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 June 30, 1998
Commission File Number 333-32949
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 July 24, 1998, the filing date
of this report.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Assets
(Unaudited, except for September 30, 1997 data)
(Thousands of dollars)
June 30, September 30,
1998 1997 1997
------------------ -------------
Property:
Utility plant, at cost $154,886 $143,711 $146,799
Accumulated depreciation and amortization 50,815 47,686 47,811
------------------ -------------
Net utility plant 104,071 96,025 98,988
------------------ -------------
Current assets:
Cash and temporary cash investments 6,228 459 2,753
Accounts receivable (net of allowances of
$1,164, $1,333 and $1,309, respectively) 5,105 6,047 2,997
Unbilled revenues 595 593 602
Inventories, at average cost:
Materials and supplies 1,573 1,523 1,650
Supplemental gas supplies 6,776 5,335 8,929
Prepaid and deferred taxes 1,838 1,412 1,180
Recoverable FERC 636 transition costs 505 1,514 1,261
Prepaid expenses and other 349 413 1,088
------------------ -------------
Total current assets 22,969 17,296 20,460
------------------ -------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,402 2,401
Recoverable environmental costs 5,464 6,268 6,546
Other deferred charges 1,810 93 1,948
------------------ -------------
Total deferred charges 9,675 8,763 10,895
------------------ -------------
Total assets $136,715 $122,084 $130,343
================== =============
See accompanying notes to condensed financial statements.
<PAGE> 3
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)
<TABLE>
<CAPTION>
June 30, 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 22,704 20,891 18,155
------------------- -------------
Total common stockholder's equity 48,242 46,429 43,693
Long-term debt 42,454 26,789 42,913
------------------- -------------
Total capitalization 90,696 73,218 86,606
------------------- -------------
Current liabilities:
Notes payable to banks 55 5,500 -
Current portion of long-term debt 463 1,663 484
Inventory purchase obligation 5,919 4,101 7,852
Accounts payable 6,300 5,615 5,333
Accounts payable to affiliates 861 763 2,433
Deferred gas costs 3,959 2,476 1,300
Accrued interest 1,153 1,055 303
Accrued and deferred taxes 2,156 2,596 82
Accrued FERC 636 transition costs 505 1,514 1,261
Customer deposits, environmental and other 1,712 1,933 1,950
------------------- -------------
Total current liabilities 23,083 27,216 20,998
------------------- -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 17,734 16,272 17,401
Unamortized investment tax credits 1,641 1,768 1,734
Regulatory liability - income taxes 1,169 1,284 1,254
Contributions in aid of construction and other 2,393 2,326 2,350
------------------- -------------
Total deferred credits 22,937 21,650 22,739
------------------- -------------
Total stockholder's equity and liabilities $136,716 $122,084 $130,343
=================== =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 4
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended June 30
(Unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
1998 1997 1998 1997 1998 1997
------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Total operating revenues $13,106 $16,023 $77,720 $84,784 $85,913 $92,004
------------------ ----------------- -----------------
Operating expenses:
Cost of gas sold 8,288 11,074 42,926 50,059 47,498 53,879
Operations and maintenance 4,321 4,485 13,637 13,738 18,296 18,140
Depreciation and amortization 1,329 1,240 4,123 3,785 5,307 4,864
Taxes other than income taxes 972 924 2,919 2,723 2,786 3,574
Federal and state income taxes (988) (895) 4,306 4,520 3,264 3,330
------------------ ----------------- ----------------
Total operating expenses 13,922 16,828 67,911 74,825 77,151 83,787
------------------ ----------------- ----------------
Operating income (loss) (816) (805) 9,809 9,959 8,762 8,217
------------------ ----------------- ----------------
Other income 230 148 897 567 1,123 760
Interest expense:
Interest on long-term debt 904 661 2,724 1,986 3,396 2,653
Other interest 182 196 564 754 873 887
------------------ ----------------- -----------------
Total interest expense 1,086 857 3,288 2,740 4,269 3,540
------------------ ----------------- -----------------
Net income (loss) $(1,672) $(1,514) $ 7,418 $ 7,786 $ 5,616 $ 5,437
================== ================= =================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 5
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the nine months ended June 30
(Unaudited)
(Thousands of dollars)
1998 1997
------- --------
Cash flows from operating activities:
Net income $ 7,418 $ 7,786
Noncash items:
Depreciation and amortization 4,468 3,968
Deferred taxes and investment tax credits, net 155 461
Changes in:
Accounts receivable, net (2,108) (4,216)
Unbilled revenues 7 (11)
Inventories 2,230 3,420
Prepaid expenses and other 739 685
Deferred gas costs 2,659 6,259
Accounts payable 967 328
Accounts payable to affiliates (1,572) 174
Accrued liabilities 571 (11)
Accrued/prepaid taxes 1,416 1,129
Payments for environmental costs and other 596 (546)
------- -------
Net cash provided by operating activities 17,546 19,426
------- -------
Cash flows from investing activities:
Additions to property (8,875) (8,117)
Cash flows from financing activities:
Issues of long-term debt - 144
Change in notes payable to banks 55 (4,035)
Increase in inventory purchase obligation 5,144 4,239
Change in customer deposits and other 32 (360)
Cash dividends on common stock (2,870) (2,679)
Refunding requirements:
Repayment of long-term debt (480) (440)
Repayment of capital lease obligations - (25)
Repayment of inventory purchase obligation (7,077) (8,005)
------- --------
Net cash used for financing activities (5,196) (11,161)
------- --------
Net increase in cash and temporary cash investments 3,475 148
Cash and temporary cash investments, beginning of period 2,753 311
------- --------
Cash and temporary cash investments, end of period $ 6,228 $ 459
======= ========
See accompanying notes to condensed financial statements.
<PAGE> 6
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
June 30, 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 June 30, 1998 and 1997, and the results of
operations for the three, nine and twelve months then ended and
statements of cash flows for the nine months ended June 30, 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 nine
months ended June 30, are as follows (in thousands):
1998 1997
- -----------------------------------------------------------------
Cash paid during the period for:
Interest (net of amount capitalized) $2,027 $2,189
Income taxes 2,560 2,076
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
June 30, 1998
Results of Operations
Net loss for the three months ended June 30, 1998, was
$(1,672,000) compared to $(1,514,000) in 1997. Net income
decreased to $7,418,000 for the nine months ended June 30, 1998,
from $7,786,000 in 1997. For the twelve months ended June 30,
1998, net income was $5,616,000 compared to $5,437,000 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, nine 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.
6-30-98 6-30-97 Normal Previous Period Normal
------- ------- ------ --------------- ----------
3 months 826 1,166 1,020 (29.2)% (19.0)%
9 months 6,365 7,159 7,225 (11.1)% (11.9)%
12 months 6,579 7,434 7,500 (11.5)% (12.3)%
Quarterly Comparison
Total operating revenues decreased $2.9 million, or 18.2%, for
the quarter ended June 30, 1998. Although the average number of
customers increased 2.5% for the quarter, the weather was 29.2%
warmer and firm sendout, including transportation, decreased
9.3%. Although less sendout was the primary reason for the
decrease in revenue, lower purchased gas costs of $276,000 passed
through the cost of gas adjustment ("CGA") to firm customers also
contributed to the revenue decrease. Changes in the CGA rates
affect operating revenues; however, 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 2.6% for the
quarter.
Operations and maintenance expenses for the three months ended
June 30, 1998, decreased $164,000 due primarily to a reduction in
the work force and lower bad debt expense. The 7.2% increase in
depreciation and amortization expenses was the result of capital
additions. Other income increased more than 55% as a result of
interest earned on the temporary investment of surplus cash.
Total interest expense increased $229,000, or 26.7%, due mostly
to the $22 million of 7.4% First Mortgage Bonds issued in
September 1997.
<PAGE> 9
Nine-Month Comparison
Total operating revenues decreased $7.1 million, or 8.3%, for the
nine months ended June 30, 1998. The decrease resulted in part from
lower purchased gas costs of $3.2 million that were passed through the
CGA to firm customers. In addition, revenues decreased as
customers switched from sales gas service to transportation gas service.
Although the average number of customers increased 2.5%, firm
sendout, including transportation, decreased almost 1%, due to the
warmer weather. Margin increased only slightly for the nine months.
Operations and maintenance expenses were essentially unchanged
from the prior period, as increases in wage rates were offset by
less overtime and reduced maintenance costs. Continued capital
additions to the distribution system were the primary reason for
the 8.9% increase in depreciation and amortization expenses. The
increase in other income was due mostly to interest on refunds
received from federal income tax settlements and to interest
earned on temporary investments. The primary reason for the 20%
increase in total interest expense was the September 1997
debt issuance.
Twelve-Month Comparison
Although the average number of customers increased 2.5%, 11.5%
warmer temperatures resulted in firm sendout, including
transportation, that was nearly the same as the prior period.
Total operating revenues decreased to $85.9 million from $92
million in the prior period. Included in the current period
revenues were lower gas costs of $2.6 million that were passed
through the CGA. In addition, revenues decreased as customers
switched from sales gas service to transportation gas service.
Total margin was virtually unchanged from the corresponding prior period.
Lower maintenance expenses due to the warmer weather partially
offset wage increases and resulted in operations and maintenance
expenses that were only slightly higher than the prior 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 and interest earned on
temporary investments. The September 1997 debt issuance was
the primary reason for the increase in total interest expense.
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. 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. During the summer months,
supplemental gas supplies are replenished in preparation for the
<PAGE> 10
winter heating season. The overcollected deferred gas cost
amounts at June 30, 1998, will be returned to customers during
subsequent winter and summer periods through the CGA
mechanism.
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 nine
months ended June 30, 1998, capital expenditures totaled
approximately $8.9 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At June 30, 1998, the Company had
unsecured bank lines of credit of $15 million, $55,000 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 supplier, Tennessee Gas Pipeline Company began billing
these costs on September 1, 1993, as a component of demand
charges, $8.6 million has been billed through June 30, 1998. The
Company has recorded additional transition costs of approximately
$505,000 that are expected to be billed over a period of six
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 and for other
environmental actions ranges from $1.6 million to $3.5 million.
The Company has recorded $1.6 million at June 30, 1998, in deferred
charges. In a proceeding before the Commission, the Company received
an order that provides for recovery from ratepayers, over
a seven-year period, of substantially all costs of investigation,
remediation and recovery efforts for a portion of a former gas
manufacturing site in Concord, New Hampshire. The recovery amount
is net of recoveries from third parties and does not include carrying
costs.
<PAGE> 11
Through June 30, 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.
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 $240,000, through June 30, 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 totaling $90,000 during the
quarter ended June 30, 1998, 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 June 30, 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: July 24, 1998 /s/ DAVID A. SKRZYSOWSKI
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
EnergyNorth Natural Gas, Inc. condensed balance sheet as of June 30, 1998, and
condensed statement of income and statement of cash flows for the nine months
ended June 30, 1998, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 104,071<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 22,969
<TOTAL-DEFERRED-CHARGES> 9,675
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 136,715
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 22,704
<TOTAL-COMMON-STOCKHOLDERS-EQ> 48,242
0
0
<LONG-TERM-DEBT-NET> 42,454
<SHORT-TERM-NOTES> 55
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 463
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 45,502
<TOT-CAPITALIZATION-AND-LIAB> 136,716
<GROSS-OPERATING-REVENUE> 77,720
<INCOME-TAX-EXPENSE> 4,306
<OTHER-OPERATING-EXPENSES> 63,605
<TOTAL-OPERATING-EXPENSES> 67,911
<OPERATING-INCOME-LOSS> 9,809
<OTHER-INCOME-NET> 897
<INCOME-BEFORE-INTEREST-EXPEN> 10,706
<TOTAL-INTEREST-EXPENSE> 3,288
<NET-INCOME> 7,418
0
<EARNINGS-AVAILABLE-FOR-COMM> 7,418
<COMMON-STOCK-DIVIDENDS> 2,870
<TOTAL-INTEREST-ON-BONDS> 3,600<F2>
<CASH-FLOW-OPERATIONS> 17,546
<EPS-PRIMARY> $0.00
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $50,815
<F2>$3,600 represents the forecasted annual interest on bonds for the fiscal year
ending September 30, 1998. Actual interest on bonds for the nine months ended
June 30, 1998 was $2.701.
</FN>
</TABLE>
