TOTAL-OPERATING-EXPENSES> 53,989
<OPERATING-INCOME-LOSS> 10,625
<OTHER-INCOME-NET> 667
<INCOME-BEFORE-INTEREST-EXPEN> 11,292
<TOTAL-INTEREST-EXPENSE> 2,202
<NET-INCOME> 9,090
0
<EARNINGS-AVAILABLE-FOR-COMM> 9,090
<COMMON-STOCK-DIVIDENDS> 1,870
<TOTAL-INTEREST-ON-BONDS> 3,600<F2>
<CASH-FLOW-OPERATIONS> 12,996
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $50,084
<F2>$3,600 represents the forecasted annual interest on bonds for the fiscal year
ending September 30, 1998. Actual interest on bonds for the six months ended
March 31, 1998 was $1,804.
</FN>
</TABLE>
