FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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 August 3, 2000, 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, 1999 data)
(In thousands)
June 30, September 30,
------------------ -------------
2000 1999 1999
------------------ -------------
Property:
Utility plant, at cost $177,793 $165,185 $169,856
Accumulated depreciation and amortization 59,481 54,902 56,126
------------------ --------
Net utility plant 118,312 110,283 113,730
------------------ --------
Current assets:
Cash and temporary cash investments 1,794 1,775 1,862
Accounts receivable (net of allowances of
$1,569, $1,200 and $1,069, respectively) 5,666 3,407 1,109
Unbilled revenues 1,200 673 559
Deferred gas costs - - 1,524
Materials and supplies 1,293 1,556 1,505
Supplemental gas supplies 6,925 6,282 9,483
Prepaid and deferred taxes 1,378 1,140 2,415
Prepaid expenses and other 1,773 1,661 2,259
------------------ --------
Total current assets 20,029 16,494 20,716
------------------ --------
Deferred charges and other assets:
Regulatory asset - income taxes 2,746 2,401 2,465
Recoverable environmental costs 10,154 10,613 11,646
Other deferred charges and assets 2,570 2,259 2,200
------------------ --------
Total deferred charges and other assets 15,470 15,273 16,311
------------------ --------
Total assets $153,811 $142,050 $150,757
================== ========
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
ENERGYNORTH NATURAL GAS, INC.
Condensed Balance Sheets
Stockholder's Equity and Liabilities
(Unaudited, except for September 30, 1999 data)
(In thousands, except share information)
June 30, 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 23,036 23,761 19,276
------------------- --------
Total common stockholder's equity 48,574 49,299 44,814
Long-term debt 41,612 42,005 41,993
------------------- --------
Total capitalization 90,186 91,304 86,807
------------------- --------
Current liabilities:
Notes payable to banks 12,130 3,926 14,178
Current portion of long-term debt 428 447 412
Inventory purchase obligation 4,413 5,308 8,329
Dividends payable 322 - -
Accounts payable 7,034 4,194 4,973
Accounts payable to affiliates 6,322 2,777 4,227
Deferred gas costs 311 736 -
Accrued interest 1,148 1,136 245
Accrued and deferred taxes 3,250 1,913 525
Accrued environmental remediation costs 2,112 3,398 4,132
Customer deposits and other 517 1,226 874
------------------- --------
Total current liabilities 37,987 25,061 37,895
------------------- --------
Commitments and contingencies
Deferred credits:
Deferred income taxes 20,195 18,601 20,326
Unamortized investment tax credits 1,395 1,518 1,487
Regulatory liability - income taxes 943 1,056 1,027
Long-term environmental remediation costs 505 2,000 700
Contributions in aid of construction and other 2,600 2,510 2,515
------------------- --------
Total deferred credits 25,638 25,685 26,055
------------------- --------
Total stockholder's equity and liabilities $153,811 $142,050 $150,757
=================== ========
See accompanying notes to condensed financial statements.
<PAGE>
</TABLE>
<TABLE>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Income
For the periods ended June 30
(Unaudited)
(In thousands)
Three Months Nine Months Twelve Months
------------------- ------------------ ------------------
2000 1999 2000 1999 2000 1999
------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $16,212 $11,383 $85,756 $69,843 $92,530 $77,419
------------------- ------------------ ------------------
Operating expenses:
Cost of gas sold 10,146 6,465 46,426 33,642 49,420 37,409
Operations and maintenance 4,594 4,409 14,777 14,062 19,360 18,870
Depreciation and amortization 1,693 1,520 5,464 4,869 6,917 6,127
Taxes other than income taxes 923 915 2,408 2,850 3,192 3,669
Federal and state income taxes (873) (1,049) 5,233 4,273 3,699 2,779
------------------- ------------------ ------------------
Total operating expenses 16,483 12,260 74,308 59,696 82,588 68,854
------------------- ------------------ ------------------
Operating income (loss) (271) (877) 11,448 10,147 9,942 8,565
Other income 199 143 801 698 952 912
Reorganization cost 844 - 1,653 - 2,706 -
Interest Expense:
Interest on long-term debt 887 894 2,671 2,691 3,564 3,595
Other interest 234 142 946 814 1,154 1,047
------------------- ------------------ ------------------
Total interest expense 1,121 1,036 3,617 3,505 4,718 4,642
------------------- ------------------ ------------------
Net income (loss) $ (2,037) $ (1,770) $ 6,979 $ 7,340 $ 3,470 $ 4,835
==================== ================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<TABLE>
ENERGYNORTH NATURAL GAS, INC.
Condensed Statements of Cash Flows
For the nine months ended June 30
(Unaudited)
(In thousands)
2000 1999
-------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,979 $ 7,340
Noncash items:
Depreciation and amortization 5,315 5,198
Deferred taxes and investment tax credits, net (588) 493
Changes in:
Accounts receivable, net (4,557) (1,579)
Unbilled revenues (641) (157)
Inventories 2,770 3,052
Prepaid expenses and other 486 367
Deferred gas costs 1,835 (3,105)
Accounts payable 2,383 (476)
Accounts payable to affiliates, net 2,095 632
Accrued liabilities 724 733
Accrued/prepaid taxes 3,762 2,015
Payments for environmental costs and other (2,433) (2,842)
-------------------
Net cash provided by operating activities 18,130 11,671
-------------------
Cash flows from investing activities:
Additions to property (8,558) (7,120)
-------------------
Cash flows from financing activities:
Cash dividends on common stock (3,219) (2,844)
Issuance of long-term debt 196 -
Repayment of long-term debt (560) (430)
Change in notes payable to banks (2,048) 2,035
Change in inventory purchase obligation (3,916) (3,404)
Change in other financing activities (93) 111
-------------------
Net cash used for financing activities (9,640) (4,532)
-------------------
Net (decrease) increase in cash and temporary cash investments (68) 19
Cash and temporary cash investments, beginning of period 1,862 1,756
-------------------
Cash and temporary cash investments, end of period $ 1,794 $ 1,775
===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements
June 30, 2000
Unaudited
EnergyNorth Natural Gas, Inc. (Company) is a wholly owned
subsidiary of EnergyNorth, Inc. (ENI), operating primarily in
southern and central New Hampshire. Its principal business is
the purchase, transportation and sale of natural gas for
residential, commercial and industrial use in New Hampshire. The
Company's rates charged to customers are regulated by the State
of New Hampshire Public Utilities Commission (Commission). The
Commission is required by New Hampshire law to allow the Company
to charge rates that are just and reasonable, such that the
Company is compensated for the cost of providing service and
allowed a reasonable rate of return on its investment.
Note 1. Basis of Presentation
The condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the U. S. Securities and Exchange Commission.
Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information not misleading.
In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments, which
include only normal recurring adjustments, necessary to present
fairly the financial position as of June 30, 2000 and 1999 and
the results of operations for the three, nine and twelve months
then ended and statements of cash flows for the nine months ended
June 30, 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 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)
June 30, 2000
Unaudited
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the nine
months ended June 30, are as follows (in thousands):
2000 1999
---------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $2,867 $2,349
Income taxes 1,566 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
The Company has a management continuity plan and retention agreements
with various officers, managers and other employees that become
operative upon a change in control of the Company. Potential
severance and retention expense under the Company plan and agreements
could total $600,000.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements (continued)
June 30, 2000
Unaudited
Results of Operations
---------------------
Net loss for the three months ended June 30, 2000, was $2 million
compared to $1.8 million in 1999. Net income decreased slightly
to $7 million for the nine months ended June 30, 2000, from $7.3
million in 1999. For the twelve months ended June 30, 2000, net
income was $3.5 million compared to $4.8 million in the prior
period. Impacting financial results for the three, nine and
twelve-month periods presented were reorganization costs of
$844,000, $1.7 million and $2.7 million, respectively, incurred
as a result of the pending merger with Eastern Enterprises.
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.
Period Ending Period Ending
Actual Actual 6-30-00 vs. 6-30-00 vs.
6-30-00 6-30-99 Normal Previous Period Normal
------- ------- ------ --------------- ------
3 months 997 896 973 11.3% 2.5%
9 months 6,693 6,530 6,998 2.5% (4.4)%
12 months 6,861 6,697 7,272 2.5% (5.7)%
Quarterly Comparison
--------------------
Total operating revenues increased $4.8 million for the quarter
ended June 30, 2000. The average number of customers increased
2.7% for the quarter and firm sendout, including transportation,
increased 22.3%. Although greater sendout was the main reason
for the increase in revenue, higher purchased gas costs of
$954,000 passed through the cost of gas charge to firm customers
also contributed to the revenue increase. Margin increased 23.3%
for the quarter. Changes in the cost of gas affect operating
revenues; however, they do not affect total margin because the
cost of gas charge is designed to provide dollar-for-dollar
recovery of gas costs.
Operations and maintenance expense increased more than 4% as a
result of increased maintenance activity and greater bad debt and
insurance expenses. The 11.4% increase in depreciation and
amortization expenses was the result of capital additions and
amortization of environmental remediation costs. 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 8.2%, due
mostly to the increased level of short-term debt outstanding
during the current period.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements (continued)
June 30, 2000
Unaudited
Nine-Month Comparison
---------------------
Total operating revenues increased $15.9 million, or 22.8%, for
the nine months ended June 30, 2000. The average number of
customers increased 2.7% and firm sendout increased 7.5%, 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 $7.7 million passed
through the cost of gas charge to firm customers also contributed
to the revenue increase. Margin increased almost $8.6 million
for the nine months.
Operation and maintenance expense increased almost 5.1% 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 $92.5 million compared to $77.4 million
in the prior period. Included in the increase in revenues were
higher purchased gas costs of $7.1 million passed through the
cost of gas charge to firm customers. Customer growth of 2.7%
combined with temperatures that were 2.5% colder than the prior
twelve-month period resulted in a 6.7% increase in firm sendout.
Total margin from operations increased 7.8%.
Continued capital additions to plant and equipment and
amortization of environmental remediation costs were the primary
reasons for the 12.9% increase in depreciation and amortization
expenses. Taxes other than income taxes decreased 13% 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. During
the spring and early summer months, a positive cash flow stream
is created as accounts receivable balances are collected. The
overcollected deferred gas cost amounts at June 30, 2000, will be
returned to customers through cost of gas rates in future
periods.
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements (continued)
June 30, 2000
Unaudited
The Company's major capital requirements result from efforts to
serve additional customers and from normal replacements and
efficiency improvements to the existing plant. For the nine
months ended June 30, 2000, capital expenditures totaled
approximately $8.6 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At June 30, 2000, the Company had
unsecured bank lines of credit of $20.5 million, $12.1 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. The
Company is participating with Public Service Company of New
Hampshire (PSNH), Northern Utilities and Central Vermont Public
Service Company in the investigation of former manufactured gas
site in Dover, New Hampshire. The Company is participating with
PSNH in the investigation of a former manufactured gas 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 and an investigation of a
site in Manchester, 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 $2.1 million as an accrued current liability
and $505,000 as a long-term liability at June 30, 2000 with a
corresponding charge to recoverable environmental costs. The
New Hampshire Public Utilities Commission has approved a generic
recovery mechanism for costs incurred at all former manufactured
gas sites, except recovery for the Concord site, which provides
for a seven-year recovery period of substantially all costs, excluding
carrying costs. The recovery mechanism provides that the environmental
surcharge to customers will not exceed 5% of total gross gas
revenues in any given year but that amounts in excess of 5% will
be deferred to future periods with recovery of applicable
carrying costs. The recovery mechanism for the Concord site
provides for recovery from customers, over a seven-year period,
of substantially all costs, excluding carrying costs. For
further detail regarding environmental issues please refer to
Footnote 12 in the Company's 1999 Annual Report on Form 10-K.
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
<PAGE>
ENERGYNORTH NATURAL GAS, INC.
Notes to Condensed Financial Statements (continued)
June 30, 2000
Unaudited
capital expenditures and sources of cash to fund expenditures;
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; uncertainty as to the timing and expense of the acticipated
merger; 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 June 30, 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: August 3, 2000 /s/ DAVID A. SKRZYSOWSKI
-------------- -------------------------------------
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)
