FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
Commission File Number 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 3,319,718 shares of $1.00 par value common
stock outstanding on January 29, 1999, the filing date of this
report.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Assets
(Unaudited, except for September 30, 1998 data)
(In thousands)
December 31, September 30,
1998 1997 1998
------------------- -------------
<S> <C> <C> <C>
Property:
Utility plant, at cost $156,964 $149,904 $158,595
Accumulated depreciation and amortization 52,763 48,960 51,313
------------------- -------------
Net utility plant 104,201 100,944 107,282
Net nonutility property, at cost 12,594 7,615 7,771
------------------- -------------
Net property 116,795 108,559 115,053
------------------- -------------
Current assets:
Cash and temporary cash investments 1,956 551 1,231
Note receivable - 158 -
Accounts receivable (net of allowances of $1,294,
$1,340 and $1,127, respectively) 12,250 10,982 9,727
Unbilled revenues 3,522 3,473 516
Deferred gas costs 29 1,433 -
Materials and supplies 2,093 1,654 2,086
Supplemental gas supplies 9,019 7,799 9,653
Prepaid and deferred taxes 2,322 1,436 1,804
Recoverable FERC 636 transition costs - 1,009 252
Prepaid expenses and other 905 1,013 2,252
------------------- -------------
Total current assets 32,096 29,508 27,521
------------------- -------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 6,596 5,044 6,113
Other deferred charges 2,032 1,908 1,941
Other assets 2,225 254 2,121
------------------- -------------
Total deferred charges 13,254 9,607 12,576
------------------- -------------
Total assets $162,145 $147,674 $155,150
=================== =============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Stockholders' Equity and Liabilities
(Unaudited, except for September 30, 1998 data)
(In thousands, expect share information)
December 31, September 30,
1998 1997 1998
------------------ -------------
<S> <C> <C> <C>
Capitalization:
Common stockholders' equity:
Common stock - par value of $1 per
share; 10,000,000 shares authorized;
3,319,718, 3,246,258 and 3,317,498
shares issued and outstanding, respectively $ 3,320 $ 3,246 $ 3,317
Amount in excess of par 32,506 30,488 32,445
Retained earnings 17,235 17,154 15,128
------------------ -------------
Total common stockholders' equity 53,061 50,888 50,890
Long-term debt 44,156 45,217 44,390
------------------ -------------
Total capitalization 97,217 96,105 95,280
------------------ -------------
Current liabilities:
Notes payable to banks 10,212 2,550 3,524
Current portion of long-term debt 2,031 925 2,061
Inventory purchase obligation 9,928 8,861 8,712
Accounts payable 9,634 7,119 10,431
Deferred gas costs - - 3,841
Accrued interest 1,169 1,209 272
Accrued and deferred taxes 2,180 2,582 342
Accrued FERC 636 transition costs - 1,009 252
Accrued environmental remediation costs 2,822 1,546 2,345
Customer deposits and other 2,723 2,247 3,761
------------------ -------------
Total current liabilities 40,699 28,048 35,541
------------------ -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 18,748 18,174 18,828
Unamortized investment tax credits 1,610 1,703 1,610
Regulatory liability - income taxes 1,129 1,226 1,141
Contributions in aid of construction and other 2,742 2,418 2,750
------------------ -------------
Total deferred credits 24,229 23,521 24,329
------------------ -------------
Total stockholders' equity and liabilities $162,145 $147,674 $155,150
================== =============
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended December 31
(Unaudited)
(In thousands, except per share amounts)
Three Months Twelve Months
1998 1997 1998 1997
----------------- -------------------
Total operating revenues $31,471 $30,892 $110,505 $107,308
Operating expenses:
Cost of sales 15,856 15,082 64,898 62,039
Operations and maintenance 6,568 5,868 23,773 21,982
Depreciation and amortization 1,856 1,639 6,821 6,276
Taxes other than income taxes 1,081 1,077 4,076 2,976
Federal and state income taxes 1,884 2,425 2,561 4,122
----------------- -------------------
Total operating expenses 27,245 26,091 102,129 97,395
----------------- -------------------
Operating income 4,226 4,801 8,376 9,913
Other income 374 512 1,035 1,220
Interest expense:
Interest on long-term debt 972 975 3,894 3,161
Other interest 409 196 1,062 930
----------------- -------------------
Total interest expense 1,381 1,171 4,956 4,091
----------------- -------------------
Net income $ 3,219 $ 4,142 $ 4,455 $ 7,042
================= ===================
Weighted average shares outstanding 3,318 3,245 3,291 3,244
================= ===================
Basic earnings per share $ .97 $ 1.28 $ 1.35 $ 2.17
================= ===================
Dividends declared per share $ .335 $ .32 $ 1.325 $ 1.265
================= ===================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH, INC.
Condensed Consolidated Statements of Cash Flows
For the three months ended December 31
(Unaudited)
(In thousands)
1998 1997
-----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,219 $ 4,142
Noncash items:
Depreciation and amortization 1,972 1,812
Deferred taxes and investment tax credits, net (119) (187)
Changes in:
Accounts receivable, net (2,523) (7,552)
Unbilled revenues (3,007) (2,871)
Inventories 627 1,423
Prepaid expenses and other 1,347 327
Deferred gas costs (3,870) (2,733)
Accounts payable (798) 1,073
Accrued liabilities (237) 745
Accrued/prepaid taxes 1,321 2,340
Payments for environmental costs and other (464) 1,412
-----------------
Net cash used for operating activities (2,532) (69)
-----------------
Cash flows from investing activities:
Additions to property (3,452) (3,784)
Changes in note receivable, net - (47)
-----------------
Net cash used for investing activities (3,452) (3,831)
-----------------
Cash flows from financing activities:
Issuance of common stock 63 63
Cash dividends on common stock (1,112) (1,039)
Issuance of long-term debt 611 125
Repayment of long-term debt (874) (158)
Repayment of capital lease obligations - (46)
Change in notes payable to banks 6,688 2,450
Change in inventory purchase obligation 1,216 1,009
Change in other financing activities 117 49
-----------------
Net cash provided by financing activities 6,709 2,453
-----------------
Net increase (decrease) in cash and temporary cash investments 725 (1,447)
Cash and temporary cash investments, beginning of period 1,231 1,998
-----------------
Cash and temporary cash investments, end of period $ 1,956 $ 551
=================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1998
(Unaudited)
EnergyNorth, Inc. (Company) is an exempt public utility holding
company operating in northern New England. Its
principal operating subsidiaries include EnergyNorth Natural Gas,
Inc. (ENGI), EnergyNorth Propane, Inc. (ENPI), and ENI
Mechanicals, Inc. (ENMI). ENGI is New Hampshire's largest
natural gas utility with over 70,000 customers. ENPI is a retail
propane company serving over 14,000 customers in New Hampshire,
and through its 49% investment in VGS Propane, LLC, serves more
than 9,000 customers in Vermont. ENMI, through its wholly owned
subsidiaries, Northern Peabody, Inc. (NPI) and Granite State
Plumbing and Heating, Inc. (GSP&H), provides mechanical
contracting services for commercial, industrial and institutional
customers in northern New England. They are engaged in the
design, construction and service of plumbing, heating,
ventilation, air conditioning and process piping systems.
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.
Effective May 1, 1998, the Company acquired NPI and GSP&H, which
are subsidiaries of ENMI. The acquisition was accounted for as a
purchase, and is reflected in the condensed consolidated
financial statements for the periods ended December 31, 1998.
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, 1998 and 1997 and the results of
operations for the three and twelve months then ended and
statements of cash flows for the three months ended December 31,
1998 and 1997. All accounting policies and practices have been
applied in a manner consistent with prior periods. These interim
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained
in the Company's Annual Report to Shareholders for the
year ended September 30, 1998.
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
<PAGE>
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.
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the three
months ended December 31, are as follows (in thousands):
1998 1997
- -----------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $ 323 $ 15
Income taxes 1,420 (175)
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 11 in the Company's 1998 Annual Report to
Shareholders.
<PAGE>
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
December 31, 1998
Results of Operations
Net income for the three months ended December 31, 1998 was $3.2
million or $.97 per share, compared to $4.1 million, or $1.28 per
share, in 1997. For the twelve months ended December 31, 1998,
net income was $4.5 million, or $1.35 per share, compared to $7
million, or $2.17 per share, in the prior period. Included in
the results of the prior 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, 1998 were significantly warmer than normal and the
prior comparable period. The table below discloses degree day
data as recorded at the U.S. weather station in Concord, New
Hampshire, comparing actual degree days to the previous period
and to normal. Because of the size and topographical variations
of the Company's service territory, weather conditions
within such territory often vary. The Company considers
Concord, New Hampshire weather data to be representative of
weather conditions within its service territory.
Actual Actual Change vs. Change vs.
12-31-98 12-31-97 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,293 2,556 2,598 (10.3)% (11.7)%
12 months 6,267 7,378 7,494 (15.1)% (16.4)%
Quarterly Comparison
Total operating revenues increased $600,000, or almost 2%, for
the quarter ended December 31, 1998. Included in the revenues
for the current period were $6.5 million of ENMI mechanical
contract sales. Utility gas service revenues were $22
million compared to $27.1 million in the prior period, a
19% decrease. Although the average number of customers increased
2.4% for the quarter, the weather was more than 10% warmer, and
firm sendout, including transportation, decreased 7% compared to
the prior quarter. Although less sendout was a reason for the decrease
in revenues, lower purchased gas costs of $2 million passed through
the cost of gas adjustment (CGA) to firm customers also contributed to the
revenue decrease. Changes in the CGA rates affect operating
revenues; however, they do not affect total margin because the
CGA is a tariff mechanism designed to provide dollar-for-dollar
recovery of gas costs. Utility margin decreased 6.2% for the
quarter, reflecting warmer weather conditions.
Despite a 7.4% increase in the average number of retail propane
customers, propane gallons sold decreased 11.9% for the three-
month period due to warm temperatures. Consequently, retail
propane operating revenues decreased $767,000 and gross margin
decreased 15.9% compared to the same quarter last year.
<PAGE>
Operating expenses of the acquired mechanical contracting
operations were the main reason for the increase in operations
and maintenance expense 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. The 27% decrease in other
income resulted primarily from interest on refunds received from
federal income tax settlements in the prior period. Total
interest expense increased due mostly to the increased level of
short-term debt outstanding during the current period.
Twelve-Month Comparison
Total operating revenues increased almost $3.2 million, or 3%,
for the twelve months ended December 31, 1998. Included in the
increase were $19.9 million of ENMI mechanical contract sales.
Utility gas service revenues were $80.2 million compared to $94.8
million in the prior period, a 15.4% decrease. The weather was
more than 15% warmer for the current twelve-month period and firm
sendout, including transportation, decreased 5%. Included in the
current period revenues were lower gas costs of $6.4 million that
were passed through the CGA.
The average number of retail propane customers increased more
than 7.1% for the twelve months ended December 31, 1998. Despite
the increase in the number of customers, propane gallons sold
decreased approximately 7% since temperatures were more than 15%
warmer than the prior period. Operating revenues decreased $2.1
million, as a result of the lower sales volumes and a decrease in
sales prices reflecting lower propane costs. Margin earned from
retail propane operations was 8.8% less than the prior period.
Operations and maintenance expenses of the mechanical contracting
operations and increases in wages were the primary reasons for
the 8.1% 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
for the prior period include favorable property tax settlements.
Interest income resulting from federal income tax settlements
recorded in the prior period was the principal reason for the
decrease in other income.
Total interest expense increased more than 21% during the twelve-
month period due primarily to the $22 million of 7.4% First
Mortgage Bonds issued in September 1997.
Capital Resources and Liquidity
The Company's major capital requirements result from normal
replacements, efforts to improve the efficiency of the
existing plant and serving additional customers. For the three
months ended December 31, 1998, capital expenditures totaled
approximately $3.5 million.
<PAGE>
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 cost balance at December 31, 1998
is due mostly to the timing of the recovery of utility purchased
gas costs.
Capital expenditures, environmental remediation and working
capital requirements were financed by internally generated funds
and supplemented by short-term bank borrowings. At December 31,
1998, the Company had unsecured bank lines of credit of $26.2
million, $10.2 million of which was outstanding.
Construction expenditures for fiscal 1999 are expected to total
approximately $13.4 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. There
has been no significant change in the information disclosed in
the Company's September 30, 1998 Form 10-K.
Year 2000 Readiness
The Company has evaluated its principal computer systems and
noninformation technology systems including, but not limited to,
telecommunication systems, automated meter reading systems,
SCADA, regulator stations, plant remote control systems and
security systems to determine readiness for the year 2000. These
systems are currently capable of processing the year 2000, or are
in the process of being upgraded or replaced by systems that are
similarly capable. All necessary program modifications and system
upgrades and testing are expected to be completed by the year
2000. Costs incurred to date and costs expected to be incurred
to complete the year 2000 readiness are not material and will not
have a material impact on the Company's financial position or
results of operations. The Company is currently assessing year
2000 issues with third parties with whom it has a material
relationship. Except for the Company's major pipeline supplier,
who has provided assurance of compliance, the Company has not
determined the level of third-party risk. Preparation of a
contingency plan to address failure of various systems is in
process and is expected to be finalized prior to September 30,
1999.
<PAGE>
Factors that May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes or
refers to forward-looking statements concerning the impact of
changes in the cost of gas and of the CGA mechanism on total
margin; projected capital expenditures and sources of cash to
fund expenditures; impact of unbundling regulatory proceedings;
year 2000 readiness; and estimated costs of environmental
remediation and anticipated regulatory approval of recovery
mechanisms. The Company's future results, generally and with
respect to such forward-looking statements, may be affected by
many factors, among which are uncertainty as to the regulatory
allowance of recovery of changes in the cost of gas; uncertain
demands for capital expenditures and the availability of cash
from various sources; uncertainty as to environmental costs and
as to regulatory approval of the full recovery of environmental
costs, and other regulatory assets; weather; results of
regulatory proceedings on unbundling; impact of new pipeline
supplies; and success of the Company's year 2000 readiness
efforts and those of its vendors and customers.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A description of pending legal proceedings is contained in the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1998.
No further material legal proceedings or material developments
occurred in the quarter ended December 31, 1998.
Items 2 - 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule
(Submitted only in electronic format to the
Securities and Exchange Commission)
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K
during the quarter ended December 31, 1998.
<PAGE>
ENERGYNORTH, 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 29, 1999 /s/ DAVID A. SKRZYSOWSKI
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
EnergyNorth, Inc. condensed consolidated balance sheet as of December 31, 1998
and condensed consolidated statement of income and statement of cash flows for
the three months ended December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 104,201<F1>
<OTHER-PROPERTY-AND-INVEST> 12,594<F2>
<TOTAL-CURRENT-ASSETS> 32,096
<TOTAL-DEFERRED-CHARGES> 11,029
<OTHER-ASSETS> 2,225
<TOTAL-ASSETS> 162,145
<COMMON> 3,320
<CAPITAL-SURPLUS-PAID-IN> 32,506
<RETAINED-EARNINGS> 17,235
<TOTAL-COMMON-STOCKHOLDERS-EQ> 53,061
0
0
<LONG-TERM-DEBT-NET> 44,156
<SHORT-TERM-NOTES> 10,212
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,031
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 52,685
<TOT-CAPITALIZATION-AND-LIAB> 162,145
<GROSS-OPERATING-REVENUE> 31,471
<INCOME-TAX-EXPENSE> 1,884
<OTHER-OPERATING-EXPENSES> 25,361
<TOTAL-OPERATING-EXPENSES> 27,245
<OPERATING-INCOME-LOSS> 4,226
<OTHER-INCOME-NET> 374
<INCOME-BEFORE-INTEREST-EXPEN> 4,600
<TOTAL-INTEREST-EXPENSE> 1,381
<NET-INCOME> 3,219
0
<EARNINGS-AVAILABLE-FOR-COMM> 3,219
<COMMON-STOCK-DIVIDENDS> 1,112
<TOTAL-INTEREST-ON-BONDS> 3,569<F3>
<CASH-FLOW-OPERATIONS> (2,532)
<EPS-PRIMARY> $0.97
<EPS-DILUTED> 0
<FN>
<F1>Net of accumulated depreciation of $52,759
<F2>Net of accumulated depreciation of $10,713
<F3>$3,569 represents the forecasted annual interest on bonds for the fiscal
year ending September 30, 1999. Actual interest on bonds for the three months
ended December 31, 1998 was $902.
</FN>
</TABLE>
