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, 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 January 27, 2000, the filing
date of this report.
<PAGE>
<TABLE>
<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)
December 31, September 30,
1999 1998 1999
---------------------- -------------
<S> <C> <C> <C>
Property:
Utility plant, at cost $172,707 $161,394 $169,856
Accumulated depreciation and amortization 57,347 52,759 56,126
---------------------- -------------
Net utility plant 115,360 108,635 113,730
---------------------- -------------
Current assets:
Cash and temporary cash investments 1,676 1,941 1,862
Accounts receivable (net of allowances of $1,112,
$1,248 and $1,069, respectively) 7,086 5,375 1,109
Unbilled revenues 3,638 3,522 559
Deferred gas costs 5,237 29 1,524
Materials and supplies 1,437 1,510 1,505
Supplemental gas supplies 8,409 8,824 9,483
Prepaid and deferred taxes 1,586 2,282 2,415
Prepaid expenses and other 2,019 732 2,259
---------------------- -------------
Total current assets 31,088 24,215 20,716
---------------------- -------------
Deferred charges and other assets:
Regulatory asset - income taxes 2,465 2,401 2,465
Recoverable environmental costs 11,154 6,596 11,646
Other deferred charges and assets 2,370 2,107 2,200
---------------------- -------------
Total deferred charges and other assets 15,989 11,104 16,311
---------------------- -------------
Total assets $162,437 $143,954 $150,757
====================== =============
</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, 1999 data)
(In thousands, except share information)
December 31, September 30,
1999 1998 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 21,267 21,323 19,276
---------------------- -------------
Total common stockholder's equity 46,805 46,861 44,814
Long-term debt 42,027 42,411 41,993
---------------------- -------------
Total capitalization 88,832 89,272 86,807
---------------------- -------------
Current liabilities:
Notes payable to banks 20,500 7,942 14,178
Notes payable to affiliate 200 - -
Current portion of long-term debt 468 436 412
Inventory purchase obligation 10,139 9,928 8,329
Accounts payable 6,155 5,622 4,973
Accounts payable to affiliates 4,392 1,364 4,227
Accrued interest 1,127 1,156 245
Accrued and deferred taxes 891 2,104 525
Accrued environmental remediation costs 1,742 2,822 4,132
Customer deposits and other 788 255 874
---------------------- -------------
Total current liabilities 46,402 31,629 37,895
---------------------- -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 20,785 17,838 20,326
Unamortized investment tax credits 1,456 1,610 1,487
Regulatory liability - income taxes 999 1,129 1,027
Long-term environmental remediation costs 1,429 - 700
Contributions in aid of construction and other 2,534 2,476 2,515
---------------------- -------------
Total deferred credits 27,203 23,053 26,055
---------------------- -------------
Total stockholder's equity and liabilities $162,437 $143,954 $150,757
====================== =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended December 31
(Unaudited)
(In thousands)
Three Months Twelve Months
1999 1998 1999 1998
--------------------- --------------------
<S> <C> <C> <C> <C>
Operating revenues $24,658 $22,019 $79,256 $80,180
Operating expenses:
Cost of gas sold 10,852 8,905 38,583 42,444
Operations and maintenance 4,745 4,891 18,499 18,452
Depreciation and amortization 1,698 1,527 6,493 5,554
Taxes other than income taxes 640 969 3,305 3,702
Federal and state income taxes 2,195 1,743 3,192 2,329
---------------------- --------------------
Total operating expenses 20,130 18,035 70,072 72,481
---------------------- --------------------
Operating income 4,528 3,984 9,184 7,699
Other income 285 295 839 983
Reorganization cost 610 - 1,663 -
Interest expense:
Interest on long-term debt 895 902 3,577 3,616
Other interest 352 385 988 987
---------------------- --------------------
Total interest expense 1,247 1,287 4,565 4,603
---------------------- --------------------
Net income $ 2,956 $ 2,992 $ 3,795 $ 4,079
====================== ====================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the three months ended December 31
(Unaudited)
(In thousands)
1999 1998
----------------------
<S>
Cash flows from operating activities: <C> <C>
Net income $ 2,956 $ 2,992
Noncash items:
Depreciation and amortization 1,730 1,635
Deferred taxes and investment tax credits, net 400 (104)
Changes in:
Accounts receivable, net (5,977) (3,547)
Unbilled revenues (3,079) (3,006)
Inventories 1,142 556
Prepaid expenses and other 240 1,296
Deferred gas costs (3,713) (3,870)
Accounts payable 1,182 952
Accounts payable to affiliates, net 165 (781)
Accrued liabilities 852 (254)
Accrued/prepaid taxes 1,196 1,063
Payments for environmental costs and other (1,701) (419)
----------------------
Net cash used for operating activities (4,607) (3,487)
----------------------
Cash flows from investing activities:
Additions to property (2,998) (2,739)
Cash flows from financing activities:
Cash dividends on common stock (965) (934)
Issuance of long-term debt 167 -
Repayment of long-term debt (77) (35)
Change in notes payable to banks 6,322 6,051
Change in note payable to affiliate 200 -
Change in inventory purchase obligation 1,810 1,216
Change in other financing activities (38) 113
----------------------
Net cash provided by financing activities 7,419 6,411
----------------------
Net (decrease) increase in cash and temporary cash investments (186) 185
Cash and temporary cash investments, beginning of period 1,862 1,756
----------------------
Cash and temporary cash investments, end of period $ 1,676 $ 1,941
======================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
December 31, 1999
(Unaudited)
EnergyNorth Natural Gas, Inc. (Company) is a wholly owned
subsidiary of EnergyNorth, Inc. (ENI), operating primarily in
southern and central New Hampshire. The Company also services
Berlin, New Hampshire located in the northern part of the state.
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, 1999 and 1998
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, 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 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 Financial Statements (continued)
December 31
(Unaudited)
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the three
months ended December 31, are as follows (in thousands):
1999 1998
- -------------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $427 $ 228
Income taxes (55) 1,316
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
December 31, 1999
Results of Operations
- ---------------------
Net income was $3.0 million for the three-month periods ended
December 31, 1999 and 1998. For the twelve months ended December
31, 1999, net income was $3.8 million compared to $4.1 million in
the prior period. Impacting financial results for the quarter
ended December 31, 1999 were reorganization costs of $610,000
incurred as a result of the pending merger with Eastern
Enterprises. Reorganization costs for the twelve-month period
ended December 31, 1999 were $1.7 million.
Temperatures for the three-month and twelve-month periods ended
December 31, 1999 were significantly warmer than normal, but
colder than 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.
12-31-99 12-31-98 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,345 2,293 2,535 2.3% (7.5)%
12 months 6,750 6,267 7,389 7.7% (8.7)%
Quarterly Comparison
- --------------------
Total operating revenues increased almost $2.7 million, or
12%, for the quarter ended December 31, 1999. The average
number of customers increased 2.9% for the quarter, the weather
was 2.3% colder, and firm sendout, including transportation,
increased 4.6% compared to the same quarter in the previous period.
Although greater sendout was the primary reason for the increase
in revenue, higher purchased gas costs of $1.4 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 rate is a tariff mechanism designed to provide dollar-
for-dollar recovery of gas costs. Margin increased 5.3% for the
quarter.
Operation and maintenance expense decreased almost 3% from the
prior comparable period as a result of reduced staffing levels
and increased capital activity.
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. Reorganization costs are not currently tax
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1999
deductible. 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 $79.3 million for the twelve-month period
ended December 31, 1999 compared to $80.2 million in the prior
period. The slight decrease resulted primarily from lower cost
of gas rates due to reductions in the cost of gas. Partially
offsetting the impact of lower cost of gas charges was the 2.5%
growth in the average number of customers. Customer growth
combined with temperatures that were 7.7% colder than the prior
twelve-month period resulted in an 8.2% increase in firm sendout.
In addition, revenues decreased as customers switched from sales
gas service to transportation gas service. Total margin from
operations increased 7.8%.
Higher depreciation and amortization charges were a direct result
of plant additions and amortization of environmental remediation
costs.
Taxes other than income taxes decreased almost 11% as a result of
favorable 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.
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, 1999, capital expenditures totaled
approximately $3 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, 1999
is due 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,
1999, the Company had unsecured bank lines of credit of $20.5
million, all 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.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1999
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 and additional settlement
payments are currently estimated to range from $3.1 million to $3.7
million. In addition to costs incurred to date, the Company has
recorded $1.7 million as an accrued current liability and $1.4 million
as a long-term liability at December 31, 1999 with a corresponding
charge to recoverable environmental costs. For further detail regarding
environmental issues please refer to the Company's Annual Report on
Form 10-K for the year ended September 30, 1999.
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 year 2000 problems to date. The Company will
continue to monitor its systems and significant relationships
with third parties.
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 ended December 31, 1999.
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 November 10, 1999 by
the Company regarding Amendment No. 1 to the Agreement and
Plan of Reorganization dated July 14, 1999 entered into by
ENI and Eastern Enterprises.
<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 27, 2000 /s/ DAVID A. SKRZYSOWSKI
-------------------------------------
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)
<PAGE>
<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, 1999
and condensed statement of income and statement of cash flows for the
three months ended December 31, 1999 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-30-2000
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 115,360<F1>
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 31,088
<TOTAL-DEFERRED-CHARGES> 15,989
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 162,437
<COMMON> 3,000
<CAPITAL-SURPLUS-PAID-IN> 22,538
<RETAINED-EARNINGS> 21,267
<TOTAL-COMMON-STOCKHOLDERS-EQ> 46,805
0
0
<LONG-TERM-DEBT-NET> 42,027
<SHORT-TERM-NOTES> 20,700
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 468
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 52,437
<TOT-CAPITALIZATION-AND-LIAB> 162,437
<GROSS-OPERATING-REVENUE> 24,658
<INCOME-TAX-EXPENSE> 2,195
<OTHER-OPERATING-EXPENSES> 17,935
<TOTAL-OPERATING-EXPENSES> 20,130
<OPERATING-INCOME-LOSS> 4,528
<OTHER-INCOME-NET> (325)
<INCOME-BEFORE-INTEREST-EXPEN> 4,203
<TOTAL-INTEREST-EXPENSE> 1,247
<NET-INCOME> 2,956
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,956
<COMMON-STOCK-DIVIDENDS> 965
<TOTAL-INTEREST-ON-BONDS> 0<F2>
<CASH-FLOW-OPERATIONS> (4,607)
<EPS-BASIC> $0.00
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $57,347
<F2>$3,541 represents the forecasted annual interest on bonds for the fiscal
year ending September 30, 2000. Actual interest on bonds for the three
months ended December 31, 1999 was $890.
</FN>
</TABLE>
