FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number 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 August 3, 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)
June 30, September 30,
------------------- --------
2000 1999 1999
------------------- --------
Property:
Utility plant, at cost $177,793 $165,184 $169,856
Accumulated depreciation and amortization 59,481 54,902 56,126
------------------- --------
Net utility plant 118,312 110,282 113,730
Net nonutility property, at cost 8,349 8,116 8,049
------------------- --------
Net property 126,661 118,398 121,779
------------------- --------
Current assets:
Cash and temporary cash investments 726 599 853
Accounts receivable (net of allowances of
$1,643, $1,267 and $1,115, respectively) 14,686 10,764 9,810
Unbilled revenues 1,200 673 559
Deferred gas costs - - 1,524
Materials and supplies 1,806 2,058 2,047
Supplemental gas supplies 7,154 6,479 9,723
Prepaid and deferred taxes 1,464 1,210 2,235
Prepaid expenses and other 1,239 904 1,669
------------------- --------
Total current assets 28,275 22,687 28,420
------------------- --------
Deferred charges and other assets:
Regulatory asset - income taxes 2,746 2,401 2,465
Recoverable environmental costs 10,154 10,613 11,646
Other deferred charges 2,171 2,117 2,156
Other assets 1,057 2,236 1,859
------------------- --------
Total deferred charges and other assets 16,128 17,367 18,126
------------------- --------
Total assets $171,064 $158,452 $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)
June 30, 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 18,105 20,255 15,117
------------------ --------
Total common stockholders' equity 54,071 56,081 50,943
Long-term debt 45,274 45,731 45,679
------------------ --------
Total capitalization 99,345 101,812 96,622
------------------ --------
Current liabilities:
Notes payable to banks 14,130 3,926 15,278
Current portion of long-term debt 849 850 791
Inventory purchase obligation 4,413 5,308 8,329
Dividends payable 388 - -
Accounts payable 15,024 9,234 11,983
Deferred gas costs 311 736 -
Accrued interest 1,174 1,139 251
Accrued and deferred taxes 4,110 2,482 571
Accrued environmental remediation costs 2,112 3,398 4,132
Customer deposits and other 2,344 2,720 3,108
------------------ --------
Total current liabilities 44,855 29,793 44,443
------------------ --------
Commitments and contingencies
Deferred credits:
Deferred income taxes 21,126 19,483 21,254
Unamortized investment tax credits 1,395 1,518 1,487
Regulatory liability - income taxes 943 1,056 1,027
Long-term environmental remediation costs 505 2,000 700
Contributions in aid of construction and other 2,895 2,790 2,792
------------------ --------
Total deferred credits 26,864 26,847 27,260
------------------ --------
Total stockholders' equity and liabilities $171,064 $158,452 $168,325
================== ========
See accompanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended June 30
(Unaudited)
(In thousands, except per share amounts)
Three Months Nine Months Twelve Months
------------------ -------------------- --------------------
2000 1999 2000 1999 2000 1999
------------------ -------------------- --------------------
Operating revenues $28,429 $21,655 $128,563 $101,111 $146,624 $117,615
------------------ -------------------- --------------------
Operating expenses:
Cost of sales 20,110 14,676 80,027 56,646 92,702 67,752
Operations and maintenance 6,339 5,965 20,271 19,074 26,416 25,362
Depreciation and amortization 2,033 1,854 6,516 5,864 8,299 7,464
Taxes other than income taxes 1,039 1,023 2,773 3,198 3,717 4,112
Federal and state (867) (1,082) 6,173 5,028 4,367 3,309
------------------ -------------------- --------------------
Total operating expenses 28,654 22,436 115,760 89,810 135,501 107,999
------------------ -------------------- --------------------
Operating income (loss) (225) (781) 12,803 11,301 11,123 9,616
Other income (loss) (414) 77 (103) 983 (30) 1,060
Reorganization cost 1,027 - 1,935 - 3,119 -
Interest expense:
Interest on long-term debt 979 973 2,940 2,909 3,916 3,888
Other interest 234 144 961 862 1,170 1,117
------------------ -------------------- --------------------
Total interest expense 1,213 1,117 3,901 3,771 5,086 5,005
------------------ -------------------- --------------------
Net income (loss) $(2,879) $(1,821) $ 6,864 $ 8,513 $ 2,888 $ 5,671
================== ==================== ====================
Weighted average shares outstanding:
Basic 3,323 3,320 3,322 3,319 3,322 3,319
Diluted 3,343 3,321 3,343 3,321 3,342 3,320
Earnings (loss) per share:
Basic $ (0.87) $ (.55) $ 2.07 $ 2.56 $ 0.87 $ 1.71
Diluted (0.86) (.55) 2.05 2.56 0.86 1.71
Dividends declared per share $ .35 $ .35 $ 1.05 $ 1.02 $ 1.40 $ 1.355
See accompanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Condensed Consolidated Statements of Cash Flows
For the nine months ended June 30
(Unaudited)
(In thousands)
2000 1999
-------- -------
Cash flows from operating activities:
Net income $ 6,864 $ 8,513
Noncash items:
Depreciation and amortization 6,391 6,219
Deferred taxes and investment tax credits, net (586) 450
Changes in:
Accounts receivable, net (4,876) (1,037)
Unbilled revenues (641) (157)
Inventories 2,810 3,202
Prepaid expenses and other 430 (545)
Deferred gas costs 1,835 (3,105)
Accounts payable 3,429 (1,197)
Accrued liabilities 336 1,667
Accrued/prepaid taxes 4,310 2,734
Payments for environmental costs and other (1,177) (2,774)
-------- -------
Net cash provided by operating activities 19,125 13,970
-------- -------
Cash flows from investing activities:
Additions to property (10,031) (8,528)
-------- -------
Cash flows from financing activities:
Issuance of common stock 140 64
Cash dividends on common stock (3,877) (3,386)
Issuance of long-term debt 533 2,223
Repayment of long-term debt (880) (2,093)
Change in notes payable to banks (1,148) 402
Change in inventory purchase obligation (3,916) (3,404)
Change in other financing activities (73) 120
-------- -------
Net cash used for financing activities (9,221) (6,074)
-------- -------
Net decrease in cash and temporary cash investments (127) (632)
Cash and temporary cash investments, beginning of period 853 1,231
-------- -------
Cash and temporary cash investments, end of period $ 726 $ 599
======== =======
See accompanying notes to condensed consolidated financial statements.
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
EnergyNorth, Inc. (Company) is an exempt public utility holding
company operating in northern and central 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.
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 June 30, 2000 and
1999.
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 June 30, 2000 and 1999 and the results of
operations for the three, nine and twelve months then ended and
statements of cash flows for the nine months ended June 30, 2000
and 1999. All accounting policies and practices have been applied
in a manner consistent with prior periods. These interim
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained
in the Company's Annual Report to Shareholders 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)
June 30, 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 nine
months ended June 30, are as follows (in thousands):
2000 1999
- ---------------------------------------------------------------
Cash paid (received) during the period for:
Interest (net of amount capitalized) $3,124 $2,623
Income taxes 1,961 1,448
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 a management continuity plan, management continuity
agreements and retention agreements with various officers, managers
and other employees which become operative upon a change in control
of the Company. As of June 30, 2000, the Company has accrued
$666,000 under the plan and agreements with a corresponding charge
to reorganization costs. Additional potential severance and retention
expense could total approximately $4.6 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
June 30, 2000
Results of Operations
- ---------------------
Net loss for the three months ended June 30, 2000 was $2.9
million, or $.87 per share, compared to $1.8 million, or $.55 per
share, in 1999. For the nine months ended June 30, 2000, net
income declined to $6.9 million, or $2.07 per share, from $8.5
million, or $2.56 per share, in 2000. Net income for the twelve
months ended June 30, 2000 was $2.9 million, or $.87 per share,
compared to $5.7 million, or $1.71 per share, in the prior period.
Impacting financial results for the three, nine and twelve-month
periods presented were reorganization costs of $1 million, $1.9
million and $3.1 million, respectively, incurred as a result of
the pending merger with Eastern Enterprises. The Company also
recorded write-downs of an investment of a non-regulated
subsidiary of $851,000 in the three-month period and $1.4 million
in the nine and twelve-month periods ended June 30, 2000.
Temperatures had a major impact on the results of operations for
the periods presented. The table below discloses degree day data
as recorded at the U.S. weather station in Concord, New Hampshire,
comparing actual degree days to the previous period and to normal.
Due to the size and topographical variations of the Company's
service territory, weather conditions vary. Concord, New
Hampshire weather data is considered to be representative of the
territory.
Period Ending Period Ending
Actual Actual 6-30-00 vs. 6-30-00 vs.
6-30-00 6-30-99 Normal Previous Period Normal
------- ------- ------ --------------- ------
3 months 997 896 973 11.3% 2.5%
9 months 6,693 6,530 6,998 2.5% (4.4)%
12 months 6,861 6,697 7,272 2.5% (5.7)%
Quarterly Comparison
- --------------------
Total operating revenues increased almost $6.8 million, or more
than 31%, for the quarter ended June 30, 2000. ENMI mechanical
contract sales increased $1.3 million for the quarter as a result
of an increased level of construction activity. Utility gas
service revenues were $16.2 million compared to $11.4 million in
the prior period, a 42.4% increase. The average number of natural
gas customers increased 2.7% for the quarter, and firm sendout,
including transportation, increased 22.3% 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 $954,000 passed through the cost of gas charge to firm
customers also contributed to the revenue increase. Utility
margin increased 23.3% for the quarter. Changes in the cost of
gas affect operating revenues; however, they do not affect total
margin because the cost of gas charge is designed to provide
dollar-for-dollar recovery of gas costs.
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2000
An 8.2% increase in the average number of retail propane
customers was the primary reason for the 10.6% increase in
propane gallons sold for the three-month period. Retail propane
operating revenues increased $648,000 and gross margin increased
3.8% compared to the same quarter last year.
Operations and maintenance expenses increased 6.3% due to
increased propane delivery expense 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. The change in
other income resulted primarily from an $851,000 write-down of an
investment of a non-regulated subsidiary. Reorganization costs
and the investment write-downs are not currently tax deductible.
Federal and state income taxes correlate to taxable income for
the periods.
Nine-Month Comparison
- ---------------------
Total operating revenues increased $27.5 million, or more than
27%, for the nine-month period ended June 30, 2000. ENMI
mechanical contract sales increased $8.3 million for the period
as a result of an increased level of construction activity.
Utility gas service revenues were $85.8 million compared to $69.8
million in the prior period, a 22.8% increase. The average
number of customers increased 2.7% for the period, the weather
was colder, and firm sendout, including transportation, increased
7.5% compared to the previous period. Although greater sendout
was the main reason for the increase in revenues, higher
purchased gas costs of $7.7 million passed through the cost of
gas charge to firm customers also contributed to the revenue
increase. Utility margin increased 8.6% for the period.
The average number of retail propane customers grew 7.9% for the
nine-month period and temperatures were 2.5% colder than the
prior period. Retail propane gallons sold increased
approximately 11%, and operating revenues increased approximately
33%. Margin was almost 11% better than the prior comparable nine-
month period.
Greater operations and maintenance expenses of the mechanical
contracting business, increased propane delivery expenses and
higher utility production expenses resulting from the cold
temperature experienced in late January 2000 combined with
greater utility 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 11.1% increase in depreciation and
amortization expense. Taxes other than income taxes decreased
more than 13% from the prior period, 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 $1.4 million write-down of an
investment of a non-regulated subsidiary. Reorganization costs
and the investment write-down are not currently tax deductible.
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2000
Twelve-Month Comparison
- -----------------------
Total operating revenues increased $29 million, or 25%, for the
twelve months ended June 30, 2000. ENMI mechanical contract
sales increased $10.6 million due primarily to increased
construction activity. Utility gas service revenues were $92.5
million compared to $77.4 million in the prior period. Included
in the increase in revenues were higher purchased gas costs of
$7.1 million passed through the cost of gas charge to firm
customers. Customer growth of 2.7% combined with temperatures
that were 2.5% colder than the prior twelve-month period resulted
in a 6.7% increase in firm sendout. Total margin from utility
operations increased 7.8%.
The average number of retail propane customers grew 8% for the
twelve-month period. Retail propane gallons sold increased 9.3%
compared to the prior period. Operating revenues increased $3.3
million and margin increased 8.8%.
Continued capital additions to plant and equipment and
amortization of environmental remediation costs were the primary
reasons for the 11.2% increase in depreciation and amortization
expenses. Taxes other than income taxes decreased almost 10% 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 $1.4
million write-down of an investment of a non-regulated
subsidiary.
Capital Resources and Liquidity
- -------------------------------
Cash flow patterns reflect the seasonality of the Company's
utility and propane businesses. The greatest demand for cash is
in the fall and early winter as construction projects are brought
to completion and during the winter as accounts receivable
balances grow. During the spring and early summer months, a
positive cash flow stream is created as accounts receivable
balances are collected. At such time, inventories have been
utilized and prepaid amounts, mostly insurance, are being
amortized. During the summer months, supplemental gas supplies
are replenished in preparation for the winter heating
season. The overcollected deferred gas cost amounts at
June 30, 2000, will be returned to customers through cost of gas
rates in future periods. ENMI does not share the seasonal
characteristics of the utility and propane businesses.
The Company's major capital requirements result from efforts to
serve additional customers and from normal replacements and
efficiency improvements to the existing plant. For the nine
months ended June 30, 2000, capital expenditures totaled
approximately $10 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At June 30, 2000, the Company had
unsecured bank lines of credit of $33 million, $14.1 million of
which was outstanding.
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 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. The
Company is participating with Public Service Company of New
Hampshire (PSNH), Northern Utilities and Central Vermont Public
Service Company in the investigation of a former manufactured gas
site in Dover, New Hampshire. The Company is participating with
PSNH in the investigation of a former manufactured gas site in
Nashua, New Hampshire and has reached settlement with PSNH
on a site in Laconia, New Hampshire. The Company is also
engaged in remediation of a site in Concord and an investigation
of a site in Manchester, New Hampshire. Costs to complete the
Company's share of site investigation, risk characterization
and remediation at manufactured gas sites are currently
estimated to range from $2.6 million to $3.1 million. In
addition to costs incurred to date, the Company has recorded
$2.1 million as an accrued current liability and $505,000 as a
long-term liability at June 30, 2000 with a corresponding charge
to recoverable environmental costs. The New Hampshire Public
Utilities Commission has approved a generic recovery mechanism
for costs incurred at all former manufactured gas sites, except
recovery for the Concord site, which provides for a seven-year
recovery period of substantially all costs, excluding carrying
costs. The recovery mechanism provides that the environmental
surcharge to customers will not exceed 5% of total gross gas
revenues in any given year but that amounts in excess of 5% will
be deferred to future periods with recovery of applicable
carrying costs. The recovery mechanism for the Concord site
provides for recovery from customers, over a seven-year period,
of substantially all costs, excluding carrying costs. For
further detail regarding environmental issues please refer to
Footnote 12 in the Company's 1999 Annual Report on Form 10-K.
Factors that May Affect Future Results
- --------------------------------------
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes or
refers to forward-looking statements concerning the impact of
changes in the cost of gas and cost of gas rates on total margin;
projected capital expenditures and sources of cash to fund
expenditures; and estimated costs of environmental remediation
and anticipated regulatory approval of recovery mechanisms. The
Company's future results, generally and with respect to such
forward-looking statements, may be affected by many factors,
among which are uncertainty as to the regulatory allowance of
recovery of changes in the cost of gas; uncertain demands for
capital expenditures and the availability of cash from various
sources; uncertainty as to whether transportation rates will be
reduced in future regulatory
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 2000
proceedings with resulting decreases in transportation margins;
uncertainty as to environmental costs and as to regulatory
approval of the full recovery of environmental costs, and other
regulatory assets; weather; results of regulatory proceedings
on unbundling; uncertainty as to the timing and expenses of the
anticipated merger; uncertainty as to the write-down and disposition
of the investment of a non-regulated subsidiary; 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 since September 30, 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 May 15, 2000 by the
Company regarding an amendment to the Shareholder Rights
Plan which extends the exercise period of the Rights for one
year.
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: August 3, 2000 /s/ DAVID A. SKRZYSOWSKI
-------------- -------------------------------------
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)