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, 2000
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 27, 2000, the filing date
of this report.
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<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Assets
(Unaudited, except for September 30, 1999 data)
(In thousands)
March 31, September 30,
2000 1999 1999
--------------------- -------------
<S> <C> <C> <C>
Property:
Utility plant, at cost $174,195 $162,571 $169,856
Accumulated depreciation and amortization 58,610 53,976 56,126
--------------------- --------
Net utility plant 115,585 108,595 113,730
--------------------- --------
Current assets:
Cash and temporary cash investments 1,768 1,398 1,862
Accounts receivable (net of allowances of
$1,112, $1,260 and $1,069, respectively) 14,523 10,119 1,109
Unbilled revenues 1,459 1,641 559
Deferred gas costs 1,385 535 1,524
Materials and supplies 1,465 1,615 1,505
Supplemental gas supplies 2,638 4,062 9,483
Prepaid and deferred taxes 639 1,423 2,415
Prepaid expenses and other 1,991 1,758 2,259
--------------------- --------
Total current assets 25,868 22,551 20,716
--------------------- --------
Deferred charges and other assets:
Regulatory asset - income taxes 2,746 2,401 2,465
Recoverable environmental costs 10,152 10,198 11,646
Other deferred charges and assets 2,384 2,148 2,200
--------------------- --------
Total deferred charges and other assets 15,282 14,747 16,311
--------------------- --------
Total assets $156,735 $145,893 $150,757
===================== ========
See accompanying notes to condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Stockholder's Equity and Liabilities
(Unaudited, except for September 30, 1999 data)
(In thousands, except share information)
March 31, September 30,
2000 1999 1999
--------------------- -------------
<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 26,361 26,507 19,276
--------------------- --------
Total common stockholder's equity 51,899 52,045 44,814
Long-term debt 41,624 42,052 41,993
--------------------- --------
Total capitalization 93,523 94,097 86,807
--------------------- --------
Current liabilities:
Notes payable to banks 14,530 4,025 14,178
Current portion of long-term debt 443 418 412
Inventory purchase obligation 3,647 5,229 8,329
Accounts payable 6,521 6,128 4,973
Accounts payable to affiliates 4,003 1,845 4,227
Accrued interest 253 260 245
Accrued and deferred taxes 5,337 4,023 525
Accrued environmental remediation costs 1,936 5,371 4,132
Customer deposits and other 629 1,309 874
--------------------- --------
Total current liabilities 37,299 28,608 37,895
--------------------- --------
Commitments and contingencies
Deferred credits:
Deferred income taxes 20,334 18,064 20,326
Unamortized investment tax credits 1,426 1,549 1,487
Regulatory liability - income taxes 971 1,084 1,027
Long-term environmental remediation costs 645 - 700
Contributions in aid of construction and other 2,537 2,491 2,515
--------------------- --------
Total deferred credits 25,913 23,188 26,055
--------------------- --------
Total stockholder's equity and liabilities $156,735 $145,893 $150,757
===================== ========
See accompanying notes to condensed financial statements.
</TABLE>
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<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
2000 1999 2000 1999 2000 1999
----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $44,886 $36,441 $69,544 $58,460 $87,701 $79,142
Operating expenses:
Cost of gas sold 25,428 18,272 36,280 27,177 45,739 39,232
Operations and maintenance 5,438 4,762 10,183 9,653 19,175 18,782
Depreciation and amortization 2,073 1,822 3,771 3,349 6,744 5,936
Taxes other than income taxes 845 966 1,485 1,935 3,184 3,726
Federal and state income taxes 3,911 3,579 6,106 5,322 3,523 2,840
----------------- ----------------- ------------------
Total operating expenses 37,695 29,401 57,825 47,436 78,365 70,516
----------------- ----------------- ------------------
Operating income 7,191 7,040 11,719 11,024 9,336 8,626
Other income, net 317 260 602 555 896 999
Reorganization cost 199 - 809 - 1,862 -
Interest expense:
Interest on long-term debt 889 895 1,784 1,797 3,571 3,605
Other interest 360 287 712 672 1,062 1,087
----------------- ----------------- ------------------
Total interest expense 1,249 1,182 2,496 2,469 4,633 4,692
----------------- ----------------- ------------------
Net income $ 6,060 $ 6,118 $ 9,016 $ 9,110 $ 3,737 $ 4,933
================= ================= ==================
See accompanying notes to condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the six months ended March 31
(Unaudited)
(In thousands)
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,016 $ 9,110
Noncash items:
Depreciation and amortization 3,756 3,567
Deferred taxes and investment tax credits, net (390) 16
Changes in:
Accounts receivable, net (13,414) (8,291)
Unbilled revenues (900) (1,125)
Inventories 6,885 5,213
Prepaid expenses and other 268 270
Deferred gas costs 139 (4,376)
Accounts payable 1,548 1,458
Accounts payable to affiliates, net (224) (300)
Accrued liabilities (125) (86)
Accrued/prepaid taxes 6,589 3,841
Payments for environmental costs and other (2,020) (2,068)
------- -------
Net cash provided by operating activities 11,128 7,229
------- -------
Cash flows from investing activities:
Additions to property (4,532) (4,076)
------- -------
Cash flows from financing activities:
Cash dividends on common stock (1,931) (1,868)
Issuance of long-term debt 167 -
Repayment of long-term debt (505) (411)
Change in notes payable to banks 352 2,134
Change in inventory purchase obligation (4,682) (3,483)
Change in other financing activities (91) 117
------- -------
Net cash used for financing activities (6,690) (3,511)
------- -------
Net decrease in cash and temporary cash investments (94) (358)
Cash and temporary cash investments, beginning of period 1,862 1,756
------- -------
Cash and temporary cash investments, end of period $ 1,768 $ 1,398
======= =======
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(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, 2000 and 1999 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, 2000 and 1999. 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 Annual Report on Form 10-K for the year ended
September 30, 1999.
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>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the six
months ended March 31, are as follows (in thousands):
2000 1999
- -----------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $2,628 $2,238
Income taxes 861 1,337
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 Annual Report on Form 10-K for the
year ended September 30, 1999.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
Results of Operations
- ---------------------
Net income was essentially flat at $6.1 million and $9 million
for the three and six month periods ended March 31, 2000. Net
income for the twelve months ended March 31, 2000 was $3.7
million compared to $4.9 million in the prior period. Impacting
financial results for the three, six and twelve-month periods
presented were reorganization costs of $199,000, $809,000 and
$1.9 million, respectively, incurred as a result of the pending
merger with Eastern Enterprises.
Although temperatures were colder than all previous periods, they
were significantly warmer than normal. 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.
03-31-00 03-31-99 Normal Previous Period Normal
-------- -------- ------ ---------------- ------
3 months 3,351 3,341 3,490 .3% (4.0)%
6 months 5,696 5,634 6,025 1.1% (5.5)%
12 months 6,760 6,627 7,298 2.0% (7.4)%
Quarterly Comparison
- --------------------
Total operating revenues increased $8.4 million, or over
23%, for the quarter ended March 31, 2000. The average number
of customers increased 2.5% for the quarter and firm sendout,
including transportation, increased 4.3%. Although greater
sendout was the main reason for the increase in revenue, higher
purchased gas costs of $5.3 million passed through the cost of
gas charge to firm customers also contributed to the revenue
increase. Changes in the cost of gas rates affect operating
revenues; however, they do not affect total margin because the
cost of gas charges are designed to provide dollar-for-dollar
recovery of gas costs. Margin increased 7.1% for the quarter.
Operations and maintenance expense increased more than 14% as a
result of increased maintenance activity and production expense
resulting from the cold temperatures experienced in late January
2000 and greater bad debt and insurance expenses. The 13.8%
increase in depreciation and amortization expenses was the result
of capital additions and amortization of environmental
remediation costs. Taxes other than income taxes decreased 12.5%
due to reductions in property tax rates. Reorganization costs are
not currently tax deductible. The higher level of pretax income
is the main reason for the increase in federal and state income
taxes. Total interest expense increased 5.7%, due mostly to the
increased level of short-term debt outstanding during the current
period.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
Six-Month Comparison
- --------------------
Total operating revenues increased $11.1 million, or 19%,
for the six months ended March 31, 2000. The average number
of customers increased 2.7% and firm sendout increased 4.6%, as
temperatures were slightly colder than the prior period.
Although greater sendout was the main reason for the increase in
revenues, higher purchased gas costs of $6.7 million passed
through the cost of gas charge to firm customers also contributed
to the revenue increase. Margin increased almost $2 million for
the six months.
Operation and maintenance expense increased almost 5.5% from the
prior comparable period as a result of greater production,
insurance and bad debt expense. Depreciation and amortization
expense increased for the period due to capital additions and
amortization of environmental remediation costs. Lower property
taxes resulting from reduced property tax rates was the main
reason for the significant decrease in taxes other than income
taxes. The higher level of pretax income is the main reason for
the increase in federal and state income taxes.
Twelve-Month Comparison
- -----------------------
Operating revenues were $87.7 million compared to $79.1 million
in the prior period. Included in the increase in revenues were
higher purchased gas costs of $4.7 million passed through the
cost of gas charge to firm customers. Customer growth of 2.6%
combined with temperatures that were 2% colder than the prior
twelve-month period resulted in a 3.8% increase in firm sendout.
Total margin from operations increased 5.1%.
Continued capital additions to plant and equipment and
amortization of environmental remediation costs were the primary
reasons for the 13.6% increase in depreciation and amortization
expenses. Taxes other than income taxes decreased almost 14.6%
as a result of reductions in property tax rates. The higher level of
pretax income is the main reason for the increase in federal and
state income taxes.
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, 2000 is $14.5 million
and reflects higher revenues resulting from greater firm
sendout and from higher purchased gas costs being passed
through the cost of gas charge to firm customers. During the
spring and early summer months, a positive cash flow stream is
created as accounts receivable balances are collected, at which
time, inventories are partially depleted and prepaid amounts,
mostly insurance, are being amortized. The undercollected
deferred gas cost amounts at March 31, 2000 will be billed to
customers through cost of gas rates in future periods.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
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, 2000, capital expenditures totaled more
than $4.5 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At March 31, 2000, the Company had
unsecured bank lines of credit of $20.5 million, $14.5 million of
which was outstanding.
Construction expenditures for fiscal 2000 are expected to total
approximately $12 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
March 2000, the Company received a request from the New Hampshire
Department of Environmental Services to initiate the development
of a site investigation report for a former manufactured gas site
located in Manchester, New Hampshire. The Company is also
participating with Public Service Company of New Hampshire (PSNH)
in the investigation of a former manufactured gas site in Dover,
New Hampshire. In addition, the Company is participating with
PSNH in the investigation of a site in Nashua, New Hampshire and
has reached settlement with PSNH on a site in Laconia, New
Hampshire. The Company is also 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 $2.6
million to $3.1 million. In addition to costs incurred to date,
the Company has recorded $1.9 million as an accrued current
liability and $645,000 as a long-term liability at March 31, 2000
with a corresponding charge to recoverable environmental costs.
For further detail regarding environmental issues please refer to
Footnote 12 in the Company's 1999 Annual Report on Form 10-K.
Year 2000 Readiness
- -------------------
All Company systems critical to the delivery of gas to customers
were year 2000 compliant and ready for the transition to year
2000 prior to December 31, 1999. Costs incurred to complete year
2000 readiness were not material. The Company has not
experienced any significant year 2000 problems to date. The
Company will continue to monitor its systems and significant
relationships with third parties.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
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 cost of gas rates 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; year 2000 readiness; results of regulatory proceedings
on unbundling; and impact of new pipeline supplies.
<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, 1999.
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, 2000.
<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 27, 2000 /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, 2000
and condensed statement of income and statement of cash flows for the six
months ended March 31, 2000 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-30-2000
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 115,585<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 25,868
<TOTAL-DEFERRED-CHARGES> 15,282
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 156,735
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 26,361
<TOTAL-COMMON-STOCKHOLDERS-EQ> 51,899
0
0
<LONG-TERM-DEBT-NET> 41,624
<SHORT-TERM-NOTES> 14,530
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 443
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 48,239
<TOT-CAPITALIZATION-AND-LIAB> 156,735
<GROSS-OPERATING-REVENUE> 69,544
<INCOME-TAX-EXPENSE> 6,106
<OTHER-OPERATING-EXPENSES> 51,719
<TOTAL-OPERATING-EXPENSES> 57,825
<OPERATING-INCOME-LOSS> 11,719
<OTHER-INCOME-NET> (207)
<INCOME-BEFORE-INTEREST-EXPEN> 11,512
<TOTAL-INTEREST-EXPENSE> 2,496
<NET-INCOME> 9,016
0
<EARNINGS-AVAILABLE-FOR-COMM> 9,016
<COMMON-STOCK-DIVIDENDS> 1,931
<TOTAL-INTEREST-ON-BONDS> 0<F2>
<CASH-FLOW-OPERATIONS> 11,128
<EPS-BASIC> $0.00
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $58,610.
<F2>$3,541 represents the forecasted annual interest on bonds for the fiscal
year ending September 30, 2000. Actual interest on bonds for the six months
ended March 31, 2000 was $1,774.
</FN>
</TABLE>
