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, 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 January 29, 1999, the filing
date of this report.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Assets
(Unaudited, except for September 30, 1998 data)
(In thousands)
December 31, September 30,
1998 1997 1998
------------------ -------------
<S> <C> <C> <C>
Property:
Utility plant, at cost $161,394 $149,872 $158,564
Accumulated depreciation and amortization 52,759 48,956 51,309
------------------ -------------
Net utility plant 108,635 100,916 107,255
------------------ -------------
Current assets:
Cash and temporary cash investments 1,941 126 1,756
Accounts receivable (net of allowances of $1,248, $1,280 5,375 9,813 1,828
and $1,088, respectively)
Unbilled revenues 3,522 3,473 516
Deferred gas costs 29 1,433 -
Materials and supplies 1,510 1,510 1,411
Supplemental gas supplies 8,824 7,528 9,479
Prepaid and deferred taxes 2,282 1,409 1,766
Recoverable FERC 636 transition costs - 1,009 252
Prepaid expenses and other 732 826 2,028
------------------ -------------
Total current assets 24,215 27,127 19,036
------------------ -------------
Deferred charges and other assets:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 6,596 5,044 6,113
Other deferred charges and assets 2,107 1,902 1,970
------------------ -------------
Total deferred charges and other assets 11,104 9,347 10,484
------------------ -------------
Total assets $143,954 $137,390 $136,775
================== =============
</TABLE>
See accompanying notes to condensed finanical 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)
December 31, September 30,
1998 1997 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 21,323 21,046 19,265
------------------ -------------
Total common stockholder's equity 46,861 46,584 44,803
Long-term debt 42,411 42,879 42,432
------------------ -------------
Total capitalization 89,272 89,463 87,235
------------------ -------------
Current liabilities:
Notes payable to banks 7,942 2,050 1,891
Current portion of long-term debt 436 478 450
Inventory purchase obligation 9,928 8,861 8,712
Accounts payable 5,622 6,386 4,670
Accounts payable to affiliates 1,364 986 2,145
Deferred gas costs - - 3,841
Accrued interest 1,156 1,200 257
Accrued and deferred taxes 2,104 2,477 524
Accrued FERC 636 transition costs - 1,009 252
Accrued environmental remediation costs 2,822 1,546 2,345
Customer deposits and other 255 350 1,313
------------------ ------------
Total current liabilities 31,629 25,343 26,400
------------------ ------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 17,838 17,275 17,930
Unamortized investment tax credits 1,610 1,703 1,610
Regulatory liability - income taxes 1,129 1,226 1,141
Contributions in aid of construction and other 2,476 2,380 2,459
------------------ ------------
Total deferred credits 23,053 22,584 23,140
------------------ ------------
Total stockholder's equity and liabilities $143,954 $137,390 $136,775
================== ============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended December 31
(Unaudited)
(In thousands)
Three Months Twelve Months
1998 1997 1998 1997
------------------ ------------------
Operating revenues $22,019 $27,135 $80,180 $94,753
Operating expenses:
Cost of gas sold 8,905 13,154 42,444 55,363
Operations and maintenance 4,891 4,884 18,452 18,640
Depreciation and amortization 1,527 1,354 5,554 5,097
Taxes other than income taxes 969 1,005 3,702 2,698
Federal and state income taxes 1,743 2,226 2,329 3,722
------------------ ------------------
Total operating expenses 18,035 22,623 72,481 85,520
------------------ ------------------
Operating income 3,984 4,512 7,699 9,233
Other income 295 423 983 999
Interest expense:
Interest on long-term debt 902 914 3,616 2,905
Other interest 385 195 987 924
------------------ ------------------
Total interest expense 1,287 1,109 4,603 3,829
------------------ ------------------
Net income $ 2,992 $ 3,826 $ 4,079 $ 6,403
================== ==================
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the three months ended December 31
(Unaudited)
(In thousands)
1998 1997
------- -------
Cash flows from operating activities:
Net income $ 2,992 $ 3,826
Noncash items:
Depreciation and amortization 1,635 1,470
Deferred taxes and investment tax credits, net (104) (185)
Changes in:
Accounts receivable, net (3,547) (6,816)
Unbilled revenues (3,006) (2,871)
Inventories 556 1,541
Prepaid expenses and other 1,296 262
Deferred gas costs (3,870) (2,733)
Accounts payable 952 1,053
Accounts payable to affiliates, net (781) (1,447)
Accrued liabilities (254) 823
Accrued/prepaid taxes 1,063 2,167
Payments for environmental costs and other (419) 1,336
------- -------
Net cash used for operating activities (3,487) (1,574)
------- -------
Cash flows from investing activities:
Additions to property (2,739) (3,186)
Cash flows from financing activities:
Cash dividends on common stock (934) (935)
Repayment of long-term debt (35) (40)
Change in notes payable to banks 6,051 2,050
Change in inventory purchase obligation 1,216 2,271
Change in other financing activities 113 (1,213)
------- -------
Net cash provided by financing activities 6,411 2,133
------- -------
Net increase (decrease) in cash and temporary cash investments 185 (2,627)
Cash and temporary cash investments, beginning of period 1,756 2,753
------- -------
Cash and temporary cash investments, end of period $ 1,941 $ 126
======= =======
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
December 31, 1998
(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 December 31, 1998 and 1997
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, 1998 and 1997. 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 three
months ended December 31, are as follows (in thousands):
1998 1997
- ----------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 228 $ (47)
Income taxes 1,316 (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 9 in the Company's Form 10-K for the year ended
September 30, 1998.
<PAGE>
Results of Operations
Net income for the three months ended December 31, 1998 was
$3 million compared to $3.8 in 1997. For the twelve months ended
December 31, 1998, net income was $4.1 million compared to $6.4
in the prior period. Included in the results of the prior 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, 1998 were significantly warmer than normal and 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.
12-31-98 12-31-97 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,293 2,556 2,598 (10.3)% (11.7)%
12 months 6,267 7,378 7,494 (15.1)% (16.4)%
Quarterly Comparison
Total operating revenues decreased more than $5.1 million, or
19%, for the quarter ended December 31, 1998. Although the
average number of customers increased 2.4% for the quarter, the
weather was more than 10% warmer, and firm sendout, including
transportation, decreased 7% compared to the prior quarter.
Although less sendout was the primary reason for the decrease in
revenue, lower purchased gas costs of $2 million 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 6.2% for the quarter, reflecting
warmer weather conditions.
Operation and maintenance expense was virtually unchanged from
the prior comparable period as increases in wage rates were
mostly offset by lower operating expense resulting from the
warmer weather. Depreciation and amortization expense increased
for the period as a result of capital additions and amortization
of environmental remediation costs. Total interest expense
increased 16% due mostly to the increased level of short-term
debt outstanding during the current period and interest accruing
on overcollected deferred gas cost balances.
<PAGE>
Twelve-Month Comparison
Although the average number of customers increased 2.2%, 15.1%
warmer temperatures resulted in firm sendout, including
transportation, that was 5% less than the prior period. Total
operating revenues decreased to $80.2 million from $94.8 million
in the prior period. Included in the current period revenues
were lower gas costs of $6.4 million that were passed through the
CGA. In addition, revenues decreased as customers switched from
sales gas service to transportation gas service. Total margin
decreased 4.2% from the corresponding prior 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 were less than
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 for the prior period included a favorable
property tax settlement.
Total interest expense increased more than 20% during the twelve-
month period due to the $22 million of 7.4% First Mortgage Bonds
issued in September 1997.
Capital Resources and Liquidity
The Company's major capital requirements result from normal
replacements, efforts to improve the efficiency of the
existing plant and serving additional customers. For the three
months ended December 31, 1998, capital expenditures totaled
approximately $2.7 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, 1998
is due mostly to the timing of the recovery of purchased gas costs.
Capital expenditures, environmental remediation and working
capital requirements were financed by internally generated funds
and supplemented by short-term bank borrowings. At December 31,
1998, the Company had unsecured bank lines of credit of $15
million, $7.9 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.
<PAGE>
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, 1998 Form 10-K.
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. Preparation of a
contingency plan to address failure of various systems is in
process and is expected to be finalized prior to 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; impact of unbundling regulatory proceedings;
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 ended December 31, 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:
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1998.
<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: January 29, 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 December 31, 1998
and condensed statement of income and statement of cash flows for the three
months ended December 31, 1998 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-30-1999
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 108,635<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 24,215
<TOTAL-DEFERRED-CHARGES> 11,104
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 143,954
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 21,323
<TOTAL-COMMON-STOCKHOLDERS-EQ> 46,861
0
0
<LONG-TERM-DEBT-NET> 42,411
<SHORT-TERM-NOTES> 7,942
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 436
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 46,304
<TOT-CAPITALIZATION-AND-LIAB> 143,954
<GROSS-OPERATING-REVENUE> 22,019
<INCOME-TAX-EXPENSE> 1,743
<OTHER-OPERATING-EXPENSES> 16,292
<TOTAL-OPERATING-EXPENSES> 18,035
<OPERATING-INCOME-LOSS> 3,984
<OTHER-INCOME-NET> 295
<INCOME-BEFORE-INTEREST-EXPEN> 4,279
<TOTAL-INTEREST-EXPENSE> 1,287
<NET-INCOME> 2,992
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,992
<COMMON-STOCK-DIVIDENDS> 934
<TOTAL-INTEREST-ON-BONDS> 3,569<F2>
<CASH-FLOW-OPERATIONS> (3,487)
<EPS-PRIMARY> $0.00
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $52,759
<F2>$3,569 represents the forecasted annual interest on bonds for the fiscal year
ending September 30, 1999. Actual interest on bbonds for the three months
ended December 31, 1998 was $902.
</FN>
</TABLE>
