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, 1998
Commission File Number 1-11441
ENERGYNORTH, INC.
(Exact name of registrant as specified in its charter)
New Hampshire 02-0363755
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1260 Elm Street, P.O. Box 329, Manchester, NH 03105
(Address and zip code of principal executive offices)
(603) 625-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
EnergyNorth, Inc. had 3,246,258 shares of $1.00 par value common
stock outstanding on April 29, 1998, 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, 1997 data)
(Thousands of dollars)
March 31, September 30,
1998 1997 1997
-------------------- -------------
Property:
Utility plant, at cost $151,582 $139,994 $146,830
Accumulated depreciation and amortization 50,088 46,704 47,815
-------------------- -------------
Net utility plant 101,494 93,290 99,015
Net nonutility property, at cost 7,487 7,743 7,430
-------------------- -------------
Net property 108,981 101,033 106,445
-------------------- -------------
Current assets:
Cash and temporary cash investments 6,247 1,121 1,998
Note receivable - 79 111
Accounts receivable (net of allowances of
$1,258, $1,336 and $1,357 respectively) 13,351 16,370 3,430
Unbilled revenues 1,454 1,638 602
Deferred gas costs - 1,228 -
Inventories, at average cost:
Materials and supplies 1,780 1,674 1,756
Supplemental gas supplies 4,656 3,802 9,120
Prepaid and deferred taxes 1,162 668 1,305
Recoverable FERC 636 transition costs 757 1,305 1,261
Prepaid expenses and other 708 703 1,340
-------------------- ------------
Total current assets 30,115 28,588 20,923
-------------------- ------------
Deferred charges:
Regulatory asset - income taxes 2,401 2,401 2,401
Recoverable environmental costs 5,003 6,140 6,546
Other deferred charges 3,934 548 2,212
-------------------- ------------
Total deferred charges 11,338 9,089 11,159
-------------------- ------------
Total assets $150,434 $138,710 $138,527
==================== ============
See accompanying notes to condensed consolidated financial statements.
3
ENERGYNORTH, INC.
Condensed Consolidated Balance Sheets
Stockholders' Equity and Liabilities
(Unaudited, except for September 30, 1997 data)
(Thousands of dollars except per share amount and shares outstanding)
March 31, September 30,
1998 1997 1997
-------------------- -------------
Capitalization:
Common stockholders' equity:
Common stock - par value of $1 per
share 10,000,000 shares authorized;
3,246,258, 3,243,543 and 3,243,543
shares issued and outstanding, respectively $ 3,246 $ 3,244 $ 3,244
Amount in excess of par 30,488 30,428 30,428
Retained earnings 21,950 19,807 14,050
-------------------- -------------
Total common stockholders' equity 55,684 53,479 47,722
Long-term debt 44,815 29,283 45,242
-------------------- -------------
Total capitalization 100,499 82,762 92,964
-------------------- -------------
Current liabilities:
Notes payable to banks 1,600 9,500 100
Current portion of long-term debt 939 2,140 932
Current portion of capital lease obligations - 153 46
Inventory purchase obligation 5,311 4,930 7,852
Accounts payable 7,321 7,601 6,046
Deferred gas costs 1,908 - 1,300
Accrued interest 264 394 311
Accrued and deferred taxes 4,528 4,270 111
Accrued FERC 636 transition costs 757 1,305 1,261
Customer deposits, environmental and other 3,912 3,290 3,927
-------------------- -------------
Total current liabilities 26,540 33,583 21,886
-------------------- -------------
Commitments and contingencies
Deferred credits:
Deferred income taxes 18,094 16,910 18,302
Unamortized investment tax credits 1,672 1,802 1,734
Regulatory liability - income taxes 1,197 1,314 1,254
Contributions in aid of construction and other 2,432 2,339 2,387
-------------------- -------------
Total deferred credits 23,395 22,365 23,677
-------------------- -------------
Total stockholders' equity and liabilities $150,434 $138,710 $138,527
==================== =============
See accompanying notes to condensed consolidated financial statements.
4
ENERGYNORTH, INC.
Condensed Consolidated Statements of Income
For the periods ended March 31
(Unaudited)
(Thousands of dollars except for per share amounts and shares outstanding)
Three Months Six Months Twelve Months
1998 1997 1998 1997 1998 1997
---------------------- --------------------- ---------------------
Total operating revenues $42,032 $48,898 $72,924 $78,352 $100,442 $101,669
---------------------- --------------------- ---------------------
Operating expenses:
Cost of gas sold 23,830 29,663 38,912 44,535 56,206 58,302
Operations and maintenance 5,375 5,488 11,243 11,032 21,869 21,319
Depreciation and amortization 1,725 1,608 3,364 3,124 6,392 5,918
Taxes other than income taxes 1,017 981 2,094 1,958 3,012 3,873
Federal and state income taxes 3,427 3,863 5,852 5,974 3,686 3,614
---------------------- --------------------- ---------------------
Total operating expenses 35,374 41,603 61,465 66,623 91,165 93,026
---------------------- --------------------- ---------------------
Operating income 6,658 7,295 11,459 11,729 9,277 8,643
---------------------- --------------------- ---------------------
Other income 337 239 849 488 1,317 898
Interest expense:
Interest on long-term debt 968 726 1,943 1,457 3,402 2,941
Other interest 191 227 387 561 895 748
---------------------- --------------------- ---------------------
Total interest expense 1,159 953 2,330 2,018 4,297 3,689
---------------------- --------------------- ---------------------
Net income $ 5,836 $ 6,581 $ 9,978 $10,199 $ 6,297 $ 5,852
====================== ===================== =====================
Weighted average shares outstanding 3,246,258 3,243,543 3,245,438 3,242,433 3,244,488 3,234,519
====================== ===================== =====================
Basic earnings per share $ 1.80 $ 2.03 $ 3.07 $ 3.15 $ 1.94 $ 1.81
====================== ===================== =====================
Dividends declared per share $ .32 $ .305 $ .64 $ .61 $ 1.28 $ 1.22
====================== ===================== =====================
See accompanying notes to condensed consolidated financial statements.
5
ENERGYNORTH, INC.
Condensed Consolidated Statements of Cash Flows
For the six months ended March 31
(Unaudited)
(Thousands of dollars)
1998 1997
-------- ---------
Cash flows from operating activities:
Net income $ 9,978 $ 10,199
Noncash items:
Depreciation and amortization 3,662 3,490
Deferred taxes and investment tax credits, net (327) 257
Changes in:
Accounts receivable, net (9,921) (14,341)
Unbilled revenues (852) (1,056)
Inventories 4,440 5,153
Prepaid expenses and other 632 601
Deferred gas costs 608 2,555
Accounts payable 1,275 1,412
Accrued liabilities (563) (601)
Accrued/prepaid taxes 4,559 3,563
Payments for environmental costs and other (31) (571)
-------- ---------
Net cash provided by operating activities 13,460 10,661
-------- ---------
Cash flows from investing activities:
Additions to property (5,847) (4,824)
Changes in note receivable, net 111 (40)
-------- ---------
Net cash used by investing activities (5,736) (4,864)
-------- ---------
Cash flows from financing activities:
Issues of common stock 63 91
Issues of long-term debt 254 460
Change in notes payable to banks 1,500 (35)
Increase in inventory purchase obligation 2,602 2,604
Change in customer deposits and other 47 (272)
Cash dividends on common stock (2,078) (1,979)
Refunding requirements:
Repayment of long-term debt (674) (652)
Repayment of capital lease obligations (46) (122)
Repayment of inventory purchase obligation (5,143) (5,541)
-------- ---------
Net cash used for financing activities (3,475) (5,446)
-------- ---------
Net increase in cash and temporary cash investments 4,249 351
Cash and temporary cash investments, beginning of period 1,998 770
-------- ---------
Cash and temporary cash investments, end of period $ 6,247 $ 1,121
======== =========
See accompanying notes to condensed consolidated financial statements.
6
ENERGYNORTH, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(Unaudited)
EnergyNorth, Inc. (the "Company") 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. 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, when 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, 1997, 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, 1998 and 1997 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, 1998
and 1997. All accounting policies and practices have been applied
in a manner consistent with prior periods.
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 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
Note 2. Cash Flows
Supplemental disclosures of cash flow information for the six
months ended March 31, are as follows (in thousands):
1998 1997
- -----------------------------------------------------------------
Cash paid during the period for:
Interest (net of amount capitalized) $2,060 $2,150
Income taxes 2,004 2,417
In preparing the accompanying condensed consolidated statements
of cash flows, all highly liquid investments having maturities of
three months or less when acquired were considered to be cash
equivalents and classified as cash and temporary cash
investments.
Note 3. Commitments and Contingencies
For a discussion of commitments and contingencies, please refer
to Footnote 9 in the Company's 1997 Annual Report to
Shareholders.
8
ENERGYNORTH, INC.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
March 31, 1998
Results of Operations
Net income for the three months ended March 31, 1998 was
$5,836,000, or $1.80 per share, compared to $6,581,000, or $2.03
per share, in 1997. For the six months ended March 31, 1998, net
income decreased to $9,978,000, or $3.07 per share, from
$10,199,000, or $3.15, in 1997. Net income for the twelve months
ended March 31, 1998 increased to $6,297,000, or $1.94 per share,
compared to $5,852,000, or $1.81 per share, in the prior period.
Included in the current twelve-month period results was a one-
time, after-tax credit of $649,000, or $.20 per share, which was
the result of a property tax settlement.
Temperatures for the current three, six and twelve-month periods
were significantly warmer than the prior comparable periods and
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.
03-31-98 03-31-97 Normal Previous Period Normal
-------- -------- ------ --------------- ----------
3 months 2,981 3,440 3,602 (13.3)% (17.2)%
6 months 5,539 5,993 6,205 (7.6)% (10.7)%
12 months 6,919 7,228 7,500 (4.3)% (7.7)%
Quarterly Comparison
Total operating revenues decreased almost $6.9 million, or 14%,
for the quarter ended March 31, 1998. Total utility gas service
revenues were $37.5 million compared to $43.4 million in the
prior period. Although the average number of customers increased
2.4% for the quarter, the weather was 13.3% warmer and firm
sendout, including transportation, decreased 5.3%. Also
contributing to the decrease in revenues were lower purchased gas
costs of $4.1 million that were passed through the cost of gas
adjustment ("CGA") to firm customers. Although changes in the
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 decreased 5% for
the quarter.
Despite a 7.1% increase in the average number of retail propane
customers, propane gallons sold decreased 4.6% for the three-
month period due to warm temperatures. Consequently, retail
propane operating revenues decreased $935,000 and gross margin
decreased 7.5% compared to the same quarter last year.
9
Operations and maintenance expenses for the three months ended
March 31, 1998 decreased $113,000. Maintenance expenses were
lower than the prior period, since repair work associated with
cold temperatures was kept to a minimum. In addition, bad debt
expense was approximately $70,000 lower than the prior period.
The 7.3% increase in depreciation and amortization expenses was
the result of capital additions. Total interest expense
increased $206,000, or 21.6%, due mostly to the $22 million of
7.4% First Mortgage Bonds issued in September 1997.
Six-Month Comparison
Total operating revenues decreased $5.4 million, or 6.9%, for the
six months ended March 31, 1998. Total utility gas service
revenues were $64.6 million compared to $68.8 million in the
prior period, a 6% decrease. The decrease included lower
purchased gas costs of $2.9 million that were passed through the
CGA to firm customers. In addition, revenues decreased as customers
switched from sales gas to transportation sales. The average number of
customers increased 2.5% and firm sendout increased 1.2%, despite the
warmer weather. Margin earned from utility natural gas operations
increased only slightly for the six months.
The average number of retail propane customers grew nearly 7.4%
for the six-month period. Although temperatures were 7.6% warmer
than the prior period, retail propane gallons sold increased
approximately 1.6%. Operating revenues, however, decreased $1.3
million as prices decreased in response to lower propane costs
from suppliers. Margin remained essentially unchanged from the
prior comparable six-month period.
Operations and maintenance expenses increased only 1.9%, due
mainly to increased wage rates. Continued capital additions to
the distribution system was the primary reason for the 7.7%
increase in depreciation and amortization expense. The increase
in other income was due mostly to interest on refunds received
from federal income tax settlements. The primary reason for the
15.5% increase in total interest expense was the September 1997
new debt issuance.
Twelve-Month Comparison
Total operating revenues decreased $1.2 million, or 1.2%, for the
twelve months ended March 31, 1998. Although the average number
of customers increased 2.4% and firm sendout increased nearly
3.2%, utility gas service revenues decreased slightly to $88.8
million from $89 million in the prior period. Included in the
current period revenues were lower gas costs of $600,000 that
were passed through the CGA. In addition, revenues resulting
from the increase in firm sendout were offset by customers switching
from sales gas to transportation sales. Margin from natural gas
operations increased 2%.
For the twelve months ended March 31, 1998, the average number of
retail propane customers increased 7.6% and propane gallons sold
increased almost 2.9%. As sales prices decreased to reflect
lower propane costs charged by suppliers, operating revenues
decreased more than $1
10
million, or 8.1%. Margin earned from retail propane operations
increased 2.5% compared to the prior period.
Increases in wage rates and bad debt expense were the primary
reasons for the 2.6% increase in operations and maintenance
expenses for the twelve-month period. Higher depreciation and
amortization charges were the direct result of plant additions
and amortization of environmental remediation costs. Taxes other
than income taxes decreased as a result of favorable property tax
settlements. The increase in other income included interest on
refunds received from federal income tax settlements. In
addition, startup losses of $122,000 incurred in two joint
venture projects were recorded in the prior twelve-month period.
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 construction projects are brought to completion and
during the winter as accounts receivable balances grow. The net
accounts receivable balance at March 31, 1998 is $13.4 million
and reflects lower revenues resulting from the warmer
temperatures and from lower purchased gas costs being passed
through the CGA. During the spring and early summer months, a
positive cash flow stream is created as accounts receivable
balances are collected. At this time, inventories have been
utilized and prepaid amounts, mostly insurance, are being
amortized. The overcollected deferred gas cost amounts at March
31, 1998 will be returned to customers through the CGA mechanism
in future periods.
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 six months ended March 31, 1998,
capital expenditures totaled more than $5.8 million.
Capital expenditures and working capital requirements were
financed by internally generated funds and supplemented by short-
term bank borrowings. At March 31, 1998, the Company had
unsecured bank lines of credit of $25.65 million, $1.6 million of
which was outstanding.
Construction expenditures for fiscal 1998 are expected to total
approximately $12.8 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.
Federal Energy Regulatory Commission Order 636
Federal Energy Regulatory Commission 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 pipeline supplier, Tennessee Gas Pipeline Company,
began billing these costs on September 1, 1993 as a component of
demand charges, $8.4 million has been billed through March 31,
1998. The Company has recorded additional transition costs of
approximately
11
$757,000 that are expected to be billed over a period of nine months.
The Company is recovering transition costs through the CGA.
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 estimated cost of remedial action required by the New Hampshire
Department of Environmental Services for a portion of a former
manufacturing site in Concord, New Hampshire ranges from $2 million to
$3.3 million. The Company has recorded $2 million at March 31, 1998 in
deferred charges. In a proceeding before the State of New Hampshire
Public Utilities Commission (the "Commission"), the Company and
Commission Staff have reached an agreement that provides for recovery
from ratepayers, over a seven-year period, of substantially all costs
of investigation, remediation and recovery efforts through March 31, 1998.
The recovery amount is net of recoveries from third parties and does not
include recovery of carrying costs. The agreement is subject to
approval by the Commission.
Through March 31, 1998, the Company had reached settlements with
certain of the defendants in suits brought by the Company against
numerous parties to recover the costs of investigation and remediation
of the Concord site in an aggregate amount of $2.1 million and further
payment to the Company of a portion of future Concord site remediation
costs.
In suits brought by the Company against numerous insurers seeking recovery
of investigation and remediation expenses in connection with a former
manufactured gas plant in Laconia, New Hampshire, the Company had reached
settlements with defendants in an aggregate amount of $150,000, through
March 31, 1998.
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
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; and uncertainty as to
12
environmental costs and as to regulatory approval of the full
recovery of environmental costs, transition costs and other
regulatory assets.
13
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, 1997.
The Company reached settlements totalling $550,000 in suits for
recovery of investigation and remediation at former manufactured gas
plant sites, described in Part I, Management's Discussion and Analysis
of Financial Condition and Results of Operations. No further material
legal proceedings or material developments occurred in the quarter.
Items 2, 3 and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The shareholders of the Company elected certain directors and
ratified the appointment of auditors at the annual meeting held
on February 4, 1998. Numbers of votes for each nominee and for
the ratification of auditors are shown in the following table.
Against or Broker
For Withheld Abstain Nonvotes
------------------------------------------------
Director Nominees
- -----------------
Joan P. Cudhea 2,770,504 25,809 - -
Sylvio L. Dupuis 2,776,430 29,883 - -
Andrew E. Lietz 2,774,782 21,531 - -
Auditor Ratification 2,774,323 7,197 14,793 -
- --------------------
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, 1998.
13
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 29, 1998 /s/ DAVID A. SKRZYSOWSKI
David A. Skrzysowski, duly authorized
Vice President & Controller
(Principal Accounting Officer)