10-Q 1 d10q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 --------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _____________ Commission File Number 000-25305 --------- ENERGYNORTH NATURAL GAS, INC. D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND ---------------------------------------------- (Exact name of registrant as specified in its charter) NEW HAMPSHIRE 02-0209312 ---------------------------- ------------------- (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 of principal executive offices) (Zip Code) 603-625-4000 -------------------------------------------------- (Registrant's telephone number, including area code) NONE --------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. 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 ___ --- Common stock of Registrant at the date of this report was 120,000 shares, all held by EnergyNorth, Inc. PART I. FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS ----------------------------- Company or group of companies for which report is filed: ENERGYNORTH NATURAL GAS, INC. ("Company") CONSOLIDATED STATEMENTS OF EARNINGS --------------------------------------

The accompanying notes are an integral part of these consolidated financial statements. ENERGYNORTH NATURAL GAS, INC. ----------------------------- CONSOLIDATED BALANCE SHEETS ---------------------------

The accompanying notes are an integral part of these consolidated financial statements. ENERGYNORTH NATURAL GAS, INC. ----------------------------- Consolidated Balance Sheets -------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial statements. ENERGYNORTH NATURAL GAS, INC. ----------------------------- Consolidated Statements of Cash Flows -------------------------------------

The accompanying notes are an integral part of these consolidated financial statements. ENERGYNORTH NATURAL GAS, INC. ----------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ JUNE 30, 2001 ------------- 1. ACCOUNTING POLICIES AND OTHER INFORMATION ----------------------------------------- General ------- The Company is a wholly-owned subsidiary of EnergyNorth, Inc. ("ENI") and an indirect wholly-owned subsidiary of KeySpan Corporation ("KeySpan"). It is the Company's opinion that the financial information contained in this report reflects all adjustments necessary to present a fair statement of results for the periods reported. All of these adjustments are of a normal recurring nature, except for those related to the merger as discussed below. Results for the periods are not necessarily indicative of results to be expected for the year, due to the seasonal nature of the Company's operations. All accounting policies have been applied in a manner consistent with prior periods. Such financial information is subject to year-end adjustments and annual audit by independent public accountants. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this Form 10-Q. Therefore these interim financial statements should be read in conjunction with the Company's September 2000 Annual Report filed on Form 10-K with the Securities and Exchange Commission. MERGER ------ On July 14, 1999, ENI and Eastern Enterprises (Eastern), a Massachusetts business trust, entered into an Agreement and Plan of Reorganization (Agreement) which provided for the merger of ENI into a subsidiary of Eastern by an exchange of stock. On November 4, 1999, Eastern entered into an agreement to merge with a subsidiary of KeySpan Corporation and, as a result, ENI and Eastern amended the Agreement. Under the amended Agreement, holders of outstanding shares of ENI's common stock were paid entirely in cash. On November 8, 2000, the merger took place simultaneously with the Eastern merger with KeySpan. The transaction was accounted for using the purchase method of accounting for business combinations. The purchase price was allocated to the net assets acquired of the Company based upon their fair value. The historical cost basis of the Company's assets and liabilities, with minor exceptions, was determined to represent fair value due to the existence of regulatory-approved rate plans that are based upon the recovery of historical costs and a fair return thereon. The allocation of the purchase price remains subject to adjustment upon final valuation of certain acquired balances of the Company. The Company recorded merger related costs of $5.8 million, comprised of special termination benefits and curtailment expenses of $2.2 million, payroll and related benefits of $1.7 million and other costs of $1.9 million, during the year ended September 30, 2000. As a result of the merger, the Company also recorded as of November 8, 2000 approximately $6.0 million of severance costs and benefits, and $5.6 million of other merger related costs. Under "push-down" accounting, the excess of the purchase price over the fair value of the Company's net assets acquired, or goodwill, of $168.2 million has been recorded as an asset and is being amortized over a period of 40 years. The push-down accounting resulted in an increase to equity of $85.7 million, net of the write-down of $2.5 million of assets, principally software, no longer used or useful, and the recording of an $80 million advance from KeySpan. During the second quarter of 2001, equity was decreased by $4.5 million with an offsetting decrease to goodwill, reflecting a decrease to the acquisition premium. REGULATION ---------- To prepare for the unbundling of gas supply and transportation service for its customers, the Company filed a rate redesign proposal with the New Hampshire Public Utilities Commission that was approved and became effective as of May 1, 2001. The rate redesign proposal is revenue neutral to the Company and transfers gas supply related costs from base rates to the cost of gas recovery mechanism. Effective November 1, 2001, all comercial and industrial customers of the Company will have the ability to request transportation-only service. The migration of customers from sales to transportation only service has no effect on the Company's operating margin. SEASONAL ASPECT --------------- The amount of the Company's natural gas firm throughput for purposes of space heating is directly related to temperature conditions. Consequently, there is less gas throughput during the summer months than during the winter months. RECLASSIFICATIONS ----------------- Certain prior quarter financial statement amounts have been reclassified for consistent presentation with the current year. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". The key concepts from the two interrelated Statements include mandatory use of the purchase method of accounting for business combinations, discontinuance of goodwill amortization, a revised framework for testing goodwill impairment at a "reporting unit" level, and new criteria for the identification and potential amortization of other intangible assets. The Business Combination Statement is generally effective for combinations after June 30, 2001. The Statement of Goodwill and Other Intangible Assets is effective for the fiscal years beginning after December 15, 2001, however, for business combinations consummated after June 30, 2001, the requirements to discontinue goodwill amortization are effective upon issuance of the Statements. The first part of the annual impairment test is to be performed within six months of adopting the Statement on Goodwill and Other Intangible Assets. We are currently evaluating the impact that these Statements will have on our operations. We are currently amortizing goodwill of approximately $4.2 million on an annual basis. As noted, effective January 1, 2002 goodwill will no longer be subject to amortization, but instead will be tested for impairment. In July of 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". The standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the long-lived asset. Over time the liability is accreted to its then present value, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2001, with earlier application encouraged. We are currently evaluating the impact, if any, that this Statement may have on our results of operations. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ------------------------------------------------------------------------------ OF OPERATIONS: -------------- RESULTS OF OPERATIONS SECOND QUARTER The seasonal net loss for the second quarter of 2001 was $3.5 million, an increase of $1.5 million, from the same period in 2000. Weather was 10% warmer than normal and 12% warmer than 2000. Operating revenues in the second quarter of 2001 increased $1.3 million, or 8.4%, from the same period in 2000, principally due to higher gas prices. Operating margin increased $0.4 million, or 6.5%, from 2000. Operations and maintenance expenses increased $0.4 million, or 9.9%. The second quarter of 2001 reflects amortization of goodwill of $1.0 million and interest and amortization of debt issuance costs of $1.5 million associated with the Advance from KeySpan. YEAR-TO-DATE Earnings applicable to common stock for the first six months of 2001 were $0.8 million, a decrease of $3.3 million, from the first six months of 2000. Weather approximated normal and was 2.1% colder than 2000. Operating revenues in the first six months of 2001 increased $32.7 million, from 2000, principally due to higher gas prices, the colder weather, and customer growth. Operating margin increased $0.5 million, or 1.9%, from 2000, principally due to customer growth and the colder weather. Operations and maintenance expenses increased $1.2 million, or 13.6%, due to a higher provision for bad debts due to the higher gas prices. The first six months of 2001 reflects amortization of goodwill of $2.1 million and interest and amortization of debt issuance costs of $3.0 million associated with the Advance from KeySpan. FORWARD-LOOKING INFORMATION This report and other Company reports and statements issued or made from time to time contain certain "forward-looking statements" concerning projected future financial performance, expected plans or future operations. The Company cautions that actual results and developments may differ materially from such projections or expectations. Investors should be aware of important factors that could cause actual results to differ materially from the forward-looking projections or expectations. These factors include, but are not limited to: the effect of strategic initiatives on earnings and cash flow, the impact of any merger-related activities, the ability to successfully integrate operations, temperatures above or below normal, changes in economic conditions, including interest rates and fuel prices, regulatory and court decisions, developments with respect to previously-disclosed environmental liabilities and such other factors detailed from time to time in reports filed by the Company with the SEC. Most of these factors are difficult to predict accurately and are generally beyond the control of the Company. LIQUIDITY AND CAPITAL RESOURCES The Company believes that projected cash flow from operations, in combination with currently available resources, is sufficient to meet 2001 capital expenditures, working capital requirements, dividend payments and debt repayments. The Company expects capital expenditures for 2001 to be approximately $18 million. Capital expenditures will be primarily for system expansion associated with customer growth and improvements to the delivery infrastructure. PART II. OTHER INFORMATION -------------------------- ITEM 1. LEGAL PROCEEDINGS -------------------------- None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ----------------------------------------- (a) List of Exhibits None. (b) No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES ---------- It is the Company's opinion that the financial information contained in this report reflects all normal, recurring adjustments necessary to present a fair statement of results for the period reported, but such results are not necessarily indicative of results to be expected for the year due to the seasonal nature of the business of the Company. Except as otherwise herein indicated, all accounting policies have been applied in a manner consistent with prior periods. Such financial information is subject to year-end adjustments and an annual audit by independent public accountants. Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EnergyNorth Natural Gas, Inc. D/B/A KEYSPAN ENERGY DELIVERY NEW ENGLAND ----------------------------------------- (Registrant) Joseph F. Bodanza ----------------------------------------- J.F. Bodanza, Senior Vice President Finance, Accounting and Regulatory Affairs (Principal Financial and Accounting Officer) Dated: August 14, 2001 ----------------------

ENERGYNORTH NATURAL GAS INC 10-Q