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 December 31, 1997
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 January 23, 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)
December 31, September 30,
1997 1996 1997
------------------ -------------
Property:
Utility plant, at cost $149,872 $138,068 $146,799
Accumulated depreciation and amortization 48,956 45,651 47,811
------------------ -------------
Net utility plant 100,916 92,417 98,988
------------------ -------------
Current assets:
Cash and temporary cash investments 126 507 2,753
Accounts receivable (net of allowances of
$1,280, $1,225 and $1,309, respectively) 9,813 8,130 2,997
Unbilled revenues 3,473 2,877 602
Deferred gas costs 1,433 8,024 -
Inventories, at average cost:
Materials and supplies 1,510 1,473 1,650
Supplemental gas supplies 7,528 7,904 8,929
Prepaid and deferred taxes 1,409 1,125 1,180
Recoverable FERC 636 transition costs 1,009 2,018 1,261
Prepaid expenses and other 826 826 1,088
------------------ -------------
Total current assets 27,127 32,884 20,460
------------------ -------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 5,044 6,273 6,546
Other deferred charges 1,902 565 1,948
------------------ -------------
Total deferred charges 9,347 9,239 10,895
------------------ -------------
Total assets $137,390 $134,540 $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)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1996 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 21,046 18,337 18,155
------------------ -------------
Total common stockholder's equity 46,584 43,875 43,693
Long-term debt 42,879 27,077 42,913
------------------ -------------
Total capitalization 89,463 70,952 86,606
------------------ -------------
Current liabilities:
Notes payable to banks 2,050 12,750 -
Current portion of long-term debt 478 1,651 484
Current portion of capital lease obligations - 15 -
Inventory purchase obligation 8,861 9,209 7,852
Accounts payable 6,386 9,300 5,333
Accounts payable to affiliates 986 1,009 2,433
Deferred gas costs - - 1,300
Accrued interest 1,200 1,091 303
Accrued and deferred taxes 2,477 2,495 82
Accrued FERC 636 transition costs 1,009 2,018 1,261
Customer deposits, environmental and other 1,896 2,835 1,950
------------------ -------------
Total current liabilities 25,343 42,373 20,998
------------------ -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 17,275 15,724 17,401
Unamortized investment tax credits 1,703 1,836 1,734
Regulatory liability - income taxes 1,226 1,344 1,254
Contributions in aid of construction and other 2,380 2,311 2,350
------------------ -------------
Total deferred credits 22,584 21,215 22,739
------------------ -------------
Total stockholder's equity and liabilities $137,390 $134,540 $130,343
================== =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 4
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended December 31
(Unaudited)
(Thousands of dollars)
Three Months Twelve Months
1997 1996 1997 1996
------------------ ------------------
Total operating revenues $27,135 $25,360 $94,753 $80,209
------------------ ------------------
Operating expenses:
Cost of gas sold 13,154 12,424 55,363 42,015
Operations and maintenance 4,884 4,641 18,640 18,524
Depreciation and amortization 1,354 1,226 5,097 4,746
Taxes other than income taxes 1,005 897 2,698 3,619
Federal and state income taxes 2,226 1,982 3,722 3,251
------------------ ------------------
Total operating expenses 22,623 21,170 85,520 72,155
------------------ ------------------
Operating income 4,512 4,190 9,233 8,054
Other income 423 216 999 770
Interest expense:
Interest on long-term debt 914 666 2,905 2,714
Other interest 195 332 924 714
------------------ ------------------
Total interest expense 1,109 998 3,829 3,428
------------------ ------------------
Net income $ 3,826 $ 3,408 $ 6,403 $ 5,396
================== ==================
See accompanying notes to condensed financial statements.
<PAGE> 5
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the three months ended December 31
(Unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
1997 1996
-----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,826 $ 3,408
Noncash items:
Depreciation and amortization 1,470 1,343
Deferred taxes and investment tax credits, net (185) 41
Changes in:
Accounts receivable, net (6,816) (6,299)
Unbilled revenues (2,871) (2,295)
Inventories 1,541 901
Prepaid expenses and other 262 272
Deferred gas costs (2,733) (4,240)
Accounts payable 1,053 4,013
Accounts payable to affiliates, net (1,447) 420
Accrued liabilities 823 185
Accrued/prepaid taxes 2,167 1,315
Payments for environmental costs and other 1,336 (233)
-----------------
Net cash used for operating activities (1,574) (1,169)
-----------------
Cash flows from investing activities:
Additions to property (3,186) (2,039)
Cash flows from financing activities:
Issues of long-term debt - 16
Change in notes payable to banks 2,050 3,215
Increase in inventory purchase obligation 2,271 1,963
Change in customer deposits and other 49 (232)
Cash dividends on common stock (935) (890)
Refunding requirements:
Repayment of long-term debt (40) (36)
Repayment of capital lease obligations - (11)
Repayment of inventory purchase obligation (1,262) (621)
-----------------
Net cash provided by financing activities 2,133 3,404
-----------------
Net (decrease) increase in cash and temporary cash investments (2,627) 196
Cash and temporary cash investments, beginning of period 2,753 311
-----------------
Cash and temporary cash investments, end of period $ 126 $ 507
=================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE> 6
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
December 31, 1997
(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 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 December 31, 1997 and 1996
and the results of operations for the three and twelve months
then ended and statements of cash flows for the three months
ended December 31, 1997 and 1996. All accounting policies and
practices have been applied in a manner consistent with prior
periods. These interim financial statements should be read in
conjunction with the financial statements and notes thereto
contained in the Company's Form 10-K for the year ended September
30, 1997.
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 three
months ended December 31, are as follows (in thousands):
1997 1996
- -----------------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ (47) $283
Income taxes (186) -
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
December 31, 1997
Results of Operations
Net income for the three months ended December 31, 1997 was
$3,826,000 compared to $3,408,000 in 1996. For the twelve months
ended December 31, 1997, net income was $6,403,000 compared to
$5,396,000 in the prior period. Included in the results of the
current twelve month period was a one-time, after-tax credit of
$649,000, which was a result of a property tax settlement.
Temperatures for the three-month and twelve-month periods ended
December 31, 1997 were slightly warmer than normal and nearly the
same as the prior comparable periods. 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. Because of the size and
topographical variations of the Company's service territory,
weather conditions within such territory often vary. The Company
considers Concord, New Hampshire weather data to be
representative of weather conditions within its service
territory.
Actual Actual Change vs. Change vs.
12-31-97 12-31-96 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,558 2,553 2,603 .2% (1.7)%
12 months 7,378 7,422 7,515 (.6)% (1.8)%
Quarterly Comparison
Total operating revenues increased $1.8 million, or 7%, for the
quarter ended December 31, 1997. Included in the increase were
higher 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.
Although temperatures were nearly the same as the prior period, a
2.6% growth in the average number of customers resulted in a
10.5% increase in firm sendout, including firm transportation.
Margin earned from operations during the quarter was $1 million,
or 8%, higher than the prior period.
Increases in wage rates and bad debt expense were the primary
reasons that operations and maintenance expenses increased from
the prior comparable period. Depreciation and amortization
expenses increased for the period as a result of capital
additions and amortization of environmental remediation costs.
Taxes other than income taxes increased approximately 12%
primarily as a result of higher property tax assessments and
rates. Total interest expense increased approximately 11% due
mostly to the $22 million of 7.4% First Mortgage Bonds issued in
September 1997.
<PAGE> 9
Twelve-Month Comparison
Total operating revenues increased $14.5 million, or 18.1%, for
the twelve months ended December 31, 1997. Significantly higher
revenues were due primarily to $14.5 million of higher gas costs
being passed through the CGA. Although the weather was virtually
the same as the prior period, the 2.3% growth in the average
number of customers resulted in an increase in firm sendout,
including firm transportation, of more than 4%. Margin earned
from operations was 3.1% higher than the prior twelve-month
period.
While maintenance costs and wage rates have increased, reductions
in the work force and overtime requirements were the primary
reasons that operations and maintenance expenses remained
virtually unchanged from the prior comparable period. Higher
depreciation and amortization charges were a direct result of
plant additions and amortization of environmental remediation
costs. Taxes other than income taxes decreased 25% as a result
of a property tax settlement.
Interest income resulting from federal income tax settlement
refunds was the principal reason for the increase in other
income.
Total interest expense increased almost 12% during the twelve-month
period due to the $22 million of 7.4% First Mortgage Bonds
issued in September 1997 and an increase in interest to be
collected from customers on the average deferred gas cost
undercollected balance.
Capital Resources and Liquidity
The Company's major capital requirements result from normal
replacements and efforts to improve the efficiency of the
existing plant and to serve additional customers. For the three
months ended December 31, 1997, capital expenditures totaled
approximately $3.2 million.
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 undercollected deferred gas costs balance at December 31,
1997 is due mostly to the timing of the recovery of increased
utility purchased gas costs. The undercollected amounts are
expected to be recovered from firm gas customers during the
winter period through the CGA.
Capital expenditures, undercollected deferred gas costs and
working capital requirements were financed by internally
generated funds and supplemented by short-term bank borrowings.
At December 31, 1997, the Company had unsecured bank lines of
credit of $15 million, $2.1 million 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
<PAGE> 10
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, $8.1 million has been billed through December 31,
1997. The Company has recorded additional transition costs of
approximately $1 million that are expected to be billed over a
period of 12 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. There
has been no significant change in the information disclosed in
the Company's September 30, 1997 Form 10-K.
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 regulatory approval of the full
recovery of environmental costs, transition costs and other
regulatory assets.
<PAGE> 11
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.
No further material legal proceedings or material developments
occurred in the quarter ended December 31, 1997.
Item 2. Changes in Securities and Use of Proceeds
(a) No equity securities of the Company were sold by it during
the period covered by this report. All 120,000
shares of the Company's outstanding common stock are held by
EnergyNorth, Inc.
(b) Use of Proceeds.
(1) The Company's Registration Statement on Form S-1,
Registration No. 333-32949, was effective September 18, 1997.
(2) The offering commenced on September 18, 1997.
(3) n/a
(4) (i) All registered securities were sold on September 23, 1997.
(ii) The managing underwriter was Edward D. Jones & Co., L.P.
(iii) First Mortgage Bonds designated as 7.40% Series E bonds
Due September 30, 2027 were registered.
(iv) $22,000,000 of Series E Bonds were registered, all
of which were sold at that offering price.
(v) Expenses incurred in connection with the issuance
and distribution of the securities from the effective
date of the Registration Statement through
December 31, 1997 were:
<TABLE>
<S> <C>
Underwriting discount $ 880,000
Other expenses 184,610
-----------
Total $ 1,064,610
</TABLE>
<PAGE> 12
(vi) Amount of net offering proceeds from the effective
date of the Registration Statement through
December 31, 1997, representing 100% of the net
proceeds, were used for:
<TABLE>
<S> <C>
Construction of plant, building and facilities $ -
Purchase of real estate -
Acquisition of other business -
Working capital 5,458,919
Temporary investments -
Redemption of bonds 6,436,081
Repayment of short-term debt 9,225,000
-----------
Total $21,120,000
</TABLE>
None of such amounts were paid to directors,
officers, 10% holders, or affiliates.
(vii) n/a
Items 3-5 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 December 31, 1997.
<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: January 23, 1998 /s/ DAVID A. SKRZYSOWSKI
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)
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: January 23, 1998 _____________________________________
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 December 31, 1997
and condensed statement of income and statement of cash flows for the three
months ended December 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 100,916<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 27,127
<TOTAL-DEFERRED-CHARGES> 9,347
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 137,390
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 21,046
<TOTAL-COMMON-STOCKHOLDERS-EQ> 46,584
0
0
<LONG-TERM-DEBT-NET> 42,879
<SHORT-TERM-NOTES> 2,050
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 478
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 45,399
<TOT-CAPITALIZATION-AND-LIAB> 137,390
<GROSS-OPERATING-REVENUE> 27,135
<INCOME-TAX-EXPENSE> 2,226
<OTHER-OPERATING-EXPENSES> 20,397
<TOTAL-OPERATING-EXPENSES> 22,623
<OPERATING-INCOME-LOSS> 4,512
<OTHER-INCOME-NET> 423
<INCOME-BEFORE-INTEREST-EXPEN> 4,935
<TOTAL-INTEREST-EXPENSE> 1,109
<NET-INCOME> 3,826
0
<EARNINGS-AVAILABLE-FOR-COMM> 3,826
<COMMON-STOCK-DIVIDENDS> 935
<TOTAL-INTEREST-ON-BONDS> 3,600<F2>
<CASH-FLOW-OPERATIONS> (1,574)
<EPS-PRIMARY> $0.00
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $48,956
<F2>$3,600 represents the forecasted annual interest on bonds for the fiscal year
ending September 30, 1998. Actual interest on bonds for the three months ended
December 31, 1997 was $905.
</FN>
</TABLE>
