ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
December 31, 1996
(Unaudited)
1
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, 1996
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 3,243,543 shares of $1.00 par value common
stock outstanding on January 29, 1997, the filing date of this
Report.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Assets
(Unaudited, except for September 30, 1996 data)
(Thousands of dollars)
December 31, September 30,
1996 1995 1996
------------------ -------------
Property:
Utility plant, at cost $138,099 $131,234 $136,229
Accumulated depreciation and amortization 45,655 42,320 44,683
------------------ -------------
Net utility plant 92,444 88,914 91,546
Net nonutility property, at cost 7,900 8,017 7,748
------------------ -------------
Net property 100,344 96,931 99,294
------------------ -------------
Current assets:
Cash and temporary cash investments 687 881 770
Note receivable 54 - 39
Accounts receivable (net of allowances of
$1,268, $1,082 and $1,211, respectively) 9,580 9,406 2,029
Unbilled revenues 2,877 3,363 582
Deferred gas costs 8,024 - 3,783
Inventories, at average cost:
Materials and supplies 1,606 1,615 1,590
Supplemental gas supplies 8,204 6,023 9,039
Prepaid and deferred taxes 1,139 2,136 1,603
Recoverable FERC 636 transition costs 2,018 1,733 1,733
Prepaid expenses and other 965 931 1,304
------------------ -------------
Total current assets 35,154 26,088 22,472
------------------ -------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 6,273 3,698 6,840
Other deferred charges 795 814 996
------------------ -------------
Total deferred charges 9,469 6,913 10,237
------------------ -------------
Total Assets $144,967 $129,932 $132,003
================== =============
See accompanying notes to condensed consolidated financial statements.
3
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Stockholders' Equity and Liabilities
(Unaudited, except for September 30, 1996 data)
(Thousands of dollars)
December 31, September 30,
1996 1995 1996
-------------------------------
Capitalization:
Common stockholders' equity:
Common stock - par value of $1 per
share, 10,000,000 shares authorized;
3,243,543, 3,208,486 and 3,239,148
shares issued and outstanding,
respectively $ 3,244 $ 3,208 $ 3,239
Amount in excess of par 30,428 29,782 30,342
Retained earnings 14,215 12,158 11,586
-------------------------------
Total common stockholders' equity 47,887 45,148 45,167
Long-term debt 29,689 29,745 29,525
Capital lease obligations - 206 46
-------------------------------
Total capitalization 77,576 75,099 74,738
-------------------------------
Current liabilities:
Notes payable to banks 13,050 6,810 9,535
Current portion of long-term debt 2,121 3,438 2,090
Current portion of capital lease
obligations 214 256 229
Inventory purchase obligation 9,209 7,723 7,867
Accounts payable 10,889 6,957 6,189
Deferred gas costs - 1,424 -
Accrued interest 1,100 1,581 838
Accrued and deferred taxes 2,619 1,526 1,642
Accrued FERC 636 transition costs 2,018 1,733 1,733
Customer deposits, environmental
and other 4,007 2,356 5,062
-------------------------------
Total current liabilities 45,227 33,804 35,185
-------------------------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 16,623 15,330 16,525
Unamortized investment tax credits 1,836 1,975 1,870
Regulatory liability - income taxes 1,344 1,467 1,374
Contributions in aid of construction
and other 2,361 2,257 2,311
-------------------------------
Total deferred credits 22,164 21,029 22,080
-------------------------------
Total Stockholders' Equity and Liabilities $144,967 $129,932 $132,003
===============================
See accompanying notes to condensed consolidated financial statements.
4
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended December 31
(Unaudited)
(Thousands of dollars except for per share amounts and shares outstanding)
Three Months Twelve Months
1996 1995 1996 1995
--------------------- ---------------------
Total operating revenues $29,454 $25,976 $92,432 $82,310
--------------------- ---------------------
Operating expenses:
Cost of gas sold 14,872 11,151 48,663 41,114
Operations and maintenance 5,544 5,556 21,648 20,865
Depreciation and amortization 1,516 1,457 5,884 5,277
Taxes other than income taxes 977 1,007 3,915 3,725
Federal and state income taxes 2,111 2,152 3,594 2,830
--------------------- ---------------------
Total operating expenses 25,020 21,323 83,704 73,811
--------------------- ---------------------
Operating income 4,434 4,653 8,728 8,499
--------------------- ---------------------
Other income:
Net rentals, service and
appliance sales 300 242 1,006 849
Other, net (51) 7 (99) 569
--------------------- ---------------------
Total other income 249 249 907 1,418
--------------------- ---------------------
Income before interest expense 4,683 4,902 9,635 9,917
--------------------- ---------------------
Interest expense:
Interest on long-term debt 731 764 2,971 3,125
Other interest 339 389 750 1,295
Interest charged to construction (5) (2) (31) (33)
--------------------- ---------------------
Total interest expense 1,065 1,151 3,690 4,387
--------------------- ---------------------
Net income $ 3,618 $ 3,751 $ 5,945 $ 5,530
===================== =====================
Weighted average shares outstanding 3,241,349 3,199,556 3,226,481 3,179,478
===================== =====================
Earnings per share $ 1.12 $ 1.17 $ 1.84 $ 1.74
===================== =====================
Dividends declared per share $ 0.31 $ 0.29 $ 1.21 $ 1.13
===================== =====================
See accompanying notes to condensed consolidated financial statements.
5
ENERGYNORTH, INC.
Condensed Consolidated Statements of Cash Flows
For the three months ended December 31
(Unaudited)
(Thousands of dollars)
1996 1995
------------------
Cash flows from operating activities:
Net income $ 3,618 $ 3,751
Noncash items:
Depreciation and amortization 1,699 1,656
Deferred taxes and investment tax credits, net 34 313
Changes in:
Accounts receivable, net (7,566) (7,235)
Unbilled revenues (2,295) (2,777)
Inventories 819 2,060
Prepaid expenses and other 339 410
Deferred gas costs (4,241) (4,221)
Accounts payable 4,700 2,189
Accrued liabilities 258 676
Accrued/prepaid taxes 1,441 619
Payments for environmental costs and other (180) (36)
-----------------
Net cash used for operating activities (1,374) (2,595)
-----------------
Cash flows from investing activities:
Additions to property (2,600) (1,902)
-----------------
Cash flows from financing activities:
Issues of common stock 90 211
Issues of long-term debt 343 10
Change in notes payable to banks 3,515 5,060
Increase in inventory purchase obligation 1,963 1,556
Change in customer deposits and other (201) 75
Cash dividends on common stock (989) (928)
Refunding requirements:
Repayment of long-term debt (148) (151)
Repayment of capital lease obligations (61) (68)
Repayment of inventory purchase obligation (621) (962)
-----------------
Net cash provided by financing activities 3,891 4,803
-----------------
Net increase (decrease) in cash and temporary cash investments (83) 306
Cash and temporary cash investments, beginning of period 770 575
-----------------
Cash and temporary cash investments, end of period $ 687 $ 881
=================
See accompanying notes to condensed consolidated financial statements.
6
ENERGYNORTH, INC.
Notes to Consolidated Financial Statements
December 31, 1996
(Unaudited)
EnergyNorth, Inc. is an exempt public utility holding company
operating in southern and central New Hampshire. Its principal
operating subsidiaries include EnergyNorth Natural Gas, Inc.
("ENGI"), a natural gas distribution utility, and EnergyNorth
Propane, Inc. ("ENPI"), a retail propane company.
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of
EnergyNorth, Inc. (the "Company") include the accounts of all
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in the accompanying financial
statements.
The condensed consolidated financial statements included herein
have been prepared by the Company, without audit, pursuant to the
rules and regulations of the U. S. Securities and Exchange
Commission. Certain footnote disclosures and other information,
normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been
condensed or omitted from these interim financial statements,
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information not misleading. In the opinion of the Company, the
accompanying unaudited condensed consolidated financial
statements contain all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial
position as of December 31, 1996 and 1995 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,
1996 and 1995. 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, 1996.
The business of ENGI and ENPI is influenced by seasonal weather
conditions. The amount of gas sold 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 during the winter months than is sold 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.
7
ENERGYNORTH, INC.
Notes to Consolidated Financial Statements (continued)
December 31, 1996
(Unaudited)
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the three
months ended December 31, are as follows (in thousands):
1996 1995
Cash paid during the period for:
Interest (net of amount capitalized) $347 $268
Income taxes 3 200
In preparing the accompanying condensed consolidated statements
of cash flows, all highly liquid investments having maturities of
three months or less were considered to be cash equivalents.
Note 3. Commitments and Contingencies
For a discussion of commitments and contingencies, please refer
to Footnote 9 in the Company's 1996 Annual Report to
Shareholders.
8
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
December 31, 1996
Results of Operations
Net income decreased by $133,000 to $3,618,000, or $1.12 per
share, for the three months ended December 31, 1996, from
$3,751,000, or $1.17 per share, in 1995. For the twelve months
ended December 31, 1996, net income was $5,945,000, or $1.84 per
share, compared to $5,530,000, or $1.74 per share, in the prior
period.
Temperatures for the three-month period ended December 31, 1996
were warmer than normal and warmer than the prior comparable
period. During the twelve-month period ended December 31, 1996,
temperatures were warmer than normal but colder than the prior
comparable period. The following chart 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.
12-31-96 12-31-95 Normal Previous Period Normal
======== ======== ======= ================ ==========
3 months 2,553 2,613 2,594 (2.3)% (1.6)%
12 months 7,422 7,210 7,544 2.9 % (1.6)%
Quarterly Comparison
Total operating revenues increased $3.5 million, or 13.4%, for
the quarter ended December 31, 1996. Utility gas service
revenues were $25.2 million compared to $22.5 million in the
prior period, a 12% increase. While the weather was 2.3% warmer
than the same quarter last year, firm sendout remained
approximately the same. Growth in the average number of firm
customers was nearly 2% and helped offset the impact of warmer
weather on sendout. Revenue from firm customers, including firm
transportation customers increased $2.3 million as a result of
the pass through of higher purchased gas costs through the cost
of gas adjustment ("CGA"). Although changes in CGA rates affect
operating revenues, they do not affect total margin because the
CGA is a tariff mechanism designed to provide dollar-for-dollar
recovery of gas costs. Margin earned from utility natural gas
operations decreased slightly by $226,000, or 1.8%.
Despite significant customer growth of over 9%, the warmer
weather accounted for a net decrease in propane gallons sold of
4.6%. Retail propane operating revenue increased nearly 24% as
sales prices rose to meet the increase in the cost of propane
from suppliers. Competitive pressure on price resulted in a
gross margin decrease of approximately $42,000.
While wage rates have increased, reductions in the work force and
lower maintenance costs were the primary reasons operations and
maintenance expenses remained virtually unchanged for the
quarter.
9
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1996
The depreciation and amortization increase reflects continued
capital additions to the distribution system and related
facilities and amortization of remediation costs. The decrease in Federal
and state income tax expense correlates with the decrease in pretax
earnings for the quarter.
Other interest expense decreased primarily as a result of
interest due from customers on the average deferred gas cost
undercollected balance during the quarter.
Twelve-Month Comparison
Total operating revenues increased $10.1 million, or 12.3%, for
the twelve months ended December 31, 1996. Utility gas service
revenues were $79.3 million compared to $71.7 million in the
prior period, a 10.6% increase. The weather was 2.9% colder than
the same twelve months last year and firm customers increased
1.9%, contributing to an increase in firm sendout of 6%. Margin
earned from utility natural gas operations increased $2.1
million, or 5.9%.
The average number of retail propane customers increased over 10%
during the twelve-month period ended December 31, 1996. Propane
gallons sold increased 9.4% as a result of colder temperatures
and the impact of substantial customer growth. The impact of
increased volumes sold and an increase in sales prices to offset
an increase in the cost of propane sold resulted in a 25%
increase in operating revenues for the period. Margin increased
$528,000.
Operations and maintenance expenses increased 3.8% due to
increases in bad debt expense, insurance expense and other
operating expenses. Higher depreciation and amortization charges
were a direct result of plant additions and amortization of
remediation costs. The increase in taxes other than income taxes
was attributable to higher property tax rates and assessments
made by cities and towns. An increase in pretax earnings resulted
in the increase in Federal and state income tax expense for the
period.
Total other income for the twelve months ended December 31, 1996
decreased $511,000. A gain of $350,000 from the sale of railcars
in the prior period was the primary cause of the change.
Other interest expense decreased by $545,000 as a result of
interest due from customers on the average deferred gas cost
undercollected balance during the period.
Capital Resources and Liquidity
The Company's major capital requirements result from normal
replacements and efforts to improve the efficiency of existing
plant and serve additional customers. For the three months ended
10
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1996
December 31, 1996, capital expenditures totaled approximately
$2.6 million.
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.
At December 31, 1996, deferred gas cost is in an undercollected
position due mostly to the timing of the recovery of increased
utility purchased gas costs. The undercollected amounts will be
mostly recovered from firm gas customers during the winter period
through the cost of gas adjustment.
Capital expenditures, undercollected deferred gas costs and
working capital requirements were financed by internally
generated funds and supplemented by short-term bank borrowings.
At December 31, 1996, the Company had unsecured bank lines of
credit of $15 million, $13 million of which was outstanding.
Construction expenditures for fiscal 1997 are expected to be
approximately $10.3 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.
Future financing requirements are subject to the amount and
timing of internally generated funds, rate relief, sales volumes,
construction requirements, regulatory actions and market
conditions.
FERC Order 636
FERC Order 636 allows interstate pipeline companies to recover
transition costs created as they buy out of long-term, fixed-
price gas contracts. Since the Company's supplier began direct
billing these costs on September 1, 1993 as a component of demand
charges, $6.6 million has been billed through December 31, 1996.
The Company is recovering transition costs through the cost of
gas adjustment. Based on current information, additional
transition costs are expected to total between $2.0 million and
$2.7 million and will be billed over a period of approximately
two years.
Environmental Matters
The Company and certain of its predecessors owned or operated
facilities for the manufacture of gas from coal, a process used
through the mid-1900's 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
accrues
11
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1996
environmental investigation and clean-up costs with respect to
former manufacturing sites and other environmental matters when
it is probable that a liability exists and the amount or range of
amounts is reasonably certain.
A former manufactured gas facility in Concord, New Hampshire has
been investigated and partially remediated. Disposal of the
contents of the gasholder situated at this former gas
manufacturing facility has been completed. Total remediation
costs amounted to approximately $3.5 million and were recorded in
deferred charges. Recovery of costs from customers began on July
1, 1995 and will extend over a seven-year period. The
unamortized balance of $2.8 million at December 31, 1996 is
excluded from rate base.
The Company has begun remedial action for a portion of the
Concord site at which wastes were disposed of between the late
1800's and mid-1900's. The estimated cost of the remedial action
ranges from $2.1 million to $3.2 million, and the Company has
recorded $2.1 million at December 31, 1996 in deferred charges.
The Company is pursuing recovery from its insurance carriers as
well as from insurance carriers of its predecessors with respect
to the Concord site. In addition, the Company is pursuing
recovery against an entity that the Company alleges owned or
operated the manufactured gas plant during the late 1800's and
early 1900's.
The Company and another utility company have conducted an
environmental site characterization of a former manufactured gas
plant in Laconia, New Hampshire. The Laconia manufactured gas
plant operated between approximately 1887 and 1952, and the
Company owned and operated the facility for approximately the
last seven years of its active life. Without admitting
liability, the Company and the other utility have entered into an
agreement under which costs of the site characterization are
shared. The Company's share of the costs of the site
characterization and a report to the New Hampshire Department of
Environmental Services ("NHDES"), totaled $216,000 and has been
recorded in deferred charges as of December 31, 1996. The
Company is currently unable to predict the magnitude of any
liability that may be imposed on it for the cost of additional
studies or the performance of a remedial action in connection
with the Laconia site.
The Company will pursue recovery from insurance carriers and
claims against any other responsible parties seeking to ensure
that they contribute appropriately to reimburse the Company for
any costs incurred with respect to environmental matters. The Company
intends to seek and expects to receive approval of rate recovery
methods with respect to environmental matters after it has
determined the extent of contamination, received recommendations
with regard to remediation and commenced remediation efforts.
12
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
December 31, 1996
Factors that May Affect Future Results
The Private Securities Litigation Reform Act of 1995 encourages
the use of cautionary statements accompanying forward-looking
statements. The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations includes forward-
looking statements concerning the impact of changes in the cost
of gas and of the CGA mechanism on total margin; projected
capital expenditures and sources of cash to fund expenditures;
and estimated costs of environmental remediation and anticipated
regulatory approval of recovery mechanisms. The Company's future
results, generally and with respect to such forward-looking
statements, may be affected by many factors, among which are, but
not limited to, 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; and uncertainty as to regulatory approval of the full
recovery of environmental costs, transition costs, and other
regulatory assets.
13
PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 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, 1996.
14
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, 1997 /s/ DAVID A. SKRZYSOWSKI
-------------------------------------
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)