THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901
(d) OF
REGULATION S-T
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report under section 13 or 15(d)
of the Securities Exchange Act of 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 0-14183
ENERGY WEST INCORPORATED
(Exact name of registrant as specified in its charter)
Montana 81-0141785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 First Avenue South, Great Falls, Mt. 59401
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (406)-791-7500
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
(Common stock, $.15 par value) 2.279,928
ENERGY WEST INCORPORATED
INDEX TO FORM 10-Q
Page No.
Part I - Financial Information
Item 1 - Financial Statements
Condensed consolidated balance sheets as of
September 30, 1995 and June 30, 1995 1
Condensed consolidated statements of income -
three months ended September 30, 1995 and 1994 2
Condensed consolidated statements of cash
flows - three months ended September 30, 1995 and 1994 3
Notes to Condensed Consolidated Financial Statements 4-8
Item 2 - Management's discussion and analysis of
financial condition and results of operations 9-12
Part II Other Information
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Reports on Form 8-K 13
Signatures
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1995
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended September 30, 1995 are not necessarily indicative of the results
that may be expected for the year ended June 30, 1996 due to seasonal factors
affecting gas utility, construction and other operations. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Energy West Incorporated (the Company) annual report
on Form 10-K for the year ended June 30, 1995.
Note 2 - Earnings Per Common and Common Equivalent Share
Earnings per common share are computed based on the weighted average number of
common shares issued and outstanding and common stock equivalents, if
dilutive.
Note 3 - Principle Accounting Policies
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment
of Long--Lived Assets and for Long-Lived Assets to be Disposed Of, " effective
for financial statements for fiscal years beginning after December 15, 1995.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable and long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 also established
the procedures for review of recoverability, and measurement of impairment if
necessary, of long-lived assets and certain identifiable intangibles to be
held and used by an entity. The financial effect of adopting the new standard
are not expected to be material to the Company's financial position or
operations.
Certain reclassifications have been made to the quarterly fiscal 1995
consolidated financial statements to conform to the year-end fiscal 1995
presentation.
Note 4 - Income Taxes
Under the liability method prescribed by SFAS No. 109, deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. At September 30, 1995, components of the
Company's deferred tax assets and deferred tax liabilities are as follows:
Deferred tax assets:
Allowance for doubtful accounts...........................$43,558
Unamortized Investment Tax Credit.........................175,983
Contributions in Aid of Construction......................103,189
Other nondeductible accruals..............................168,824
Total deferred tax assets.................................491,554
Deferred tax liabilities:
Customer Refunds Payable................................... 266,762
Property, Plant and Equipment..............................2,602,961
Unamortized Debt Issue Costs...............................212,279
Unamortized Environmental Study Costs.......................104,534
Covenant Not to Compete.....................................92,222
Total deferred tax liabilities...........................3,278,758
Net deferred tax liability.................................$2,787,204
Income tax expense consists of the following:
Current income taxes (benefits):
Federal..................................................($429,163)
State......................................................(77,705)
Total current income taxes (benefits)........................(506,868)
Deferred income taxes (benefits):
Excess tax depreciation........................................43,182
Excess tax (book) amortization..............................(4,609)
Recoverable cost of gas purchases......................... 182,237
Environmental Cost Recovery ................................(5,941)
Other......................................................(19,838) Total
deferred income taxes.........................................195,031
Investment tax credit, net.....................................(5,266)
Total income tax benefits...................................( 317,103)
Note 4 - Income Taxes (continued)
Income tax expense from operations differs from the amount computed by
applying the federal statutory rate to pre-tax income for the following
reasons:
Tax expense (benefit) at statutory rates - 34%.....................($273,088)
State income taxes, net of federal income taxes......................(22,285)
Amortization of deferred investment tax credits...................... (5,266)
Other................................................................(16,464)
Total income taxes (benefits)......................................($317,103)
Note 5 - Commitments and Contingencies
Commitments
The Company has entered into long-term, take or pay natural gas supply
contracts which expire beginning in 1996 and ending in 2005. The contracts
generally require the Company to purchase specified minimum volumes of natural
gas at a fixed price which is subject to renegotiating every two years.
Current prices per Mcf for these contracts range from $1.28 to $1.90. Based
on current prices, the minimum take or pay obligation at September 30, 1995
for each of the next five years and in total is as follows:
Fiscal Year
1996 2,630,414
1997 1,659,614
1998 1,460,894
1999 1,460,894
2000 1,460,894
Thereafter 5,188,606
Total $13,861,316
Natural gas purchases under these contracts for the years ended June 30, 1995,
1994 and 1993 approximated $6,203,000, $6,901,000, and $7,400,000,
respectively.
Potential Acquisition
The Company signed a definitive purchase agreement for the acquisition of a
propane vapor system, contingent on the Company obtaining regulatory approval
for an exclusive natural gas franchise for the area where this system is
located. The purchase price is approximately $920,000.
Note 5 - Commitments and Contingencies (Continued)
Environmental Contingency
The Company owns property on which it operated a manufactured gas plant from
1909 to 1928. The site is currently used as a service center and to store
certain equipment and materials and supplies. The coal gasification process
utilized in the plant resulted in the production of certain by-products
which have been classified by the federal government and the state of Montana
as hazardous to their environment. After management became aware of the
potential of contamination on this site, it initiated an assessment of the
property through the assistance of a qualified consulting firm. That
assessment revealed the presence of certain hazardous material in quantities
exceeding tolerances established for such material by regulatory authorities.
After making required notifications of that condition to federal and state
regulatory authorities, a report summarizing the assessment was filed with the
State of Montana Department of Health and Environmental Science (MDHES).
Subsequent to that submittal, the Company and its consultant have worked with
the MDHES to arrive at a remediation option acceptable to the Company and
MDHES. The costs incurred by the Company to date approximate $302,300
and have been capitalized as other deferred charges. Until further work is
done regarding remediation alternative, no further estimate of the costs of
remediation can be made.
The Company received formal approval from the Montana Public Service Commission
to recover certain costs associated with the cleanup of this site. The Company
has begun recovery of costs of $182,736 incurred at June 30, 1995 through a
surcharge in billing rates effective July 1, 1995. Management intends to
request, that future costs be recovered over in that same manner. Assuming
the commission continues to approve such cost recovery, the Company does not
anticipate a material affect on the Company's financial position as a result
of the remediation over a similar time period
Note 6 - Operating Revenues and Expenses
Regulated utility and non-regulated non-utility operating revenues and expenses
were as follows:
Three Months
Ended
September 30
1995 1994
Operating Revenues:
Regulated utilities $2,657,744 $2,652,616
Non-regulated operations 672,412 636,311
Gas Trading 586,770 421,465
$3,916,926 $3,710,392
Operating Expenses:
Gas Purchased:
Regulated $1,245,142 $1,417,333
Non-regulated 307,689 272,322
Cost of gas trading 507,110 337,288
$2,059,941 $2,026,943
Distribution, general and administrative:
Regulated $1,455,661 $1,288,974
Non-regulated 317,280 281,291
$1,772,941 $1,570,265
Maintenance:
Regulated $75,028 $75,334
Non-regulated 15,885 172
$90,913 $75,506
Depreciation and amortization:
Regulated $333,322 $294,104
Non-regulated 92,878 88,581
$426,200 $382,685
Taxes other than income:
Regulated $127,506 $116,038
Non-regulated 38,064 22,547
$165,570 $138,585
Income taxes (benefit):
Regulated ($315,171) ($298,066)
Non-regulated (1,932) 20,633
($317,103) ($277,433)
FORM 10-Q
ENERGY WEST INCORPORATED
Item 2 - Management's Discussion and Analysis of Interim Financial Statements
The following discussion reflects results of operations of the Company and its
consolidated subsidiaries for the periods indicated. The Company's utility
operations are conducted through its Great Falls division and its Cody
division. Since January 15, 1993, the Company has also been involved in the
regulated distribution of propane to the public through an underground propane
vapor distribution system in the Payson, Arizona area (Broken Bow Gas Company).
In September, 1993, the Company began operating a new underground propane vapor
distribution system in Cascade, Montana, a town located 23 miles southwest of
Great Falls. The acquisition of Broken Bow Gas Company was effective as of
November 1, 1992 and results of operations of Broken Bow since that time have
been included in the Company's financial statements. The Company has received
a non-exclusive franchise from the West Yellowstone City Council and approval
from the Montana Public Service Commission, to serve the town of West
Yellowstone, Montana with natural gas and has installed an underground natural
gas system, which became operational in the Spring of 1995.
The Company conducts certain non-utility operations through its three wholly-
owned subsidiaries:
Rocky Mountain Fuels, Inc. (RMF), a distributor of bulk propane in northwestern
Wyoming, Cascade, Montana and the Payson, Arizona areas; Vesta, Inc. (Vesta),
which is engaged in oil and gas development and gas marketing in Montana and
Wyoming; and Montana Sun, Inc., which owns one commercial property and one
parcel of undeveloped land in Great Falls, Montana.
Liquidity and Capital Resources
The Company's operating capital needs, as well as dividend payments and capital
expenditures, are generally funded through cash flow from operating activities,
short-term borrowings and liquidation of temporary cash investments.
Historically, to the extent cash flow has not been sufficient to fund capital
expenditures, the Company has made long-term borrowings or issued equity
securities to fund capital expansion projects or reduce short-term borrowings.
The Company's short-term borrowing requirements vary according to the seasonal
nature of its sales and expense activity. The Company has greater need for
short-term borrowings during periods when internally generated funds are not
sufficient to cover all capital and operating requirements, including costs of
gas purchases, financing of customer accounts receivable and capital
expenditures. In general, the Company's short-term borrowing needs for
purchases of gas inventory and capital expenditures are greatest during
the summer months, and the Company's short-term borrowing needs for financing
of customer accounts receivable are greatest during the winter months. In
addition, two years ago, the Company used short-term borrowings to finance the
acquisitions of its propane operations. Short-term borrowings utilized for
construction or property acquisitions generally are replaced by permanent
financing when it becomes economical and practical to do so. At September 30,
1995, the Company had a $8,000,000 bank line of credit, of which $7,150,000 had
been borrowed. The Company increased its bank line of credit to $10,000,000 on
October 31, 1995.
The Company used net cash in operating activities for the three months ended
September 30, 1995 in the amount of $3,122,229, as compared to $1,871,032 for
the three months ended September 30, 1994 and was primarily due to timing
differences related to lower rates to customers for gas purchases, while gas
purchases costs were equal or higher than last year, timing related prepaid gas
contracts at a Rocky Mountain Fuel division, higher taxable income this year
compared to last, pension plan deposits now made annually instead of quarterly
last year and higher payment to the Company's incentive plan this fiscal year.
Cash used in investing activities was $1,348,409 for the three months ended
September 30, 1995, as compared to $1,341,543 for the three months ended
September 30, 1994. Cash provided by financing activities was approximately
$4,174,0000 for the three months ended September 30, 1995, as compared to
approximately $2,920,000 for the three months ended September 30, 1994. The
increase in cash provided by financing activities resulted primarily from an
increase in short-term borrowings of approximately $1,115,000, a reduction in
the repayment of short-term debt of approximately $202,000, offset by an
increase in the repayment of long-term debt of approximately $77,000 and a
decrease in the sale of Common Stock of approximately $48,000.
Capital expenditures of the Company are primarily for expansion and improvement
of its gas utility properties. To a lesser extent, funds are also expended to
meet the equipment needs of the Company's operating subsidiaries and to meet
the Company's administrative needs. The Company's capital expenditures,
excluding RMF's expenditures for the acquisition of propane operations, were
approximately $4.5 million in fiscal 1995 and approximately $2.5 to $2.3
million for the previous two fiscal years. The Company expects to incur
approximately $5.5 million for capital expenditures in fiscal 1996. As of
September 30, 1995, approximately $317,000 of that amount had been expended.
Results of Consolidated Operations
Comparison of First Quarter of Fiscal 1996 Ended September 30, 1995 and Fiscal
1995 Ended September 30, 1994
The Company's net loss for the first quarter ended September 30, 1995 was
($467,137) compared to ($386,118) for the quarter ended September 30, 1994.
The increase in the 1996 net loss was primarily due to an increase in
distribution, general, administrative and maintenance expenses, an increase in
depreciation, due to capital additions and an increase in other taxes.
Utility Operations -
Utility operating revenues in the first quarter of fiscal 1996 were $2,657,744
compared to $2,652,616 for the first quarter of fiscal 1995. Gross Margin,
which is defined as operating revenues less gas purchased, was $1,412,602 for
the first quarter of fiscal 1996 compared to gross margin of $1,235,283 for the
first quarter of fiscal 1995. Gross margins increased 14% because of higher
margin natural gas transportation sales in the Great Falls division and higher
margins in the Broken Bow and Cody divisions due to customer growth.
Overall revenues in the first quarter of fiscal 1996 approximated revenues in
the first quarter of fiscal 1995.
Operating Expenses -
Utility operating expenses, exclusive of the cost of gas purchased and federal
and state income taxes, were approximately $1,531,000 for the first quarter of
fiscal 1996 as compared to $1,364,000 for the same period in fiscal 1995. The
12% increase in the period is generally due to normal inflationary trends and
a higher payout for the regulated operation's incentive plans for employees.
Interest Charges -
Interest charges allocable to the Company's utility divisions were
approximately $225,000 for the first quarter of fiscal 1996, as compared to
$229,000 in the comparable period in fiscal 1995, due primarily to lower long-
term debt interest due to the repayment of long-term debt, partially offset by
increased short-term interest costs, due to increased short-term borrowing.
Income Taxes -
The state and federal income tax benefit of the Company's utility divisions were
approximately ($315,000) for the first quarter of fiscal 1996, as compared to
approximately ($298,000) for the same period in fiscal 1995. The increase in
the income tax benefit was due to a higher pre-tax loss of the utility
divisions.
Non-Regulated Operations -
Rocky Mountain Fuels -
For the three months ended September 30, 1995, RMF generated a net loss of
approximately ($66,000) compared to a net loss of approximately ($14,000) for
the three months ended September 30, 1994. Approximately $37,000 of RMF's net
loss for the first quarter of fiscal 1996 was attributable to the Petrogas
division in Arizona, while approximately $20,000 was attributable to the Wyo
L-P Gas division in Wyoming. Missouri River Propane and Big Horn Answering
Service account for the balance, which had a loss for the quarter. Missouri
River Propane in Montana is a new bulk propane operation in the Cascade, MT
area, and Big Horn Answering Service is located in Cody, WY. RMF's gross
margins decreased for the three months ended September 30, 1995 compared to the
same period last year, due primarily to competition in the areas served by the
Wyo L-P gas division in the Wyoming area, requiring a freeze in retail propane
prices, even though costs of propane increased. In addition, higher operating
expenses, due to normal inflationary trends, tempered somewhat by continued
customer growth in the Petrogas division in the Payson, Arizona area, increased
the net loss.
Vesta -
For the three months ended September 30, 1995, Vesta's net income was
approximately $29,000 compared to $41,000 for the three months ended September
30, 1994, primarily due to higher interest costs, due to increased short-term
borrowing required for higher gas inventories for Vesta's gas marketing
subsidiary Transenergy.
Montana Sun, Inc. -
For the three months ended September 30, 1995, Montana Sun, Inc.'s net income
was approximately $10,000 compared to $11,000 for the three months ended
September 30, 1994, primarily due to higher interest on long-term debt
allocated.
FORM 10-Q
Part II - Other Information
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
A. There are no exhibits to this report.
B. No reports on Form 8-K have been filed during the quarter ended
September 30, 1995.
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.
/s/Larry D. Geske
_______________________________
(Larry D. Geske, President and
Chief Executive Officer)
Dated November 13, 1995
/s/ William J. Quast
__________________________________
(William J. Quast, Vice-President, Treasurer,
Controller and Assistant Secretary
I. FINANCIAL INFORMATION
Item 1. Financial Statements
FORM 10Q
ENERGY WEST INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30 June 30
1995 1995
Current Assets:
Cash $210,502 $507,450
Restricted Deposit with Trustee 73,885 59,556
Accounts Receivable (net) 2,877,151 3,042,603
Natural Gas and Propane Inventory 2,399,167 1,686,704
Materials and Supplies 596,973 458,596
Prepayments and other 425,191 59,761
Refundable Income Tax Payments 711,595 241,798
Recoverable Cost of Gas Purchases 860,000 125,410
Deferred income taxes - current 179,758 81,398
Total Current Assets 8,334,221 6,263,276
Investments 12,476 12,476
Notes Receivable Due After One Year 15,288 15,984
Property, Plant and Equipment-Net 24,426,808 23,550,337
Deferred Charges 2,962,917 2,532,708
Total Assets $35,751,710 $32,374,781
CAPITALIZATION AND LIABILITIES
Capitalization and liabilities:
Current Liabilities:
Note payable to bank $7,150,000 $2,620,000
Long-term debt due within one year 380,340 365,833
Accounts Payable - Gas Purchases 1,233,347 1,535,736
Other Current and Accrued Liabilities 1,710,255 2,264,424
Total Current Liabilities 10,473,942 6,785,993
Deferred Credits 5,148,006 4,621,073
Long-term obligations 10,084,809 10,434,957
Stockholders' Equity
Preferred Stock $0 $0
Common Stock(2,279,928andd )es were
2,254,138 shares were outstanding at
September 30,1995 and June 30, 1995
respectively) 341,990 338,121
Capital in Excess of Par Value 2,320,198 2,117,730
Retained Earnings 7,382,765 8,076,907
To Stockholder's Equity 10,044,953 10,532,758
Total Capitalization and Liabilities $35,751,710 $32,374,781
The accompanying notes are an integral part of these condensed
financial statements.
-1-
FORM 10Q
ENERGY WEST INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months and
Year-To-Date
September 30
1995 1994
Operating revenue:
Regulated utilities $2,657,744 $2,652,616
Nonregulated operations 672,412 636,311
Gas trading 586,770 421,465
Total Revenue 3,916,926 3,710,392
Operating Expenses
Gas Purchased 1,552,831 1,689,655
Cost of gas trading 507,110 337,288
Distribution, general and administrative 1,772,941 1,570,265
Maintenance 90,913 75,506
Depreciation and Amortization 426,200 382,685
Other Taxes 165,570 138,585
Total Operating Expenses 4,515,565 4,193,984
Operating Loss (598,639) (483,592)
Other Income (Loss) - Net 66,223 55,594
Loss before interest charges and
income tax benefit (532,416) (427,998)
Interest Charges:
Long-Term Debt 175,991 181,155
Other 75,833 54,398
Total Interest Charges 251,824 235,553
Loss before income tax benefit (784,240) (663,551)
Provisio for Income tax benefit (317,103) (277,433)
Net Loss ($467,137) ($386,118)
Loss Per Share of Common and
Common Equivalent Stock:
Loss per share ($0.21) ($0.17)
Dividends per common share $0.1000 $0.0950
Weighted Average Common
Shares Outstanding 2,265,050 2,221,248
The accompanying notes are an integral part of these condensed
financial statements.
-2-
FORM 10Q
ENERGY WEST INCORPORATED
Condensed Consolidated Statements of Cash Flows
Three Months Ended
September 30
1995 1994
Operating Activities:
Net Loss ($467,137) ($386,118)
Adjustment to Reconcile Net Loss to Cash Flows:
Depreciation and Amortization 556,800 401,151
Investment Tax Credit - Net (5,266) (5,266)
Deferred Income Taxes - Net 246,159 120,458
(Gain) Loss on Sale of Property, Plant & Equipment 0 (1,164)
Changes in Working Capital Amounts Other than Cash an (3,452,785) (2,000,093)
Net Cash Provided by (Used In) Operating Activities (3,122,229) (1,871,032)
Investing Activities:
Construction Expenditures (1,369,714) (1,402,094)
Restricted Deposits 0 2,031
Collection of Long-Term Notes Receivable 696 6,639
Proceeds from Contributions in Aid of Construction 20,609 546
Proceeds from Sale of Property, Plant & Equipment 0 51,335
Net Cash Provided by (Used In) Investing Activiti (1,348,409) (1,341,543)
Financing Activities:
Proceeds from Notes Payable 6,165,000 5,050,000
Proceeds from Long-Term Debt (335,641) (258,293)
Repayment of Short-Term Borrowings (1,635,000) (1,837,000)
Proceeds from Sale of Common Stock 127,117 174,964
Dividends on Common Stock (147,786) (209,284)
Net Cash Provided by (Used In) Financing Activities 4,173,690 2,920,387
Net Increase (Decrease) in Cash and Cash Equivalent (296,948) (292,188)
Cash and Cash Equivalents at Beginning of Year 507,450 512,213
Cash and Cash Equivalents at End of Period $210,502 $220,025
The accompanying notes are an integral part of these condensed
financial statements.
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