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, 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 April 26, 1999, the filing date
of this report.
<PAGE>
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)
March 31, September 30,
1999 1998 1998
___________________ _____________
Property:
Utility plant, at cost $162,571 $151,551 $158,564
Accumulated depreciation and amortization 53,976 50,084 51,309
___________________ ________
Net utility plant 108,595 101,467 107,255
___________________ ________
Current assets:
Cash and temporary cash investments 1,398 5,905 1,756
Accounts receivable (net of allowances of
$1,260, $1,186 and $1,088, respectively) 10,119 12,164 1,828
Unbilled revenues 1,641 1,454 516
Deferred gas costs 535 - -
Materials and supplies 1,615 1,639 1,411
Supplemental gas supplies 4,062 4,401 9,479
Prepaid and deferred taxes 1,423 1,138 1,766
Recoverable FERC 636 transition costs - 757 252
Prepaid expenses and other 551 595 2,028
___________________ ________
Total current assets 21,344 28,053 19,036
___________________ ________
Deferred charges and other assets:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 10,198 5,003 6,113
Other deferred charges and assets 2,148 1,922 1,970
___________________ ________
Total deferred charges and other assets 14,747 9,326 10,484
___________________ ________
Total assets $144,686 $138,846 $136,775
=================== ========
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)
March 31, 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 26,507 25,374 19,265
____________________ ________
Total common stockholder's equity 52,045 50,912 44,803
Long-term debt 42,052 42,488 42,432
____________________ ________
Total capitalization 94,097 93,400 87,235
____________________ ________
Current liabilities:
Notes payable to banks 4,025 - 1,891
Current portion of long-term debt 418 473 450
Inventory purchase obligation 5,229 5,311 8,712
Accounts payable 6,128 6,840 4,670
Accounts payable to affiliates 1,845 983 2,145
Deferred gas costs - 1,908 3,841
Accrued interest 260 252 257
Accrued and deferred taxes 4,023 4,202 524
Accrued FERC 636 transition costs - 757 252
Accrued environmental remediation costs 5,371 2,046 2,345
Customer deposits and other 102 200 1,313
____________________ ________
Total current liabilities 27,401 22,972 26,400
____________________ ________
Commitments and contingencies
Deferred credits:
Deferred income taxes 18,064 17,215 17,930
Unamortized investment tax credits 1,549 1,672 1,610
Regulatory liability - income taxes 1,084 1,197 1,141
Contributions in aid of construction and other 2,491 2,390 2,459
____________________ ________
Total deferred credits 23,188 22,474 23,140
____________________ ________
Total stockholder's equity and liabilities $144,686 $138,846 $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 March 31
(Unaudited)
(In thousands)
Three Months Six Months Twelve Months
1999 1998 1999 1998 1999 1998
___________________ _________________ _________________
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $36,441 $37,479 $58,460 $64,614 $79,142 $88,830
___________________ _________________ _________________
Operating expenses:
Cost of gas sold 18,272 21,484 27,177 34,638 39,232 50,285
Operations and maintenance 4,762 4,432 9,653 9,316 18,782 18,460
Depreciation and amortization 1,822 1,440 3,349 2,794 5,936 5,217
Taxes other than income taxes 966 942 1,935 1,947 3,726 2,738
Federal and state income taxes 3,579 3,068 5,322 5,294 2,840 3,356
___________________ _________________ _________________
Total operating expenses 29,401 31,366 47,436 53,989 70,516 80,056
___________________ _________________ _________________
Operating income 7,040 6,113 11,024 10,625 8,626 8,774
Other income 260 244 555 667 999 1,040
Interest expense:
Interest on long-term debt 895 906 1,797 1,820 3,605 3,152
Other interest 287 187 672 382 1,087 888
___________________ _________________ _________________
Total interest expense 1,182 1,093 2,469 2,202 4,692 4,040
___________________ _________________ _________________
Net income $ 6,118 $ 5,264 $ 9,110 $ 9,090 $ 4,933 $ 5,774
=================== ================= =================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the six months ended March 31
(Unaudited)
(In thousands)
1999 1998
_______ _______
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,110 $ 9,090
Noncash items:
Depreciation and amortization 3,567 3,025
Deferred taxes and investment tax credits, net 16 (305)
Changes in:
Accounts receivable, net (8,291) (9,167)
Unbilled revenues (1,125) (852)
Inventories 5,213 4,539
Prepaid expenses and other 1,477 493
Deferred gas costs (4,376) 608
Accounts payable 1,458 1,507
Accounts payable to affiliates, net (300) (1,450)
Accrued liabilities (1,293) (258)
Accrued/prepaid taxes 3,841 4,162
Payments for environmental costs and other (2,068) 1,604
_______ _______
Net cash provided by operating activities 7,229 12,996
_______ _______
Cash flows from investing activities:
Additions to property (4,076) (5,039)
_______ _______
Cash flows from financing activities:
Cash dividends on common stock (1,868) (1,870)
Repayment of long-term debt (411) (436)
Change in notes payable to banks 2,134 -
Change in inventory purchase obligation (3,483) (2,541)
Change in other financing activities 117 42
_______ _______
Net cash used for financing activities (3,511) (4,805)
_______ _______
Net (decrease) increase in cash and temporary cash investments (358) 3,152
Cash and temporary cash investments, beginning of period 1,756 2,753
_______ _______
Cash and temporary cash investments, end of period $ 1,398 $ 5,905
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
March 31, 1999
(Unaudited)
EnergyNorth Natural Gas, Inc. (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 (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 March 31, 1999 and 1998 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, 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 six
months ended March 31, are as follows (in thousands):
1999 1998
_______________________________________________________________
Cash paid (received) during the period for:
Interest (net of amount capitalized) $2,238 $1,936
Income taxes 1,337 1,824
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.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Managements's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1999
Results of Operations
_____________________
Net income for the three months ended March 31, 1999 was $6.1
million compared to $5.3 million in 1998. For the six months
ended March 31, 1999, net income was essentially flat at
approximately $9.1 million. Net income for the twelve months
ended March 31, 1999 was $4.9 million compared to $5.8 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.
Although temperatures were colder for the current three and six-
month periods compared to the previous periods, they were
significantly warmer than normal for all periods presented. The
temperatures 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.
03-31-99 03-31-98 Normal Previous Period Normal
________ ________ ______ _______________ __________
3 months 3,341 2,981 3,581 12.1% (6.7)%
6 months 5,634 5,539 6,179 1.7% (8.8)%
12 months 6,627 6,919 7,473 (4.2)% (11.3)%
Quarterly Comparison
____________________
Total operating revenues decreased $1 million, or 2.8%, for the
quarter ended March 31, 1999. The average number of customers
increased 2.4% for the quarter, the weather was 12.1% colder and
firm sendout, including transportation, increased 15.5%. Despite
higher sendout, revenues decreased because lower purchased gas
costs of $4.7 million 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 increased 13.6% for the
quarter.
The 26.5% increase in depreciation and amortization expenses was
the result of capital additions and amortization of environmental
remediation costs. Total interest expense increased $89,000, or
8.1%, due mostly to the increased level of short-term debt
outstanding during the current period.
<PAGE>
Six-Month Comparison
____________________
Total operating revenues declined $6.2 million, or 9.5%, for the
six months ended March 31, 1999. The decrease included lower
purchased gas costs of $6.7 million that were passed through the
CGA to firm customers. The average number of customers increased
2.4% and firm sendout increased 5.3%, as temperatures were 1.7%
colder than the prior period. Margin increased $1.3 million for
the six months.
Continued capital additions to the distribution system and
amortization of environmental remediation costs were the primary
reasons for the 19.9% increase in depreciation and amortization
expense. The decrease in other income was due mostly to prior
period interest on refunds received from federal income tax
settlements. The primary reason for the 12.1% increase in total
interest expense was the increased level of short-term debt
outstanding during the current period.
Twelve-Month Comparison
_______________________
Although the average number of customers increased 2.4% and firm
sendout increased 3.7%, total operating revenues decreased to
$79.1 million from $88.8 million in the prior period. The current
period revenues included lower gas costs of $6.9 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 3.5%.
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 16% 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. The net
accounts receivable balance at March 31, 1999 is $10.1 million
and reflects lower revenues resulting from 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
<PAGE>
collected. At this time, inventories have been partially
depleted and prepaid amounts, mostly insurance, are being
amortized. The undercollected deferred gas cost amounts at March
31, 1999 will be billed to customers through the CGA mechanism in
future periods.
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, 1999, capital expenditures totaled more
than $4 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At March 31, 1999, the Company had
unsecured bank lines of credit of $15 million, $4 million of
which was outstanding.
Construction expenditures for fiscal 1999 are expected to total
approximately $11.6 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. 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 $10.4 million.
In addition to costs incurred to date, the Company has recorded
$5.4 million as an accrued liability at March 31, 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. Costs incurred to date and costs expected to be
incurred to complete the year 2000 readiness are not significant
and will not have a material impact on the Company's financial
position or results of operations.
The Company is currently assessing year 2000 issues with third
parties with whom it has a material relationship. Except for the
Company's major pipeline supplier, who has provided assurance of
compliance, the Company has not determined the level of third-
party risk. Due to the complexity of the problem and the
reliance on certain important vendors and suppliers, there can be
no
<PAGE>
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 whether transportation
rates will be reduced in future regulatory proceedings with
resulting decreases in transportation margins; 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 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, 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: April 26, 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 March 31, 1999 and condensed statement of income and statement
of cash flows for the six months ended March 31, 1999 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-30-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 108,595<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 21,344
<TOTAL-DEFERRED-CHARGES> 14,747
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 144,686
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 26,507
<TOTAL-COMMON-STOCKHOLDERS-EQ> 52,045
0
0
<LONG-TERM-DEBT-NET> 42,052
<SHORT-TERM-NOTES> 4,025
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 418
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 46,146
<TOT-CAPITALIZATION-AND-LIAB> 144,686
<GROSS-OPERATING-REVENUE> 58,460
<INCOME-TAX-EXPENSE> 5,322
<OTHER-OPERATING-EXPENSES> 42,114
<TOTAL-OPERATING-EXPENSES> 47,436
<OPERATING-INCOME-LOSS> 11,024
<OTHER-INCOME-NET> 555
<INCOME-BEFORE-INTEREST-EXPEN> 11,579
<TOTAL-INTEREST-EXPENSE> 2,469
<NET-INCOME> 9,110
0
<EARNINGS-AVAILABLE-FOR-COMM> 9,110
<COMMON-STOCK-DIVIDENDS> 1,868
<TOTAL-INTEREST-ON-BONDS> 3,569<F2>
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<EPS-PRIMARY> $0.00
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<FN>
<F1>Net of accumulated depreciation of $53,976
<F2>$3,569 represents the forecasted annual interest on bonds for the fiscal
year ending September 30, 1999. Actual interest on bonds for the three
months ended March 31, 1999 was $1,778
</FN>
</TABLE>
