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, 1997
Commission File Number 1-11441
ENERGYNORTH, INC.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0363755
(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, Inc. had 3,246,258 shares of $1.00 par value common
stock outstanding on January 23, 1998, the filing date of this
report.
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Assets
(Unaudited, except for September 30, 1997 data)
(Thousands of dollars)
December 31, September 30,
1997 1996 1997
------------------- -------------
Property:
Utility plant, at cost $149,904 $138,099 $146,830
Accumulated depreciation and amortization 48,960 45,655 47,815
------------------- -------------
Net utility plant 100,944 92,444 99,015
Net nonutility property, at cost 7,615 7,900 7,430
------------------- -------------
Net property 108,559 100,344 106,445
------------------- -------------
Current assets:
Cash and temporary cash investments 551 687 1,998
Note receivable 158 54 111
Accounts receivable (net of allowances of
$1,340, $1,268 and $1,357, respectively) 10,982 9,580 3,430
Unbilled revenues 3,473 2,877 602
Deferred gas costs 1,433 8,024 -
Inventories, at average cost:
Materials and supplies 1,654 1,606 1,756
Supplemental gas supplies 7,799 8,204 9,120
Prepaid and deferred taxes 1,436 1,139 1,305
Recoverable FERC 636 transition costs 1,009 2,018 1,261
Prepaid expenses and other 1,013 965 1,340
------------------- -------------
Total current assets 29,508 35,154 20,923
------------------- -------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 5,044 6,273 6,546
Other deferred charges 2,162 795 2,212
------------------- -------------
Total deferred charges 9,607 9,469 11,159
------------------- -------------
Total assets $147,674 $144,967 $138,527
=================== =============
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Stockholders' Equity and Liabilities
(Unaudited, except for September 30, 1997 data)
(Thousands of dollars)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1996 1997
------------------ -------------
<S> <C> <C> <C>
Capitalization:
Common stockholders' equity:
Common stock - par value of $1 per
share, 10,000,000 shares authorized;
3,426,258, 3,243,543 and 3,243,543
shares issued and outstanding, respectively $ 3,246 $ 3,244 $ 3,244
Amount in excess of par 30,488 30,428 30,428
Retained earnings 17,154 14,215 14,050
------------------ -------------
Total common stockholders' equity 50,888 47,887 47,722
Long-term debt 45,217 29,689 45,242
------------------ -------------
Total capitalization 96,105 77,576 92,964
------------------ -------------
Current liabilities:
Notes payable to banks 2,550 13,050 100
Current portion of long-term debt 925 2,121 932
Current portion of capital lease obligations - 214 46
Inventory purchase obligation 8,861 9,209 7,852
Accounts payable 7,119 10,889 6,046
Deferred gas costs - - 1,300
Accrued interest 1,209 1,100 311
Accrued and deferred taxes 2,582 2,619 111
Accrued FERC 636 transition costs 1,009 2,018 1,261
Customer deposits, environmental and other 3,793 4,007 3,927
------------------ -------------
Total current liabilities 28,048 45,227 21,886
------------------ -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 18,174 16,623 18,302
Unamortized investment tax credits 1,703 1,836 1,734
Regulatory liability - income taxes 1,226 1,344 1,254
Contributions in aid of construction and other 2,418 2,361 2,387
------------------ -------------
Total deferred credits 23,521 22,164 23,677
------------------ -------------
Total stockholders' equity and liabilities $147,674 $144,967 $138,527
================== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended December 31
(Unaudited)
(Thousands of dollars except for per share amounts and shares outstanding)
<TABLE>
<CAPTION>
Three Months Twelve Months
1997 1996 1997 1996
---------------------- ---------------------
<S> <C> <C> <C> <C>
Total operating revenues $30,892 $29,454 $107,308 $92,432
---------------------- ---------------------
Operating expenses:
Cost of gas sold 15,082 14,872 62,039 48,663
Operations and maintenance 5,868 5,544 21,982 21,648
Depreciation and amortization 1,639 1,516 6,276 5,884
Taxes other than income taxes 1,077 977 2,976 3,915
Federal and state income taxes 2,425 2,111 4,122 3,594
---------------------- ---------------------
Total operating expenses 26,091 25,020 97,395 83,704
---------------------- ---------------------
Operating income 4,801 4,434 9,913 8,728
Other income 512 249 1,220 907
Interest expense:
Interest on long-term debt 975 731 3,161 2,971
Other interest 196 334 930 719
---------------------- ---------------------
Total interest expense 1,171 1,065 4,091 3,690
---------------------- ---------------------
Net income $ 4,142 $ 3,618 $ 7,042 $ 5,945
====================== =====================
Weighted average shares outstanding 3,244,635 3,241,349 3,243,818 3,226,481
====================== =====================
Basic earnings per share $ 1.28 $ 1.12 $ 2.17 $ 1.84
====================== =====================
Dividends declared per share $ .32 $ .305 $ 1.265 $ 1.205
====================== =====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
ENERGYNORTH, INC.
Condensed Consolidated Statements of Cash Flows
For the three months ended December 31
(Unaudited)
(Thousands of dollars)
1997 1996
------------------
Cash flows from operating activities:
Net income $ 4,142 $ 3,618
Noncash items:
Depreciation and amortization 1,812 1,699
Deferred taxes and investment tax credits, net (187) 34
Changes in:
Accounts receivable, net (7,552) (7,551)
Unbilled revenues (2,871) (2,295)
Inventories 1,423 819
Prepaid expenses and other 327 339
Deferred gas costs (2,733) (4,241)
Accounts payable 1,073 4,700
Accrued liabilities 745 258
Accrued/prepaid taxes 2,340 1,441
Payments for environmental costs and other 1,412 (180)
------------------
Net cash used for operating activities (69) (1,359)
------------------
Cash flows from investing activities:
Additions to property (3,784) (2,600)
Changes in note receivable, net (47) (15)
------------------
Net cash used by investing activities (3,831) (2,615)
Cash flows from financing activities:
Issues of common stock 63 90
Issues of long-term debt 125 343
Change in notes payable to banks 2,450 3,515
Increase in inventory purchase obligation 2,271 1,963
Change in customer deposits and other 49 (201)
Cash dividends on common stock (1,039) (989)
Refunding requirements:
Repayment of long-term debt (158) (148)
Repayment of capital lease obligations (46) (61)
Repayment of inventory purchase obligation (1,262) (621)
------------------
Net cash provided by financing activities 2,453 3,891
------------------
Net decrease in cash and temporary cash investments (1,447) (83)
Cash and temporary cash investments, beginning of period 1,998 770
------------------
Cash and temporary cash investments, end of period $ 551 $ 687
==================
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1997
(Unaudited)
EnergyNorth, Inc. (the "Company") is an exempt public utility
holding company operating in southern and central New Hampshire.
Its principal operating subsidiaries include EnergyNorth Natural
Gas, Inc. ("ENGI"), a natural gas distribution utility, and
EnergyNorth Propane, Inc. ("ENPI"), a retail propane company.
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of
EnergyNorth, Inc. include the accounts of all subsidiaries. All
significant intercompany accounts and transactions have been
eliminated in the accompanying financial statements.
The condensed consolidated 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 consolidated financial
statements contain all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial
position as of December 31, 1997 and 1996 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,
1997 and 1996. 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
consolidated financial statements and notes thereto contained in
the Company's Annual Report to Shareholders for the year ended
September 30, 1997.
The business of ENGI and ENPI 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> 7
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the three
months ended December 31, are as follows (in thousands):
1997 1996
- ------------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 15 $347
Income taxes (175) 3
In preparing the accompanying condensed consolidated 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 1997 Annual Report to
Shareholders.
<PAGE> 8
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
December 31, 1997
Results of Operations
Net income for the three months ended December 31, 1997 increased
14.5% to $4,142,000, or $1.28 per share, compared to $3,618,000,
or $1.12 per share, in 1996. For the twelve months ended
December 31, 1997, net income was $7,042,000, or $2.17 per share,
compared to $5,945,000, or $1.84 per share, in the prior period.
Included in the results of the current twelve month period was a
one-time, after-tax credit of $649,000, or $.20 per share, which
was a result of a property tax settlement.
Temperatures for the three-month and twelve-month periods ended
December 31, 1997 were slightly warmer than normal and nearly the
same as 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.
12-31-97 12-31-96 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,558 2,553 2,603 .2% (1.7)%
12 months 7,378 7,422 7,515 (.6)% (1.8)%
Quarterly Comparison
Total operating revenues increased $1.4 million, or 4.9%, for the
quarter ended December 31, 1997. Total utility gas service
revenues were $27.1 million, a 7% increase from $25.4 million in
the prior period. Included in the increase were higher purchased
gas costs of $1.2 million that 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. Although temperatures
were nearly the same as the prior period, a 2.6% growth in the
average number of customers resulted in a 10.5% increase in firm
sendout, including firm transportation. Margin earned from
utility natural gas operations during the quarter was $1 million,
or 8%, higher than the prior period.
The average number of retail propane customers grew by 7.6%,
resulting in a 10.4% increase in the volume of gallons sold
compared to the prior period. Although retail propane operating
revenues decreased approximately 8% as prices decreased in
response to lower propane costs from suppliers, gross margin
increased more than 10% for the quarter ended December 31, 1997.
<PAGE> 9
Increases in wage rates and bad debt expense were the primary
reasons that operations and maintenance expenses increased from
the prior comparable period. Depreciation and amortization
expenses increased for the period as a result of capital
additions and amortization of environmental remediation costs.
Taxes other than income taxes increased approximately 10%
primarily as a result of higher property tax assessments and
rates. Total interest expense increased approximately 10% due
mostly to the $22 million of 7.4% First Mortgage Bonds issued in
September 1997.
Twelve-Month Comparison
Total operating revenues increased $14.9 million, or 16.1%, for
the twelve months ended December 31, 1997. Total utility gas
service revenues were $94.8 million compared to $80.2 million in
the prior period, an 18.2% increase. Significantly higher
revenues were due primarily to $14.5 million of higher gas costs
that were passed through the CGA. Although the weather was
virtually the same as the prior period, the 2.3% growth in the
average number of customers resulted in an increase in firm
sendout, including firm transportation, of more than 4%. Margin
earned from utility natural gas operations was 3.1% higher than
the prior twelve-month period.
Retail propane operating revenues increased 2.7% for the twelve
months ended December 31, 1997. Propane gallons sold increased
more than 3% due to significant growth of nearly 8% in the
average number of customers. In addition, gross margin for the
current twelve-month period increased 5.3% compared to the prior
comparable period.
Increased maintenance costs partially offset by reductions in the
work force were the main reasons for the 1.5% increase in
operations and maintenance expenses for the period. 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 24% as a
result of a property tax settlement.
Interest income resulting from federal income tax settlement
refunds was the principal reason for the increase in other
income.
Total interest expense increased almost 11% during the twelve-month
period due to the $22 million of 7.4% First Mortgage Bonds
issued in September 1997 and an increase in interest to be
collected from customers on the average deferred gas cost
undercollected balance.
Capital Resources and Liquidity
The Company's major capital requirements result from normal
replacements and efforts to improve the efficiency of the
existing plant and to serve additional customers. For the three
months ended December 31, 1997, capital expenditures totaled
approximately $3.8 million.
<PAGE> 10
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,
1997 is due mostly to the timing of the recovery of increased
utility purchased gas costs. The undercollected amounts are
expected to be recovered from firm gas customers during the
winter period through the CGA.
Capital expenditures, undercollected deferred gas costs and
working capital requirements were financed by internally
generated funds and supplemented by short-term bank borrowings.
At December 31, 1997, the Company had unsecured bank lines of
credit of $15.5 million, $2.6 million of which was outstanding.
Construction expenditures for fiscal 1998 are expected to total
approximately $12.8 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.
Federal Energy Regulatory Commission Order 636
Federal Energy Regulatory Commission Order 636 allows interstate
pipeline companies to recover transition costs created as they
buy out of long-term, fixed-price gas contracts. Since the
Company's pipeline supplier, Tennessee Gas Pipeline Company,
began billing these costs on September 1, 1993 as a component of
demand charges, $8.1 million has been billed through December 31,
1997. The Company has recorded additional transition costs of
approximately $1 million that are expected to be billed over a
period of 12 months. The Company is recovering transition costs
through the CGA.
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, 1997 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 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;
and estimated costs of environmental remediation and anticipated
regulatory approval of recovery mechanisms. The
<PAGE> 11
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; and uncertainty as to regulatory approval of the full
recovery of environmental costs, transition costs and other
regulatory assets.
New Accounting Standards
The Company has adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share," effective quarter ended
December 31, 1997 and has reflected basic earnings per share on
the face of the statements of income.
<PAGE> 12
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, 1997.
No further material legal proceedings or material developments
occurred in the quarter ended December 31, 1997.
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, 1997.
<PAGE> 13
ENERGYNORTH, 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, Inc.
(Registrant)
Date: January 23, 1998 /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, Inc. condensed consolidated balance sheet as of December 31, 1997
and the condensed consolidated statement of income and statement of cash flows
for the three months ended December 31, 1997 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-30-1998
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 100,944<F1>
<OTHER-PROPERTY-AND-INVEST> 7,615<F2>
<TOTAL-CURRENT-ASSETS> 29,508
<TOTAL-DEFERRED-CHARGES> 9,607
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 147,674
<COMMON> 3,246
<CAPITAL-SURPLUS-PAID-IN> 30,488
<RETAINED-EARNINGS> 17,154
<TOTAL-COMMON-STOCKHOLDERS-EQ> 50,888
0
0
<LONG-TERM-DEBT-NET> 45,217
<SHORT-TERM-NOTES> 2,550
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 925
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 48,094
<TOT-CAPITALIZATION-AND-LIAB> 147,674
<GROSS-OPERATING-REVENUE> 30,892
<INCOME-TAX-EXPENSE> 2,425
<OTHER-OPERATING-EXPENSES> 23,666
<TOTAL-OPERATING-EXPENSES> 26,091
<OPERATING-INCOME-LOSS> 4,801
<OTHER-INCOME-NET> 512
<INCOME-BEFORE-INTEREST-EXPEN> 5,313
<TOTAL-INTEREST-EXPENSE> 1,171
<NET-INCOME> 4,142
0
<EARNINGS-AVAILABLE-FOR-COMM> 4,142
<COMMON-STOCK-DIVIDENDS> 1,039
<TOTAL-INTEREST-ON-BONDS> 3,600<F3>
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<EPS-PRIMARY> $1.28
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<FN>
<F1>Net of accumulated depreciation of $48,960
<F2>Net of accumulated depreciation of $ 9,675
<F3>$3,600 represents the forecasted annual interest on bonds for the fiscal
year ending September 30, 1998. Actual interest on bonds for the three
months ended December 31, 1997 was $905.
</FN>
</TABLE>
