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 March 31, 2000
Commission File Number 001-11441
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 April 27, 2000, the filing date of
this report.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Assets
(Unaudited, except for September 30, 1999 data)
(In thousands)
March 31, September 30,
2000 1999 1999
--------------------- -------------
Property:
Utility plant, at cost $174,195 $162,602 $169,856
Accumulated depreciation and amortization 58,610 53,980 56,126
--------------------- --------
Net utility plant 115,585 108,622 113,730
Net nonutility property, at cost 8,435 8,141 8,049
--------------------- --------
Net property 124,020 116,763 121,779
--------------------- --------
Current assets:
Cash and temporary cash investments 2,098 1,634 853
Accounts receivable (net of allowances of
$1,613, $1,323 and $1,115, respectively) 25,046 16,520 9,810
Unbilled revenues 1,459 1,641 559
Deferred gas costs 1,385 535 1,524
Materials and supplies 2,013 2,170 2,047
Supplemental gas supplies 2,889 4,257 9,723
Prepaid and deferred taxes 707 1,653 2,235
Prepaid expenses and other 1,484 1,021 1,669
--------------------- --------
Total current assets 37,081 29,431 28,420
--------------------- --------
Deferred charges and other assets:
Regulatory asset - income taxes 2,746 2,401 2,465
Recoverable environmental costs 10,152 10,198 11,646
Other deferred charges 2,215 2,056 2,156
Other assets 1,693 2,387 1,859
--------------------- --------
Total deferred charges and other assets 16,806 17,042 18,126
--------------------- --------
Total assets $177,907 $163,236 $168,325
===================== ========
See accompanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Stockholders' Equity and Liabilities
(Unaudited, except for September 30, 1999 data)
(In thousands, except share information)
March 31, September 30,
2000 1999 1999
--------------------- -------------
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 22,534 23,238 15,117
--------------------- --------
Total common stockholders' equity 58,500 59,064 50,943
Long-term debt 45,381 45,591 45,679
--------------------- --------
Total capitalization 103,881 104,655 96,622
--------------------- --------
Current liabilities:
Notes payable to banks 16,948 4,352 15,278
Current portion of long-term debt 875 801 791
Inventory purchase obligation 3,647 5,229 8,329
Accounts payable 14,729 10,942 11,983
Accrued interest 273 264 251
Accrued and deferred taxes 6,186 4,562 571
Accrued environmental remediation costs 1,936 5,371 4,132
Customer deposits and other 2,297 2,704 3,108
--------------------- --------
Total current liabilities 46,891 34,225 44,443
--------------------- --------
Commitments and contingencies
Deferred credits:
Deferred income taxes 21,268 18,958 21,254
Unamortized investment tax credits 1,426 1,587 1,487
Regulatory liability - income taxes 971 1,084 1,027
Long-term environmental remediation costs 645 - 700
Contributions in aid of construction and other 2,825 2,727 2,792
--------------------- --------
Total deferred credits 27,135 24,356 27,260
--------------------- --------
Total stockholders' equity and liabilities $177,907 $163,236 $168,325
===================== ========
See accompanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended March 31
(Unaudited)
(In thousands, except per share amounts)
Three Months Six Months Twelve Months
2000 1999 2000 1999 2000 1999
------------------- -------------------- ----------------------
Operating revenues $62,972 $47,985 $100,134 $79,456 $139,850 $116,458
Operating expenses:
Cost of sales 39,421 26,114 59,917 41,970 87,268 67,182
Operations and maintenance 7,366 6,541 13,932 13,109 26,042 24,939
Depreciation and amortization 2,429 2,154 4,483 4,010 8,120 7,250
Taxes other than income taxes 983 1,094 1,734 2,175 3,701 4,153
Federal and state income taxes 4,638 4,226 7,040 6,110 4,152 3,360
------------------- -------------------- ----------------------
Total operating expenses 54,837 40,129 87,106 67,374 129,283 106,884
------------------- -------------------- ----------------------
Operating income 8,135 7,856 13,028 12,082 10,567 9,574
Other income, net 468 532 311 906 461 1,230
Reorganization cost 223 - 908 - 2,092 -
Interest expense:
Interest on long-term debt 979 964 1,961 1,936 3,910 3,890
Other interest 369 309 727 718 1,080 1,180
------------------- -------------------- ----------------------
Total interest expense 1,348 1,273 2,688 2,654 4,990 5,070
------------------- -------------------- ----------------------
Net income $ 7,032 $ 7,115 $ 9,743 $10,334 $ 3,946 $ 5,734
=================== ==================== ======================
Weighted average shares outstanding:
Basic 3,323 3,320 3,322 3,319 3,321 3,309
Diluted 3,343 3,320 3,342 3,319 3,341 3,309
Earnings per share:
Basic $ 2.12 $ 2.14 $ 2.93 $ 3.11 $ 1.19 $ 1.73
Diluted 2.10 2.14 2.92 3.11 1.18 1.73
Dividends declared per share $ .35 $ .335 $ .70 $ .67 $ 1.40 $ 1.34
See accompanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Condensed Consolidated Statements of Cash Flows
For the six months ended March 31
(Unaudited)
(In thousands)
2000 1999
------- -------
Cash flows from operating activities:
Net income $ 9,743 $10,334
Noncash items:
Depreciation and amortization 4,485 4,246
Deferred taxes and investment tax credits, net (385) 22
Changes in:
Accounts receivable, net (15,235) (6,792)
Unbilled revenues (900) (1,125)
Inventories 6,868 5,311
Prepaid expenses and other 183 1,231
Deferred gas costs 138 (4,376)
Accounts payable 2,746 511
Accrued liabilities (680) (1,150)
Accrued/prepaid taxes 7,143 4,372
Payments for environmental costs and other (1,674) (2,240)
-------- -------
Net cash provided by operating activities 12,432 10,344
-------- -------
Cash flows from investing activities:
Additions to property (5,701) (5,157)
-------- -------
Cash flows from financing activities:
Issuance of common stock 140 63
Cash dividends on common stock (2,326) (2,224)
Issuance of long-term debt 505 1,919
Repayment of long-term debt (718) (1,978)
Change in notes payable to banks 1,670 828
Change in inventory purchase obligation (4,682) (3,483)
Change in other financing activities (75) 91
-------- -------
Net cash used for financing activities (5,486) (4,784)
-------- -------
Net increase in cash and temporary cash investments 1,245 403
Cash and temporary cash investments, beginning of period 853 1,231
-------- -------
Cash and temporary cash investments, end of period $ 2,098 $ 1,634
======== =======
See accomanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(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 73,000 customers. ENPI is a retail propane company
serving over 16,000 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 and central 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 March 31, 2000 and 1999 and the results of
operations for the three, six and twelve months then ended and
statements of cash flows for the six months ended March 31, 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
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 during the winter months than is
sold and transported during the summer months. Therefore, the
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements (continued)
March 31, 2000
(Unaudited)
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 six
months ended March 31, are as follows (in thousands):
2000 1999
- ----------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $2,802 $2,424
Income taxes 1,456 1,447
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 change in
control of the Company and continue in effect for a range of two
to three years. Potential severance expense under the Company
agreements could total approximately $6.8 million.
For a discussion of commitments and contingencies, please refer
to Footnote 12 in the Company's 1999 Annual Report on Form 10-K.
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
Results of Operations
- ---------------------
Net income for the three months ended March 31, 2000 was $7
million, or $2.12 per share, compared to $7.1 million, or $2.14
per share, in 1999. For the six months ended March 31, 2000, net
income declined to $9.7 million, or $2.93 per share, from $10.3
million, or $3.11 per share, in 1999. Net income for the twelve
months ended March 31, 2000 was $3.9 million, or $1.19 per share,
compared to $5.7 million, or $1.73 per share, in the prior period.
Impacting financial results for the three, six and twelve-month periods
presented were reorganization costs of $223,000, $908,000 and
$2.1 million, respectively, incurred as a result of the pending
merger with Eastern Enterprises.
Although temperatures were colder than all previous periods, they
were significantly warmer than normal. The 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.
Actual Actual Change vs. Change vs.
03-31-00 03-31-99 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 3,351 3,341 3,490 .3% (4.0)%
6 months 5,696 5,634 6,025 1.1% (5.5)%
12 months 6,760 6,627 7,298 2.0% (7.4)%
Quarterly Comparison
- --------------------
Total operating revenues increased almost $15 million, or more
than 31%, for the quarter ended March 31, 2000. ENMI mechanical
contract sales increased $4.7 million for the quarter as a result
of an increased level of construction activity. Utility gas
service revenues were $44.9 million compared to $36.4 million in
the prior period, a 23.4% increase. The average number of
customers increased 2.5% for the quarter, and firm sendout,
including transportation, increased 4.3% 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 $5.3 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 7.1% for the quarter.
A 7.6% increase in the average number of retail propane customers
was the primary reason for the 10.8% increase in propane gallons
sold for the three-month period. Retail propane operating revenues
increased $1.9 million and gross margin increased 10.8% compared
to the same quarter last year.
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
Operating expenses increased 12.6% due to increased propane
delivery expense and increased utility production expenses
resulting from the cold temperatures experienced in late January
2000 and greater utility bad debt and insurance expense.
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 10.1% from the prior quarter, principally due to reduced
property tax rates. Reorganization costs are not currently tax
deductible. Federal and state income taxes correlate to taxable
income for the periods.
Six-Month Comparison
- --------------------
Total operating revenues increased $20.7 million, or more than
26%, for the six-month period ended March 31, 2000. ENMI
mechanical contract sales increased $7 million for the period as
a result of an increased level of construction activity. Utility
gas service revenues were $69.5 million compared to $58.5 million
in the prior period, a 19% increase. The average number of
customers increased 2.7% for the quarter, the weather was
slightly colder, and firm sendout, including transportation,
increased 4.6% compared to the previous period. Although greater
sendout was the main reason for the increase in revenues, higher
purchased gas costs of $6.7 million passed through the cost of
gas charge to firm customers also contributed to the revenue
increase. Utility margin increased 6.3% for the quarter.
The average number of retail propane customers grew 7.7% for the
six-month period and temperatures were 1.1% colder than the prior
period. Retail propane gallons sold increased approximately 11%,
and operating revenues increased 32%. Margin was almost 13%
better than the prior comparable six-month period.
Greater operations and maintenance expenses of the mechanical
contracting business, increased propane delivery expenses and
higher utility production, insurance and bad debt expenses were
the primary reasons for the 6.3% increase in operations and
maintenance expenses for the period. Continued capital additions
to the distribution system and amortization of environmental
costs were the main reasons for the 11.8% increase in
depreciation and amortization expense. Taxes other than income
taxes decreased more than 20% from the prior quarter, principally due to
reduced property tax rates. Federal and state income taxes correlate to
taxable income for the periods. The change in other income
resulted primarily from a $543,000 write-down of an investment of
a non-regulated subsidiary. Reorganization costs and the
investment write-down are not currently tax deductible.
Twelve-Month Comparison
- -----------------------
Total operating revenues increased almost $23.4 million, or 20%, for
the twelve months ended March 31, 2000. ENMI mechanical contract sales
increased $12.1 million due primarily to increased construction activity
and timing of the ENMI acquisition. Utility gas service revenues
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
were $87.7 million compared to $79.1 million in the prior period.
Included in the increase in revenues were higher purchased gas costs
of $4.7 million passed through the cost of gas charge to firm customers.
Customer growth of 2.6% combined with temperatures that were 2% colder
than the prior twelve-month period resulted in a 3.8% increase in
firm sendout. Total margin from operations increased 5.1%.
The average number of retail propane customers grew 8.2% for the
twelve-month period. Retail propane gallons sold increased 9.8%
compared to the prior period. Operating revenues increased $2.7
million and margin increased 11.1%.
Included in the 4.4% increase in operations and maintenance
expenses were a full twelve months of expenses attributed to the
mechanical contracting operations compared to eleven months in
the prior period. Continued capital additions to plant and
equipment and amortization of environmental remediation costs
were the primary reasons for the 12% increase in depreciation and
amortization expenses. Taxes other than income taxes decreased
almost 10.9% 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. Included in other income is a
$543,000 write-down of an investment of a non-regulated
subsidiary.
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 utility construction projects are brought to completion
and during the winter as accounts receivable balances grow. The
net accounts receivable balance at March 31, 2000 was $25 million
and included $8.7 million from ENMI contract sales. The balance
reflects higher revenues resulting from colder temperatures and
from higher purchased gas costs being passed through the cost of
gas charge to firm customers and a higher level of construction
activity for ENMI. During the spring and early summer months, a
positive cash flow stream is created as gas accounts receivable
balances are collected, at which time, inventories are partially
depleted and prepaid amounts, mostly insurance, are being
amortized. The undercollected deferred gas cost amounts at
March 31, 2000 will be billed to customers through cost of gas
rates in future periods.
The Company's major capital requirements result from efforts to
serve additional natural gas and propane customers and from
normal replacements and efficiency improvements to the existing
plant. For the six months ended March 31, 2000, capital
expenditures totaled more than $5.7 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At March 31, 2000, the Company had
unsecured bank lines of credit of $33 million, $16.9 million of
which was outstanding.
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
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. In
March 2000, the Company received a request from the New Hampshire
Department of Environmental Services to initiate the development
of a site investigation report for a former manufactured gas site
located in Manchester, New Hampshire. The Company is also
participating with Public Service Company of New Hampshire (PSNH)
in the investigation of a former manufactured gas site in Dover,
New Hampshire. In addition, the Company is participating with
PSNH in the investigation of a 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, 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 $1.9 million as an accrued current
liability and $645,000 as a long-term liability at March 31, 2000
with a corresponding charge to recoverable environmental costs.
For further detail regarding environmental issues please refer to
Footnote 12 in the Company's 1999 Annual Report on Form 10-K.
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 significant year 2000 problems to date. The
Company will continue to monitor its systems and significant
relationships with third parties.
Factors that May Affect Future Results
- --------------------------------------
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes or
refers to forward-looking statements concerning the impact of
changes in the cost of gas and cost of gas rates on total margin;
projected capital expenditures and sources of cash to fund
expenditures; year 2000 readiness; and estimated costs of
environmental remediation and anticipated regulatory approval of
recovery mechanisms. The Company's future results, generally and
with respect to such forward-looking statements, may
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
March 31, 2000
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.
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 March 31, 2000.
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: April 27, 2000 /s/ DAVID A. SKRZYSOWSKI
-------------- -------------------------------------
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)