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, 1999
Commission File Number 000-25305
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 27, 1999, the filing date
of this report.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Assets
(Unaudited, except for September 30, 1998 data)
(In thousands)
June 30, September 30,
1999 1998 1998
-------------------- --------
<S> <C> <C> <C>
Property:
Utility plant, at cost $165,185 $154,886 $158,564
Accumulated depreciation and amortization 54,902 50,815 51,309
-------------------- --------
Net utility plant 110,283 104,071 107,255
-------------------- --------
Current assets:
Cash and temporary cash investments 1,775 6,228 1,756
Accounts receivable (net of allowances of
$1,200, $1,164 and $1,088, respectively) 3,407 5,105 1,828
Unbilled revenues 673 595 516
Materials and supplies 1,556 1,573 1,411
Supplemental gas supplies 6,282 6,776 9,479
Prepaid and deferred taxes 1,140 1,838 1,766
Recoverable FERC 636 transition costs - 505 252
Prepaid expenses and other 1,661 1,403 2,028
-------------------- -------
Total current assets 16,494 24,023 19,036
-------------------- -------
Deferred charges and other assets:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 10,613 5,464 6,113
Other deferred charges and assets 2,259 1,810 1,970
-------------------- -------
Total deferred charges and other assets 15,273 9,675 10,484
-------------------- -------
Total assets $142,050 $137,769 $136,775
==================== ========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Stockholder's Equity and Liabilities
(Unaudited, except for September 30, 1998 data)
(In thousands, except share information)
June 30, September 30,
1999 1998 1998
-------------------- --------
<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 23,761 22,704 19,265
-------------------- --------
Total common stockholder's equity 49,299 48,242 44,803
Long-term debt 42,005 42,454 42,432
-------------------- --------
Total capitalization 91,304 90,696 87,235
-------------------- --------
Current liabilities:
Notes payable to banks 3,926 55 1,891
Current portion of long-term debt 447 463 450
Inventory purchase obligation 5,308 5,919 8,712
Accounts payable 4,194 6,300 4,670
Accounts payable to affiliates 2,777 861 2,145
Deferred gas costs 736 3,959 3,841
Accrued interest 1,136 1,153 257
Accrued and deferred taxes 1,913 2,156 524
Accrued FERC 636 transition costs - 505 252
Accrued environmental remediation costs 3,398 1,597 2,345
Customer deposits and other 1,226 1,168 1,313
-------------------- --------
Total current liabilities 25,061 24,136 26,400
-------------------- --------
Commitments and contingencies
Deferred credits:
Deferred income taxes 18,601 17,734 17,930
Unamortized investment tax credits 1,518 1,641 1,610
Regulatory liability - income taxes 1,056 1,169 1,141
Long-term environmental remediation costs 2,000 - -
Contributions in aid of construction and other 2,510 2,393 2,459
-------------------- --------
Total deferred credits 25,685 22,937 23,140
-------------------- --------
Total stockholder's equity and liabilities $142,050 $137,769 $136,775
==================== ========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended June 30
(Unaudited)
(In thousands)
Three Months Nine Months Twelve Months
1999 1998 1999 1998 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $11,383 $13,106 $69,843 $77,720 $77,419 $85,913
------------------ ------------------ ------------------
Operating expenses:
Cost of gas sold 6,465 8,288 33,642 42,926 37,409 47,498
Operations and maintenance 4,409 4,321 14,062 13,637 18,870 18,296
Depreciation and amortization 1,520 1,329 4,869 4,123 6,127 5,307
Taxes other than income taxes 915 972 2,850 2,919 3,669 2,786
Federal and state income taxes (1,049) (988) 4,273 4,306 2,779 3,264
------------------ ------------------ ------------------
Total operating expenses 12,260 13,922 59,696 67,911 68,854 77,151
------------------ ------------------ ------------------
Operating income (loss) (877) (816) 10,147 9,809 8,565 8,762
Other income 143 230 698 897 912 1,123
Interest expense:
Interest on long-term debt 894 904 2,691 2,724 3,595 3,396
Other interest 142 182 814 564 1,047 873
------------------ ------------------ ------------------
Total interest expense 1,036 1,086 3,505 3,288 4,642 4,269
------------------ ------------------ ------------------
Net income (loss) $(1,770) $ 1,672 $ 7,340 $ 7,418 $ 4,835 $ 5,616
================== ================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the nine months ended June 30
(Unaudited)
(In thousands)
1999 1998
------- -------
Cash flows from operating activities:
Net income $ 7,340 $ 7,418
Noncash items:
Depreciation and amortization 5,198 4,468
Deferred taxes and investment tax credits, net 493 155
Changes in:
Accounts receivable, net (1,579) (2,108)
Unbilled revenues (157) 7
Inventories 3,052 2,230
Prepaid expenses and other 367 603
Deferred gas costs (3,105) 2,659
Accounts payable (476) 967
Accounts payable to affiliates, net 632 (1,572)
Accrued liabilities 733 707
Accrued/prepaid taxes 2,015 1,416
Payments for environmental costs and other (2,842) 596
------- -------
Net cash provided by operating activities 11,671 17,546
------- -------
Cash flows from investing activities:
Additions to property (7,120) (8,875)
------- -------
Cash flows from financing activities:
Cash dividends on common stock (2,844) (2,870)
Repayment of long-term debt (430) (480)
Change in notes payable to banks 2,035 55
Change in inventory purchase obligation (3,404) (1,933)
Change in other financing activities 111 32
------- -------
Net cash used for financing activities (4,532) (5,196)
------- -------
Net increase in cash and temporary cash investments 19 3,475
Cash and temporary cash investments, beginning of period 1,756 2,753
------- -------
Cash and temporary cash investments, end of period $ 1,775 $ 6,228
======= =======
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
June 30, 1999
(Unaudited)
EnergyNorth Natural Gas, Inc. (Company) is a wholly owned
subsidiary of EnergyNorth, Inc. (ENI), 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 (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 June 30, 1999 and 1998 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, 1999 and 1998. 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,
1998.
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>
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the nine
months ended June 30, are as follows (in thousands):
1999 1998
- ----------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $2,349 $2,027
Income taxes 1,316 2,560
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 9 in the Company's Form 10-K for the year ended
September 30, 1998.
Note 4. Subsequent Event
On July 14, 1999, ENI and Eastern Enterprises (Eastern), a
Massachusetts business trust, entered into an Agreement and
Plan of Reorganization (Agreement) which provides for the merger
of ENI with and into a subsidiary of Eastern, as a result of which
ENI would become a wholly owned subsidiary of Eastern. Under the
Agreement, holders of outstanding shares of ENI's common stock can
elect to receive cash, Eastern common stock or a combination of cash
and stock as set forth in the Agreement. Completion of the merger is
subject to approval by ENI's stockholders and receipt of satisfactory
regulatory approvals, including approval by the Commission and the
Securities and Exchange Commission and antitrust clearance.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1999
Results of Operations
- ---------------------
Net loss for the three months ended June 30, 1999, was $1.8
million compared to $1.7 million in 1998. Net income decreased
slightly to $7.3 million for the nine months ended June 30, 1999,
from $7.4 million in 1998. For the twelve months ended June 30,
1999, net income was $4.8 million compared to $5.6 million in the
prior period. Included in the prior 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 colder than the prior comparable periods, but significantly
warmer than normal 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.
6-30-99 6-30-98 Normal Previous Period Normal
------- ------- ------ --------------- ------
3 months 896 826 999 8.5% (10.3)%
9 months 6,530 6,365 7,178 2.6% (9.0)%
12 months 6,697 6,579 7,452 1.8% (10.1)%
Quarterly Comparison
- --------------------
Total operating revenues decreased $1.7 million, or 13.1%, for
the quarter ended June 30, 1999. The average number of customers
increased 2.3% for the quarter, the weather was 8.5% colder and
firm sendout, including transportation, increased 2.6%. Lower
purchased gas costs of $1.5 million passed through the cost of
gas adjustment (CGA) to firm customers was the primary reason for
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 increased 2.1% for the quarter.
The 14.4% increase in depreciation and amortization expenses was
the result of capital additions. The decrease in other income
resulted primarily from a reduction in interest earned on the
temporary investment of surplus cash.
<PAGE>
Nine-Month Comparison
- ---------------------
Total operating revenues decreased $7.9 million, or 10.1%, for
the nine months ended June 30, 1999. The decrease resulted in
part from lower purchased gas costs of $8.2 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. The average number of customers
increased 2.4% and the weather was 2.6% colder than the prior
period resulting in an increase in firm sendout, including
transportation, of over $4.8%. Margin increased $1.4 million, or
4.0%, for the nine months.
Continued capital additions to plant and equipment and amortization
of environmental remediation costs were the primary reasons for
the 18.1% increase in depreciation and amortization expenses. The
decrease in other income was due mostly to prior period interest on
refunds received from federal income tax settlements and to a reduction
in interest earned on temporary investments. The primary reason for the
6.6% increase in total interest expense was the higher level of short-term
borrowings required during the current period.
Twelve-Month Comparison
- -----------------------
Although the average number of customers increased 2.4% and firm
sendout increased 5.7%, total operating revenues decreased to
$77.4 million from $85.9 million in the prior period. The current
period revenues included lower gas costs of $8.1 million that
were passed through the CGA. In addition, revenues decreased as
customers switched from sales service to transportation service.
Total margin from operations increased 4.2%.
Higher depreciation and amortization charges were the direct
result of plant additions and amortization of environmental
remediation costs. Taxes other than income taxes increased as a
result of favorable property tax settlements in prior periods.
Total interest expense increased more than 8% during the twelve
month period due primarily to the $22 million of 7.4% First
Mortgage Bonds issued in September 1997 and the increased level
of short-term debt outstanding during the current period.
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
winter heating season. The overcollected deferred gas cost
amounts at June 30, 1999, will be returned to customers during
subsequent winter and summer periods through the CGA mechanism.
<PAGE>
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, 1999, capital expenditures totaled
approximately $7.1 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At June 30, 1999, the Company had
unsecured bank lines of credit of $15 million, $3.9 million of
which was outstanding.
Construction expenditures for fiscal 1999 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.
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. In
April, 1999 the Company received a request from the New Hampshire
Department of Environmental Services to participate with Public
Service Company of New Hampshire (PSNH) and Northern Utilities in
the development of a site investigation report for a former
manufactured gas site located in Dover, New Hampshire. The
Company is also participating with PSNH in the investigation and
remediation of former manufactured gas sites in Laconia, New
Hampshire and Nashua, New Hampshire and is engaged in remediation
of a site in Concord, New Hampshire. Costs to complete the
Company's share of site investigation, risk characterization and
remediation at manufactured gas sites are currently estimated to
range from $5.4 million to $10.5 million. In addition to costs
incurred to date, the Company has recorded $3.4 million as an
accrued current liability and $2.0 million as a long-term
liability at June 30, 1999 with a corresponding charge to
recoverable environmental costs. For further detail regarding
environmental issues please refer to Footnote 9 in the Company's
Form 10-K for the year ended September 30, 1998.
Year 2000 Readiness
- -------------------
The Company has evaluated its principal computer systems and
noninformation technology systems including, but not limited to,
telecommunication systems, automated meter reading systems,
SCADA, regulator stations, plant remote control systems and
security systems to determine readiness for the year 2000. These
systems are currently capable of processing the year 2000, or are
in the process of being upgraded or replaced by systems that are
similarly capable. All necessary program modifications and system
upgrades and testing are expected to be completed by the year
2000. At June 30, 1999, all Company systems critical to the
delivery of gas to customers are year 2000 compliant. Costs
incurred to date and costs expected to be incurred to complete
the year 2000 readiness are not material and will not have a
material impact on the Company's financial position or results of
operations.
<PAGE>
The Company is currently assessing year 2000 issues with third
parties with whom it has a material relationship. Although this
assessment is ongoing, critical vendors contacted to date have
indicated that interruption to service due to year 2000 problems
are unlikely. Due to the complexity of the problem and the
reliance on certain important vendors and suppliers, there can be
no guarantee that year 2000 compliance for all computer systems
and other systems will be achieved or that critical and important
vendors and suppliers will achieve compliance. The successful
upgrade of the Company's systems on a timely basis is critical to
enable the Company to avoid business disruption and the loss of
essential information or data in the year 2000. In addition, a
disruption of the transmission of gas due to year 2000 problems
experienced by the Company's gas supplier or other significant
vendors and service providers could prevent the delivery of a
sufficient amount of gas to enable the Company to serve certain
customer segments.
Because of the difficulty of accessing year 2000 readiness of
others outside the control of the Company, the Company considers
potential disruptions by these third parties to present the
"reasonably likely worst case scenario." The Company's inability
to serve its customers could result in increased costs, loss of
business and other similar risks. In an effort to investigate
the risks of non-compliance, the Company is in the process of
preparing a contingency plan. It is anticipated that contingency
plans will be finalized by September 30, 1999.
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 or
refers to 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; year 2000 readiness; 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 environmental costs and
as to regulatory approval of the full recovery of environmental
costs, and other regulatory assets; weather; results of
regulatory proceedings on unbundling; impact of new pipeline
supplies; and success of the Company's year 2000 readiness
efforts and those of its vendors and customers.
<PAGE>
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, 1998.
No further material legal proceedings or material developments
occurred since September 30, 1998.
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:
A current report on Form 8-K reporting the occurrence of an
event covered by Item 5 was filed on July 20, 1999 by the
Company regarding an Agreement and Plan of Reorganization
entered into by the Company's parent company, EnergyNorth, Inc.,
and Eastern Enterprises on July 14, 1999.
<PAGE>
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 27, 1999 /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, 1999 and
condensed statement of income and statement of cash flows for the nine months
ended June 30, 1999 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-30-1999
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 110,283<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 16,494
<TOTAL-DEFERRED-CHARGES> 15,273
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 142,050
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 23,761
<TOTAL-COMMON-STOCKHOLDERS-EQ> 49,299
0
0
<LONG-TERM-DEBT-NET> 42,005
<SHORT-TERM-NOTES> 3,926
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 447
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 46,373
<TOT-CAPITALIZATION-AND-LIAB> 142,050
<GROSS-OPERATING-REVENUE> 69,843
<INCOME-TAX-EXPENSE> 4,273
<OTHER-OPERATING-EXPENSES> 55,423
<TOTAL-OPERATING-EXPENSES> 59,696
<OPERATING-INCOME-LOSS> 10,147
<OTHER-INCOME-NET> 698
<INCOME-BEFORE-INTEREST-EXPEN> 10,845
<TOTAL-INTEREST-EXPENSE> 3,505
<NET-INCOME> 7,340
0
<EARNINGS-AVAILABLE-FOR-COMM> 7,340
<COMMON-STOCK-DIVIDENDS> 2,844
<TOTAL-INTEREST-ON-BONDS> 3,569<F2>
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<EPS-BASIC> $0.00
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<FN>
<F1>Net of accumulated depreciation of $54,902
<F2>$3,569 represents the forecasted annual interest on bonds for the fiscal
year ending September 30, 1999. Actual interest on bonds for the nine months
ended June 30, 1999 was $2,679.
</FN>
</TABLE>
