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 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 3,322,903 shares of $1.00 par value
common stock outstanding on January 27, 2000, the filing date
of this report.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH, INC.
Condensed Consolidated 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 $156,964 $169,856
Accumulated depreciation and amortization 57,347 52,763 56,126
-------------------- -------------
Net utility plant 115,360 104,201 113,730
Net nonutility property, at cost 8,539 12,594 8,049
-------------------- -------------
Net property 123,899 116,795 121,779
-------------------- -------------
Current assets:
Cash and temporary cash investments 372 1,956 853
Accounts receivable (net of allowances of $1,171,
$1,294 and $1,115, respectively) 16,940 12,250 9,810
Unbilled revenues 3,638 3,522 559
Deferred gas costs 5,237 29 1,524
Materials and supplies 1,966 2,093 2,047
Supplemental gas supplies 8,675 9,019 9,723
Prepaid and deferred taxes 1,488 2,322 2,235
Prepaid expenses and other 1,362 905 1,669
-------------------- -------------
Total current assets 39,678 32,096 28,420
-------------------- -------------
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 2,156 2,032 2,156
Other assets 1,749 2,225 1,859
-------------------- -------------
Total deferred charges and other assets 17,524 13,254 18,126
-------------------- -------------
Total assets $181,101 $162,145 $168,325
==================== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Stockholders' Equity and Liabilities
(Unaudited, except for September 30, 1999 data)
(In thousands, expect share information)
December 31, September 30,
1999 1998 1999
----------------------- -------------
<S> <C> <C> <C>
Capitalization:
Common stockholders' equity:
Common stock - par value of $1 per
share; 10,000,000 shares authorized;
3,322,903, 3,319,718 and 3,319,718
shares issued and outstanding, respectively $ 3,323 $ 3,320 $ 3,320
Amount in excess of par 32,643 32,506 32,506
Retained earnings 16,665 17,235 15,117
----------------------- -------------
Total common stockholders' equity 52,631 53,061 50,943
Long-term debt 45,633 44,156 45,679
----------------------- -------------
Total capitalization 98,264 97,217 96,622
----------------------- -------------
Current liabilities:
Notes payable to banks 22,780 10,212 15,278
Current portion of long-term debt 848 2,031 791
Inventory purchase obligation 10,139 9,928 8,329
Accounts payable 13,536 9,634 11,983
Accrued interest 1,147 1,169 251
Accrued and deferred taxes 1,229 2,180 571
Accrued environmental remediation costs 1,742 2,822 4,132
Customer deposits and other 3,011 2,723 3,108
----------------------- -------------
Total current liabilities 54,432 40,699 44,443
----------------------- -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 21,705 18,748 21,254
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 2,816 2,742 2,792
---------------------- -------------
Total deferred credits 28,405 24,229 27,260
---------------------- -------------
Total stockholders' equity and liabilities $181,101 $162,145 $168,325
====================== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended December 31
(Unaudited)
(In thousands, except per share amounts)
Three Months Twelve Months
1999 1998 1999 1998
------------------- --------------------
<S> <C> <C> <C> <C>
Total operating revenues $37,162 $31,471 $124,863 $110,505
Operating expenses:
Cost of sales 20,496 15,856 73,961 64,898
Operations and maintenance 6,566 6,568 25,217 23,773
Depreciation and amortization 2,054 1,856 7,845 6,821
Taxes other than income taxes 751 1,081 3,812 4,076
Federal and state income taxes 2,402 1,884 3,740 2,561
------------------- --------------------
Total operating expenses 32,269 27,245 114,575 102,129
------------------- --------------------
Operating income 4,893 4,226 10,288 8,376
Other income (loss) (157) 374 525 1,035
Reorganization cost 685 - 1,869 -
Interest expense:
Interest on long-term debt 982 972 3,895 3,894
Other interest 358 409 1,020 1,062
------------------- --------------------
Total interest expense 1,340 1,381 4,915 4,956
------------------- --------------------
Net income $ 2,711 $ 3,219 $ 4,029 $ 4,455
=================== ====================
Weighted average shares outstanding:
Basic 3,321 3,318 3,320 3,291
Diluted 3,341 3,338 3,339 3,310
Earnings per share:
Basic $ .82 $ .97 $ 1.21 $ 1.35
Diluted .81 .96 1.21 1.35
Dividends declared per share $ .35 $ .335 $ 1.385 $ 1.325
</TABLE>
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)
1999 1998
---------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,711 $ 3,219
Noncash items:
Depreciation and amortization 2,092 1,972
Deferred taxes and investment tax credits, net 392 (119)
Changes in:
Accounts receivable, net (7,130) (2,523)
Unbilled revenues (3,079) (3,007)
Inventories 1,129 627
Prepaid expenses and other 307 1,347
Deferred gas costs (3,713) (3,870)
Accounts payable 1,553 (798)
Accrued liabilities 853 (237)
Accrued/prepaid taxes 1,404 1,321
Payments for environmental costs and other (1,401) (464)
---------------------
Net cash used for operating activities (4,882) (2,532)
---------------------
Cash flows from investing activities:
Additions to property (3,870) (3,452)
Cash flows from financing activities:
Issuance of common stock 140 63
Cash dividends on common stock (1,163) (1,112)
Issuance of long-term debt 188 611
Repayment of long-term debt (177) (874)
Change in notes payable to banks 7,502 6,688
Change in inventory purchase obligation 1,810 1,216
Change in other financing activities (29) 117
---------------------
Net cash provided by financing activities 8,271 6,709
---------------------
Net (decrease) increase in cash and temporary cash investments (481) 725
Cash and temporary cash investments, beginning of period 853 1,231
---------------------
Cash and temporary cash investments, end of period $ 372 $ 1,956
=====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(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 almost 73,000 customers. ENPI is a retail propane company
serving over 15,800 customers in New Hampshire, and through its
49% investment in VGS Propane, LLC, serves more than 10,000
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.
In May 1998, the Company acquired NPI and GSP&H, which are
subsidiaries of ENMI. For financial statement purposes, the
acquisition was recorded as a purchase. Accordingly, the results
of operations of NPI and GSP&H are included in the accompanying
condensed consolidated financial statements since May 1, 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, 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
consolidated 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 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
<PAGE>
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements (continued)
December 31, 1999
(Unaudited)
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.
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) $503 $ 323
Income taxes 37 1,420
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
The Company has management continuity agreements with fifteen officers and
managers which become operative upon a change in control of the Company and
continue in effect for a range of two to three years. Potential severence
expense under the agreements could total approximately $6.8 million.
For additional discussion of commitments and contingencies, please
refer to Footnote 12 in the Company's 1999 Annual Report to Shareholders.
<PAGE>
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1999
Results of Operations
- ---------------------
Net income for the three months ended December 31, 1999 was $2.7
million, or $.82 per share, compared to $3.2 million, or $.97 per
share, in 1998. For the twelve months ended December 31, 1999,
net income was $4.0 million, or $1.21 per share, compared to $4.5
million, or $1.35 per share, in the prior period. Impacting
financial results for the three months ended December 31, 1999
were reorganization costs of $685,000, or $.21 per share,
incurred as a result of the pending merger with Eastern
Enterprises, Inc. Reorganization costs for the twelve-month
period ended December 31, 1999 were $1.9 million, or $.56 per
share.
Temperatures for the three-month and twelve-month periods ended
December 31, 1999 were significantly warmer than normal, but
colder than 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.
12-31-99 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 $5.7 million, or more than
18%, for the quarter ended December 31, 1999. ENMI mechanical
contract sales increased $2.3 million for the quarter as a result
of an increased level of construction activity. Utility gas
service revenues were $24.7 million compared to $22 million in
the prior period, a 12.3% increase. 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 main reason for the increase in
revenues, 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 charges are designed to provide dollar-for-dollar
recovery of gas costs. Utility margin increased 5.3% for the quarter.
A 7.8% increase in the average number of retail propane customers
and colder temperatures were the primary reason for the 11.8%
increase in propane gallons sold for the three-month period.
Retail propane operating revenues increased $760,000 and gross
margin increased 16.5% compared to the same quarter last year.
<PAGE>
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1999
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
decreased almost 31% from the prior quarter. Lower property
taxes resulting from reduced property tax rates was the main
reason. Federal and state income taxes correlate to taxable
income for the periods. Reorganization costs and the investment
write-down are not currently tax deductible. The change in other
income resulted primarily from a $543,000 write-down of an
investment of a non-regulated subsidiary.
Twelve-Month Comparison
- -----------------------
Total operating revenues increased almost $14.4 million, or 13%,
for the twelve months ended December 31, 1999. Partially
offsetting a $13.8 million increase in ENMI mechanical contract
sales due primarily to timing of the ENMI acquisition, was lower
utility gas service revenues. Utility gas service revenues were
$79.3 million 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%.
The average number of retail propane customers grew 8.4% for the
twelve-month period and temperatures were 7.7% colder than the
prior period. Retail propane gallons sold increased 14.4%
compared to the prior period. Operating revenues increased $1.5
million resulting in a 17% increase in margin.
Included in the 6.1% increase in operations and maintenance
expenses were a full twelve months of expenses attributed to the
mechanical contracting operations compared to five months in the
prior period. Continued capital additions to plant and equipment
and amortization of environmental remediation costs were the
primary reasons for the 15% increase in depreciation and
amortization expenses. Taxes other than income taxes decreased
almost 6.5% as a result of favorable property tax rates. The
higher level of pretax income is the main reason for the increase
in federal and state income taxes. Included in other income
(loss) is a $543,000 write-down of an investment of a non-regulated
subsidiary.
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 $3.9 million.
<PAGE>
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1999
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. ENMI does
not share the seasonal characteristics of the utility and
propane businesses.
The undercollected deferred gas cost balance at December 31, 1999
is due 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,
1999, the Company had unsecured bank lines of credit of $33
million, $22.8 million of which was outstanding.
Construction expenditures for fiscal 2000 are expected to total
approximately $14.3 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. 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 Footnote 12 in 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.
<PAGE>
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1999
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 the Company and Eastern
Enterprises.
<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 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, Inc. condensed consolidated balance sheet as of December 31, 1999
and condensed consolidated 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> 8,539<F2>
<TOTAL-CURRENT-ASSETS> 39,678
<TOTAL-DEFERRED-CHARGES> 15,775
<OTHER-ASSETS> 1,749
<TOTAL-ASSETS> 181,101
<COMMON> 3,323
<CAPITAL-SURPLUS-PAID-IN> 32,643
<RETAINED-EARNINGS> 16,665
<TOTAL-COMMON-STOCKHOLDERS-EQ> 52,631
0
0
<LONG-TERM-DEBT-NET> 45,633
<SHORT-TERM-NOTES> 22,780
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 848
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 59,209
<TOT-CAPITALIZATION-AND-LIAB> 181,101
<GROSS-OPERATING-REVENUE> 37,162
<INCOME-TAX-EXPENSE> 2,402
<OTHER-OPERATING-EXPENSES> 29,867
<TOTAL-OPERATING-EXPENSES> 32,269
<OPERATING-INCOME-LOSS> 4,893
<OTHER-INCOME-NET> (842)
<INCOME-BEFORE-INTEREST-EXPEN> 4,051
<TOTAL-INTEREST-EXPENSE> 1,340
<NET-INCOME> 2,711
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,711
<COMMON-STOCK-DIVIDENDS> 1,163
<TOTAL-INTEREST-ON-BONDS> 0<F3>
<CASH-FLOW-OPERATIONS> (4,882)
<EPS-BASIC> $0.82
<EPS-DILUTED> $0.81
<FN>
<F1>Net of accumulated depreciation of $57,347
<F2>Net of accumulated depreciation of $12,379
<F3>$3,541 represents the forecasted annual interest on bonds for the fiscal
year ended September 30, 2000. Actual interest on bonds for the three
months ended December 31, 1999 was $890.
</FN>
</TABLE>
