-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AuTf01cw3YUoO+vhJ42fcV+QK4GDkrlnEHSb0o1OORfFHvmKpcDrP5zqwbZ/8AAh sXoBjweVXzOB7RxRMQpdfA== 0000077231-97-000014.txt : 19970514 0000077231-97-000014.hdr.sgml : 19970514 ACCESSION NUMBER: 0000077231-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA ENTERPRISES INC CENTRAL INDEX KEY: 0000077231 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 231920170 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11325 FILM NUMBER: 97601596 BUSINESS ADDRESS: STREET 1: ONE PEI CTR STREET 2: WILKES BARRE CTR CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 BUSINESS PHONE: 7178298843 MAIL ADDRESS: STREET 1: 39 PUBLIC SQUARE CITY: WILKES BARRE STATE: PA ZIP: 18711-0601 10-Q 1 PENNSYLVANIA ENTERPRISES, INC. TABLE OF CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Income for the three months ended March 31, 1997 and 1996. . . . . . . . . . . 2 Consolidated Balance Sheets as of March 31, 1997, and December 31, 1996 . . . . . . . . . . . . . . . . . . 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1997 and 1996. . . . . . 5 Notes to Consolidated Financial Statements. . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 15 -1- PART I. FINANCIAL INFORMATION PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1997 1996 (Thousands of Dollars) OPERATING REVENUES: Regulated $ 79,939 $ 69,415 Nonregulated - Gas sales and services 7,375 2,736 Pipeline construction and services 2,153 1,898 Other 24 38 Total operating revenues 89,491 74,087 OPERATING EXPENSES: Cost of gas 56,708 41,921 Operation and maintenance 10,332 10,197 Depreciation 2,299 2,018 Income taxes 5,599 5,685 Taxes other than income taxes 4,326 3,823 Total other operating expenses 79,264 63,644 OPERATING INCOME 10,227 10,443 OTHER INCOME, NET 389 571 INCOME BEFORE INTEREST CHARGES 10,616 11,014 INTEREST CHARGES: Interest on long-term debt 2,042 2,867 Other interest 235 219 Allowance for borrowed funds used during construction (66) (46) Total interest charges 2,211 3,040 INCOME FROM CONTINUING OPERATIONS 8,405 7,974 LOSS WITH RESPECT TO DISCONTINUED OPERATIONS - (365) INCOME BEFORE SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 8,405 7,609 SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 353 637 NET INCOME $ 8,052 $ 6,972 COMMON STOCK (Note 3): Earnings per share of common stock: Continuing operations $ .84 $ .63 Discontinued operations - (.03) Earnings per share of common stock $ .84 $ .60 Weighted average number of shares outstanding 9,615,416 11,581,624 Cash dividends per share $ .29 $ .275 The accompanying notes are an integral part of the consolidated financial statements.
-2- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1997 1996 (Thousands of Dollars) ASSETS UTILITY PLANT: At original cost $ 329,179 $ 319,205 Accumulated depreciation (82,961) (79,783) 246,218 239,422 OTHER PROPERTY AND INVESTMENTS: Nonutility property and equipment 12,925 12,502 Accumulated depreciation (4,766) (4,674) Other 1,742 1,720 9,901 9,548 CURRENT ASSETS: Cash and cash equivalents 1,278 1,126 Accounts receivable - Customers 33,325 22,464 Others 872 565 Reserve for uncollectible accounts (1,629) (1,233) Unbilled revenues 11,161 12,966 Materials and supplies, at average cost 2,968 2,865 Gas held by suppliers, at average cost 2,874 20,265 Natural gas transition costs collectible 1,637 2,525 Deferred cost of gas and supplier refunds, net 10,744 19,316 Prepaid expenses and other 4,223 1,438 67,453 82,297 DEFERRED CHARGES: Regulatory assets - Deferred taxes collectible 30,293 29,771 Other 4,460 4,274 Unamortized debt expense 1,426 1,498 Other 612 - 36,791 35,543 TOTAL ASSETS $ 360,363 $ 366,810 The accompanying notes are an integral part of the consolidated financial statements.
-3- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1997 1996 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common shareholders' investment $ 123,443 $ 117,651 Preferred stock of PGE - Not subject to mandatory redemption, net 18,804 18,851 Subject to mandatory redemption 739 739 Long-term debt 85,392 75,000 228,378 212,241 CURRENT LIABILITIES: Current portion of long-term debt 29,679 38,721 Preferred stock subject to repurchase or mandatory redemption 80 115 Notes payable - 10,000 Accounts payable 12,149 19,945 Accrued general business and realty taxes 1,404 2,350 Accrued income taxes 19,278 14,525 Accrued interest 1,206 1,243 Accrued natural gas transition costs 1,506 2,095 Other 3,749 3,904 69,051 92,898 DEFERRED CREDITS: Deferred income taxes 50,468 49,270 Unamortized investment tax credits 4,725 4,767 Operating reserves 3,046 3,086 Other 4,695 4,548 62,934 61,671 COMMITMENTS AND CONTINGENCIES (Note 4) TOTAL CAPITALIZATION AND LIABILITIES $ 360,363 $ 366,810 The accompanying notes are an integral part of the consolidated financial statements.
-4- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 1996 (Thousands of Dollars) CASH FLOW FROM OPERATING ACTIVITIES: Income from continuing operations, net of subsidiary's preferred stock dividends $ 8,052 $ 7,337 Effects of noncash charges to income - Depreciation 2,313 2,031 Deferred income taxes, net 351 96 Provisions for self insurance 202 241 Other, net 387 625 Changes in working capital, exclusive of cash and current portion of long-term debt - Receivables and unbilled revenues (8,277) (5,829) Gas held by suppliers 17,391 13,414 Accounts payable (9,638) (970) Deferred cost of gas and supplier refunds, net 8,751 (2,955) Other current assets and liabilities, net 554 5,449 Other operating items, net (853) (2,912) Net cash provided by continuing operations 19,233 16,527 Net cash provided by discontinued operations - 2,133 Net cash provided by operating activities 19,233 18,660 CASH FLOW FROM INVESTING ACTIVITIES: Additions to utility plant (6,529) (2,973) Proceeds from sale of discontinued operations - 261,752 Acquisition of regulated business (2,009) - Other, net (186) 68 Net cash provided by (used for) investing activities (8,724) 258,847 CASH FLOW FROM FINANCING ACTIVITIES: Issuance of common stock 495 768 Repurchase of subsidiary's preferred stock (82) - Dividends on common stock (2,793) (3,186) Repayment of long-term debt (141) (50,050) Net decrease in bank borrowings (7,874) (76,508) Other, net 38 (73) Net cash used for financing activities (10,357) (129,049) NET INCREASE IN CASH AND CASH EQUIVALENTS 152 148,458 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,126 629 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,278 $ 149,087 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 2,019 $ 1,510 Income taxes $ 653 $ 470 The accompanying notes are an integral part of the consolidated financial statements.
-5- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of the Business. Pennsylvania Enterprises, Inc. ("the Company") is a holding company which, through its subsidiaries, is engaged in both regulated and nonregulated activities. The Company's regulated activities are conducted by its principal subsidiary, PG Energy Inc. ("PGE"), a regulated public utility, and PGE's wholly-owned subsidiary, Honesdale Gas Company ("Honesdale"), also a regulated public utility which was acquired on February 14, 1997. Together PGE and Honesdale distribute natural gas to a twelve-county area in northeastern Pennsylvania, a territory that includes 129 municipalities, in addition to the cities of Scranton, Wilkes-Barre and Williamsport. The Company, through its other subsidiaries, PG Energy Services Inc. ("Energy Services"), formerly known as Pennsylvania Energy Resources, Inc., Theta Land Corporation and Keystone Pipeline Services, Inc. ("Keystone"), a wholly-owned subsidiary of Energy Services, is engaged in various nonregulated activities, including the marketing and sale of natural gas and propane and other energy-related services, as well as the construction, maintenance and rehabilitation of natural gas distribution pipelines. Additionally, Theta is presently initiating several residential and commercial real estate development projects on Company-owned land for which construction is expected to commence in the latter half of 1997. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, PGE, Energy Services (including Keystone) and Theta. The consolidated financial statements also include the accounts of Honesdale beginning February 14, 1997, the date Honesdale was acquired by PGE. All material intercompany accounts have been eliminated in consolidation. Both PGE and Honesdale are subject to the jurisdiction of the Pennsylvania Public Utility Commission ("PPUC") for rate and accounting purposes. The financial statements of PGE and Honesdale that are incorporated in these consolidated financial statements have been prepared in accordance with generally accepted accounting principles, including the provisions of Financial Accounting Standards Board ("FASB") Statement 71, "Accounting for the Effects of Certain Types of Regulation," which give recognition to the rate and accounting practices of regulatory agencies such as the PPUC. Interim Financial Statements. The interim consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The results for the interim periods are not indicative of the results to be expected for the year, primarily due to the effect of seasonal variations in weather on the sale of natural gas. However, in the opinion of management, all adjustments, consisting of only normal recurring accruals, necessary to present -6- fairly the results for the interim periods have been reflected in the consolidated financial statements. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Use of Accounting Estimates. 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 and 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. These estimates involve judgments with respect to, among other things, various future economic factors and regulatory matters which are difficult to predict and are beyond the control of the Company. Therefore, actual amounts could differ from these estimates. (2) RATE MATTERS
Rate Increase. By Order adopted December 19, 1996, the PPUC approved an overall 5.3% increase in PGE's base gas rates, designed to produce $7.5 million of additional annual revenue, effective January 15, 1997. Under the terms of the Order, the billing for the impact of the rate increase relative to PGE's residential heating customers (which it is estimated will total $6.6 million on an annual basis) is being deferred, without carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility Code require that the tariffs of local gas distribution companies ("LDCs") be adjusted on an annual basis, and, in the case of larger LDCs such as PGE, on an interim basis when circumstances dictate, to reflect changes in their purchased gas costs. The procedure includes a process for the reconciliation of actual gas costs incurred and actual revenues received and also provides for the refund of any overcollections, plus interest thereon, or the recoupment of any undercollections of gas costs. In accordance with these procedures PGE has been permitted to make the following changes since January 1, 1996, to the gas costs contained in its gas tariff rates: [CAPTION] Change in Calculated Effective Rate per MCF Increase (Decrease) Date From To in Annual Revenue [S] [C] [C] [C] March 1, 1997 $4.18 $4.49 $ 8,300,000 December 1, 1996 3.01 4.18 32,400,000 September 1, 1996 2.88 3.01 3,600,000 June 1, 1996 2.75 2.88 3,400,000 The changes in gas rates on account of purchased gas costs have no effect on earnings since the change in revenue is offset by a corresponding change in the cost of gas. (3) COMMON STOCK Common Stock Split. Pursuant to resolutions adopted by the Company's Board of Directors on February 19, 1997, a Certificate of Amendment was filed with the Secretary of State of the Commonwealth of Pennsylvania on March 20, 1997, amending the Company's Restated Articles of Incorporation to (i) increase the -7- number of authorized shares of its common stock from 15 million shares to 30 million shares and (ii) reduce the stated value of such shares from $10.00 per share to $5.00 per share. This amendment had no effect on the Company's capital accounts. On February 19, 1997, the Board of Directors also declared a two-for- one split of the Company's common stock effective March 20, 1997. The number of shares of common stock reflected in these consolidated financial statements and the earnings per share of common stock for the quarter ended March 31, 1996, were restated to give retroactive effect to this stock split. (4) COMMITMENTS AND CONTINGENCIES Environmental Matters. PGE, like many gas distribution companies, once utilized manufactured gas plants in connection with providing gas service to its customers. None of these plants has been in operation since 1960, and several of the plant sites are no longer owned by PGE. Pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), PGE filed notices with the United States Environmental Protection Agency (the "EPA") with respect to the former plant sites. None of the sites is or was formerly on the proposed or final National Priorities List. The EPA has conducted site inspections and made preliminary assessments of each site and has concluded that no further remedial action is planned. While this conclusion does not constitute a legal prohibition against further regulatory action under CERCLA or other applicable federal or state law, the Company does not believe that additional costs, if any, related to these manufactured gas plant sites would be material to its financial position or results of operations since environmental remediation costs generally are recoverable through rates over a period of time. -8- PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STOCK SPLIT On February 19, 1997, the Board of Directors of Pennsylvania Enterprises, Inc. (the "Company") declared a two-for-one split of the Company's Common Stock effective March 20, 1997, as more fully discussed in Note 3 of the accompanying Notes to Consolidated Financial Statements. All per share data included in this Form 10-Q has been restated to reflect this two-for-one split. RESULTS OF CONTINUING OPERATIONS The following table expresses certain items in the Company's consolidated statements of income as percentages of operating revenues for each of the three- month periods ended March 31, 1997 and 1996: [CAPTION] Three Months Ended March 31, 1997 1996 [S] [C] [C] OPERATING REVENUES: Regulated........................................... 89.3% 93.7% Nonregulated - Gas sales and services............................ 8.3 3.7 Pipeline construction and services................ 2.4 2.6 Other............................................. - - Total operating revenues........................ 100.0% 100.0% OPERATING EXPENSES: Cost of gas......................................... 63.4 56.6 Operation and maintenance........................... 11.6 13.7 Depreciation........................................ 2.6 2.7 Income taxes........................................ 6.2 7.7 Taxes other than income taxes....................... 4.8 5.2 Total operating expenses.......................... 88.6 85.9 OPERATING INCOME...................................... 11.4 14.1 OTHER INCOME, NET..................................... 0.4 0.8 INTEREST CHARGES (1).................................. (2.4) (4.1) INCOME FROM CONTINUING OPERATIONS..................... 9.4 10.8 LOSS WITH RESPECT TO DISCONTINUED OPERATIONS.......... - (0.5) INCOME BEFORE SUBSIDIARY'S PREFERRED STOCK DIVIDENDS..................................... 9.4 10.3 SUBSIDIARY'S PREFERRED STOCK DIVIDENDS (1)............ (0.4) (0.9) NET INCOME ........................................... 9.0% 9.4% (1) None of the Company's interest expense and none of the subsidiary's preferred stock dividends was allocated to the discontinued operations. -9- o Three Months Ended March 31, 1997, Compared With Three Months Ended March 31, 1996 Operating Revenues. Operating revenues increased $15.4 million (20.8%) from $74.1 million for the quarter ended March 31, 1996, to $89.5 million for the quarter ended March 31, 1997, largely as a result of a $10.5 million (15.2%) increase in regulated operating revenues and a $4.6 million (169.6%) increase in gas sales and services by PG Energy Services Inc. ("Energy Services") a nonregulated affiliate of the Company formerly known as Pennsylvania Energy Resources, Inc. The $10.5 million (15.2%) increase in regulated operating revenues from $69.4 million for the quarter ended March 31, 1996, to $79.9 million for the quarter ended March 31, 1997, was primarily the result of higher levels in PG Energy Inc.'s ("PGE") gas cost rate and the effect of the rate increase granted PGE by the Pennsylvania Public Utility Commission (the "PPUC") which became effective on January 15, 1997 (see "Rate Matters"). The effect of the increases in rates was partially offset by a 1.2 billion cubic feet (9.3%) decrease in sales to PGE's residential and commercial heating customers. There was a 331 (10.0%) decrease in heating degree days from 3,321 (104.1% of normal) during the first quarter of 1996 to 2,990 (93.7% of normal) during the first quarter of 1997. Operating revenues of Honesdale Gas Company ("Honesdale") totaling $834,000 from its February 14, 1997, acquisition date through March 31, 1997, also contributed to the increased regulated operating revenues. The $4.6 million increase in nonregulated gas sales and services from $2.7 million for the quarter ended March 31, 1996, to $7.4 million for the quarter ended March 31, 1997, was primarily the result of a 1.4 million cubic feet (255.6%) increase in sales of natural gas by Energy Services during the quarter. Operating Expenses. Operating expenses, including depreciation and income taxes, increased $15.6 million (24.5%) from $63.6 million for the first quarter of 1996 to $79.3 million for the first quarter of 1997. As a percentage of operating revenues, total operating expenses increased from 85.9% during the first quarter of 1996 to 88.6% during the first quarter of 1997, largely as a result of an increase in the cost of gas. Cost of gas increased $14.8 million (35.3%) from $41.9 million for the first quarter of 1996 to $56.7 million for the first quarter of 1997, primarily because of higher levels in PGE's gas cost rate (see "-Rate Matters"), the aforementioned increase in sales by Energy Services and the higher level of gas costs that Energy Services incurred as a result of market prices in January, 1997. Also contributing to the increase was $574,000 of gas costs related to Honesdale from its February 14, 1997, acquisition date through March 31, 1997. Other than the cost of gas and income taxes, operating expenses increased by $919,000 (5.7%) from $16.0 million for the first quarter of 1996 to $17.0 million for the first quarter of 1997. This increase was partially attributable to a $503,000 (13.2%) increase in taxes other than income taxes resulting from a higher level of gross receipts tax because the increased sales by PGE and the sales of Honesdale from its acquisition date. Operation and maintenance expense increased $135,000 (1.3%) largely as a result of increased payroll and other costs attributable to the expansion of the Company's nonregulated activities. -10- Also contributing to the higher operating expenses was a $281,000 (13.9%) increase in depreciation expense, primarily as a result of a $312,000 (16.4%) increase in depreciation attributable to additions to PGE's utility plant. Operating Income (Loss). As a result of the above, operating income decreased by $216,000 (2.1%) from $10.4 million for the three-month period ended March 31, 1996, to $10.2 million for the three-month period ended March 31, 1997, and decreased as a percentage of total operating revenues for such periods from 14.1% in the three-month period ended March 31, 1996, to 11.4% in the three-month period ended March 31, 1997, largely as a result of the proportionately higher ratio of cost of gas to operating revenues. Other Income, Net. Other income, net decreased $182,000 from $571,000 for the three-month period ended March 31, 1996, to $389,000 for the three-month period ended March 31, 1997, largely because the first quarter of 1996 included income from the temporary investment of certain proceeds from the sale of PGE's regulated water utility operations in February, 1996. Interest Charges. Interest charges decreased $829,000 (27.3%) from $3.0 million for the first quarter of 1996 to $2.2 million for the first quarter of 1997. This decrease was largely attributable to the the Company's defeasance of its 10.125% Senior Notes on September 30, 1996. Income From Continuing Operations. Income from continuing operations increased $431,000 (5.4%) from $8.0 million for the three-month period ended March 31, 1996, to $8.4 million for the three-month period ended March 31, 1997. This increase was largely the result of the matters discussed above, principally the increase in operating revenues and decrease in interest charges, the effects of which were partially offset by increased operating expenses. Subsidiary's Preferred Stock Dividends. Dividends on preferred stock decreased $284,000 (44.6%) from $637,000 for the three-month period ended March 31, 1996, to $353,000 for the three-month period ended March 31, 1997, primarily as a result of the repurchase by PGE in 1996 of 134,359 shares of its 9% cumulative preferred stock, 9,408 shares of its 5.75% cumulative preferred stock and 20,330 shares of its 4.10% cumulative preferred stock, largely during the second quarter of that year. Net Income. The increase in net income of $1.1 million from $7.0 million for the first quarter of 1996 to $8.1 million for the first quarter of 1997, as well as the increase in earnings per share of common stock of $.24 from $.60 per share for the first quarter of 1996 to $.84 per share for the first quarter of 1997 were the result of the higher income from continuing operations and the reduced dividends on subsidiary's preferred stock, as discussed above, and the absence of any loss with respect to discontinued operations. Also contributing to the increase in earnings per share of common stock was the reduction in the weighted average number of shares outstanding as a result of the repurchase of shares, largely during the second quarter of 1996, with proceeds from the sale of PGE's water utility operations in February, 1996. RATE MATTERS Rate Increase. By Order adopted December 19, 1996, the PPUC approved an overall 5.3% increase in PGE's base gas rates, designed to produce $7.5 million of additional annual revenue, effective January 15, 1997. Under the terms of -11-
the Order, the billing for the impact of the rate increase relative to PGE's residential heating customers (which it is estimated will total $6.6 million on an annual basis) is being deferred, without carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility Code require that the tariffs of local gas distribution companies ("LDCs") be adjusted on an annual basis, and, in the case of larger LDCs such as PGE, on an interim basis when circumstances dictate, to reflect changes in their purchased gas costs. The procedure includes a process for the reconciliation of actual gas costs incurred and actual revenues received and also provides for the refund of any overcollections, plus interest thereon, or the recoupment of any undercollections of gas costs. In accordance with these procedures, PGE has been permitted to make the following changes since January 1, 1996, to the gas costs contained in its gas tariff rates: [CAPTION] Change in Calculated Effective Rate per MCF Increase (Decrease) Date From To in Annual Revenue [S] [C] [C] [C] March 1, 1997 $4.18 $4.49 $ 8,300,000 December 1, 1996 3.01 4.18 32,400,000 September 1, 1996 2.88 3.01 3,600,000 June 1, 1996 2.75 2.88 3,400,000 The changes in gas rates on account of purchased gas costs have no effect on earnings since the change in revenue is offset by a corresponding change in the cost of gas. Recovery of FERC Order 636 Transition Costs. By Order of the PPUC entered August 26, 1994, PGE began recovering the Non-Gas Transition Costs (i.e. Gas Supply Realignment and Stranded Costs) that it estimates it will ultimately be billed pursuant to Federal Energy Regulatory Commission Order 636 through the billing of a surcharge to its customers effective September 12, 1994. It is currently estimated that $10.2 million of Non-Gas Transition Costs will be billed to PGE, generally over a six-year period extending through January 1, 1999, of which $8.7 million had been billed to PGE and $8.5 million had been recovered from its customers as of March 31, 1997. PGE has recorded the estimated Non-Gas Transition Costs that remain to be billed to it and the amounts remaining to be recovered from its customers. LIQUIDITY AND CAPITAL RESOURCES Liquidity The primary capital needs of the Company continue to be the funding of PGE's construction program and the seasonal funding of PGE's gas purchases and increases in its customer accounts receivable. PGE's revenues are highly seasonal and weather-sensitive, with approximately 75% of its revenues normally being realized in the first and fourth quarters of the calendar year when the temperatures in its service area are the coldest. Additionally, as the Company's nonregulated activities expand, capital will be required for those activities, especially the residential and commercial real estate development projects that are planned for certain Company-owned land. -12- The projects that are currently planned by the Company are in the initial planning and design phases, and the amount and type of funding that those projects will require has not yet been finalized. However, it is currently anticipated that such expenditures will be funded by a combination of capital provided by the Company, bank borrowings and other debt financing. The cash flow from PGE's operations is generally sufficient to fund a portion of its construction expenditures. However, to the extent external financing is required, it is the practice of PGE to use bank borrowings to fund such expenditures, pending the periodic issuance of stock and long-term debt. Bank borrowings are also used by PGE for the seasonal funding of its gas purchases and increases in customer accounts receivable. In order to finance construction expenditures and to meet its seasonal borrowing requirements, PGE has made arrangements for a total of $70.5 million of unsecured revolving bank credit, which is deemed adequate for its immediate needs. Specifically, PGE currently has six bank lines of credit with an aggregate borrowing capacity of $70.5 million which provide for borrowings at interest rates generally less than prime and which mature at various times during 1997 and 1998. As of May 1, 1997, PGE had $39.4 million of borrowings outstanding under these bank lines of credit. The Company believes that PGE, as well as Honesdale, will be able to raise in a timely manner such funds as are required for their future construction expenditures, refinancings and other working capital requirements. Likewise, the Company believes that its nonregulated subsidiaries will be able to raise such funds as are required for their needs, including that required for the residential and commercial real estate development that is planned. Long-Term Debt and Capital Stock Financings Both the Company and its subsidiaries, particularly PGE, periodically engage in long-term debt and capital stock financings in order to obtain funds required for construction expenditures, the refinancing of existing debt and various working capital purposes. No long-term debt or capital stock financings were consummated by either the Company or PGE during the three-month period ended March 31, 1997. A $40.0-$50.0 million long-term debt financing, the proceeds from which will be used to repay bank borrowings is, however, planned by PGE for later in 1997. The Company also obtains external funds from the sale of common stock through its Dividend Reinvestment and Stock Purchase Plan (the "DRP"), its 1992 Stock Option Plan and its Employees' Savings Plan. During the three-month period ended March 31, 1997, the Company realized $331,000, $27,000 and $159,000 from the issuance of common stock under the DRP, 1992 Stock Option Plan and Employees' Savings Plan, respectively. Capital Expenditures and Related Financings Capital expenditures totaled $7.1 million during the first three months of 1997, including $6.5 million of expenditures for the construction of utility plant. The Company estimates that its capital expenditures will total $36.0 million for the remainder of the year, consisting of $27.2 million relative to utility plant and $8.8 million with respect to the Company's nonregulated activities, -13- including $6.1 million for residential and commercial real estate development. It is anticipated that such capital expenditures will be financed with internally generated funds and bank borrowings, and to the extent necessary by the issuance of stock and long-term debt. Current Maturities of Long-Term Debt and Preferred Stock As of March 31, 1997, $29.7 million of PGE's long-term debt, and $80,000 of PGE's preferred stock was required to be repaid within twelve months. On April 18, 1997, PGE announced an offer to purchase any and all of the 78,853 outstanding shares of its 4.10% cumulative preferred stock at a price of $70.00 per share for an aggregate consideration of $5.5 million, exclusive of fees and other expenses. The offer, which is not conditioned upon any minimum number of shares being tendered by shareholders, will expire on May 16, 1997, unless extended at the option of PGE. Although PGE cannot presently determine the number of shares which will be tendered by shareholders pursuant to the offer, it is anticipated that payment for any shares tendered will be financed with borrowings under PGE's bank lines of credit. Forward-Looking Statements Certain statements made above relating to plans, conditions, objectives and economic performance go beyond historical information and may provide an indication of future results. To that extent, they are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and each is subject to factors that could cause actual results to differ from those in the forward-looking statement, such as the nature of Pennsylvania legislation restructuring the natural gas industry and general economic conditions and uncertainties relating to new projects like the residential and commercial development projects on Company-owned land. -14- PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 11-1 Statement Re Computation of Per Share Earnings -- filed herewith. 27-1 Financial Data Schedule -- filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. -15- PENNSYLVANIA ENTERPRISES, INC. SIGNATURES 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. PENNSYLVANIA ENTERPRISES, INC. (Registrant) [CAPTION] [S] [C] [C] Date: May 13, 1997 By: /s/ Thomas J. Ward Thomas J. Ward Secretary Date: May 13, 1997 By: /s/ John F. Kell, Jr. John F. Kell, Jr. Vice President, Financial Services (Principal Financial Officer and Principal Accounting Officer) -16- EX-27 2
UT THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET, STATEMENTS OF INCOME AND CASH FLOW, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000077231 PENNSYLVANIA ENTERPRISES, INC. 3-MOS DEC-31-1996 MAR-31-1997 PER-BOOK 246,218,000 9,901,000 67,453,000 36,791,000 0 360,363,000 48,157,000 20,770,000 54,516,000 123,443,000 739,000 18,804,000 85,392,000 0 0 0 29,679,000 80,000 0 0 102,226,000 360,363,000 89,491,000 5,599,000 73,665,000 79,264,000 10,227,000 389,000 10,616,000 2,211,000 8,405,000 353,000 8,052,000 2,793,000 4,837,000 19,233,000 .84 .84
EX-11 3 EXHIBIT 11-1 PENNSYLVANIA ENTERPRISES, INC. Statement Re Computation of Per Share Earnings [CAPTION] Three Months Ended March 31, 1997 1996 [S] [C] [C] Income before subsidiary's preferred stock dividends $ 8,405,000 $ 7,609,000 Subsidiary's preferred stock dividends 353,000 637,000 Net income $ 8,052,000 $ 6,972,000 Earnings per share of common stock* $ .84 $ .60 Computations of additional common shares outstanding Average shares of common stock 9,615.416 11,581,634 Incremental common shares applicable to options, based on the daily average market price 45,467 13,508 Average common shares as adjusted 9,660,883 11,595,132 Average shares of common stock 9,615,416 11,581,624 Incremental common shares applicable to options, based on the more dilutive of daily average or ending market price 37,855 14,158 Average common shares fully diluted 9,653,271 11,595,782 Earnings per share of common stock Average common shares as adjusted $ .84 $ .60 Average common shares fully diluted $ .84 $ .60 * Earnings per share of common stock reflect the effects of discounts totaling $37,980 on the repurchase of subsidiary's preferred stock in the period ended March 31, 1997, that were charged to retained earnings and not included in the determination of net income. -----END PRIVACY-ENHANCED MESSAGE-----